Positive economics vs. normative economics

Positive economics is a stream of economics that focuses on the description, quantification, and explanation of economic developments, expectations, and associated phenomena. It relies on objective data analysis, relevant facts, and associated figures. It attempts to establish any cause-and-effect relationships or behavioral associations which can help ascertain and test the development of economic theories.

Positive economics is objective and fact-based where the statements are precise, descriptive, and clearly measurable. These statements can be measured against tangible evidence or historical instances. There are no instances of approval-disapproval in positive economics.

Here’s an example of a positive economic statement: “Government-provided healthcare increases public expenditures.” This statement is fact-based and has no value judgment attached to it. Its validity can be proven (or disproven) by studying healthcare spending where governments provide healthcare.

Normative economics focuses on value-based judgments aimed at improving economic development, investment projects, and the distribution of wealth. Its goal is to summarize the desirability (or lack thereof) of various economic developments, situations, and programs by asking what should happen or what ought to be.

Normative economics is subjective and value-based, originating from personal perspectives or opinions involved in the decision-making process. The statements of this type of economics are rigid and prescriptive in nature. They often sound political, which is why this economic branch is also called “what should be” or “what ought to be” economics.

An example of a normative economic statement is: “The government should provide basic healthcare to all citizens.” As you can deduce from this statement, it is value-based, rooted in personal perspective, and satisfies the requirement of what “should” be.

Common observations indicate that discussions around public policies typically involve normative economic statements. A higher degree of disagreement persists in such discussions because neither party can clearly prove their correctness.

Though normative statements are generalized and subjective in nature, they act as the necessary channels for out-of-the-box thinking. Such opinions can form the foundation for any necessary changes that may have the potential to completely transform a particular project.

But normative economics cannot be the sole basis for decision-making on key economic fronts. Positive economics fills in for the objective angle that focuses on facts and cause-and-effect.

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