Economics seeks to describe economic behavior as it actually exists, and it relies on a distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be.
Positive Statements
Two kinds of assertions in economics can be subjected to testing. One is the hypothesis. Another testable assertion is a statement of fact, such as “It’s raining,” or “Microsoft is the largest producer of computer operating systems in the world.” Like hypotheses, such assertions can be shown to be correct or incorrect. A statement of fact or a hypothesis is a positive statement.
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Normative Statements
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Although people often disagree about positive statements, such disagreements can ultimately be resolved through investigation. There is another category of assertions, however, for which investigation can never resolve differences. A normative statement is one that makes a value judgment. Such a judgment is the opinion of the speaker; no one can “prove” that the statement is or is not correct. Here are some examples of normative statements in economics:
- We ought to do more to help the poor.
- People in the United States should save more for retirement.
- Corporate profits are too high.
These statements are based on the values of the person who makes them and can’t be proven false.
Because people have different values, normative statements often provoke disagreement. An economist whose values lead him or her to conclude that we should provide more help for the poor will disagree with one whose values lead to a conclusion that we should not. Because no test exists for these values, these two economists will continue to disagree, unless one persuades the other to adopt a different set of values. Many of the disagreements among economists are based on such differences in values and therefore are unlikely to be resolved.
Positive and Normative Analysis Video
Self Check: Positive and Normative Statements
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