Normative Economics: The Subjectivity of "What Ought to Be"
Normative economics moves away from objective facts and enters the realm of subjective value judgments. It deals with "what ought to be" or "what should be".
Unlike positive economics, normative statements cannot be proven true or false by looking at data. They are based on personal opinions, social values, and political philosophies. Because these judgments are shaped by an individual's view of fairness, equity, or morality, two people can look at the exact same set of positive facts and reach completely different normative conclusions.
Clues to Normative Statements:
If you see certain "trigger words" in a sentence, you are likely looking at a normative statement:
- "Should" or "Ought to"
- "Good" or "Bad"
- "Need"
Examples of Normative Statements:
- "All states should have a $15 minimum wage".
- "Too many people are unemployed".
- "The government needs to be an employer of last resort".
Exam Tip: To distinguish between the two, ask yourself: "Can this statement be tested or proven with data?" If yes, it is positive. If it relies on an opinion of what is "fair" or "right," it is normative.
The Intersection: Economic Policy and the "Art" of Economics
If positive economics is the science and normative economics is the opinion, how do they work together? The real "art" of economics lies in the application of the two.
Economists use the knowledge gained from positive economics (understanding how the economy actually works) to formulate economic policies that aim to achieve specific normative goals (the outcomes society desires).
For example, if a society has a normative goal of "reducing income inequality," an economist will use positive analysis to predict how different policies—such as tax changes or wage laws—will actually affect the economy before implementing them.
Case Study: The Minimum Wage Debate
The debate over raising the minimum wage is a perfect illustration of how positive and normative analyses collide in public policy.
The Positive Analysis (The Facts and Forecasts)
In a positive analysis of the minimum wage, economists look at data and predict outcomes based on economic theory:
- Employment Effects: Some studies of 60 years of data suggest that minimum wage increases can lead to reduced employment and fewer hours for low-skilled workers.
- Substitution Effects: Opponents argue that higher labor costs might lead employers to replace human workers with technology, such as using iPads for ordering or robotic flippers in restaurants.
- Income Distribution: Some data shows that a large portion of minimum wage earners are not actually living below the poverty line (e.g., students or workers with higher-earning spouses), suggesting the policy may not target the intended group.
- Counter-arguments: Proponents offer positive arguments as well, suggesting that higher wages increase consumer spending, which can lead to business expansion and more hiring.
The Normative Analysis (The Values and Opinions)
The debate is driven by conflicting value judgments regarding what is "fair" or "right":
- Proponents argue that it is fundamentally wrong for a full-time worker to live in poverty. They may believe that the government has a moral obligation to ensure a living wage to prevent a growing underclass.
- Opponents may argue that it is unfair to burden small businesses with high labor costs or that the "hidden costs" of inflation and lost opportunities for teenagers and older adults are too high a price to pay.
By separating these two, we can see that the disagreement is often not about the facts themselves, but about which facts we prioritize and what our ultimate goals for society should be.
