Positive Economics
Positive Economics involves objective analysis and describes what is true about the world. It typically involves analysis of data, and often relies on econometric methods. It describes and quantifies the world. Positive statements are generally falsifiable and do not involve a value judgment. They will almost always rely on researcher skill and judgement, in terms of what data is use, how things are measured, what econometric methods are used
Normative Economics
Normative economics considers what should be true about the world, and often relies on value-judgments and requires us to take a view about the world. However, normative economics differs from pure ideological or political statements in that it is based on economics methods. It will typically involve modelling assumptions, but these can be clearly stated. With some normative statements in economics there is near unanimity amongst economists, with others there is some moderate disagreement, perhaps rooted in different assumptions about the consequences of an action, and with yet others there is considerable disagreement about the fundamental assumptions and basis of the analysis. For example, most economists agree that in the presence of externalities policy intervention can lead to welfare improvements. However, there is considerable disagreement about how much redistribution the government should do, and from whom and to whom we should redistribute.
Why is it important to distinguish positive from normative statements
Milton Friedman provides the canonical statement of this position:
I venture the judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action—differences that in principle can be eliminated by the progress of positive economics—rather than from fundamental differences in basic values, differences about which men can ultimately only fight
- Friedman, M. (1953). The methodology of positive economics. In M. Friedman (Ed.), Essays in positive economics (pp. 3–43). Chicago: University of Chicago Press.
