Positive versus normative analysis in economics

Positive and normative analyses are two very different approaches to economics. The former, once known as value free economic analysis, is concerned with “what is.” Positive economic analysis seeks to describe and explain economic phenomena based on verifiable facts and relationships of cause and effect. The latter, by contrast, is concerned with “what ought to be.” Normative economic analysis concerns itself with concepts such as value judgments, policy recommendations and economic fairness.

Positive economic analysis
Positive economics is based on statements of fact which describe the condition of the economy as it is. Examples of such statements might be: “The US Gross Domestic Product for 2013 was 16,800 trillion dollars” or “The current rate of employment is X percent.” These economic statements may not be necessarily true, but the facts they contain can be definitively proven or disproven using available data.

Positive economic analysis refers to the arrival at objective, verifiable conclusions by applying scientific principles to the facts, while avoiding value judgments and proscriptions. If you wish to dispute a positive economic analysis, you may do so quite readily by questioning the data it uses or the calculations it performs.

Normative economic analysis
On the other hand, normative economic statements are, by definition, based on opinion rather than objective facts. Examples might be: “The United States should use more of its GDP to establish social programs” or “Unemployment is a bad thing.” Statements such as these are founded on the values of the speaker, rather than objective fact.

They cannot be quantified as true or false, nor may they be tested and proven right or wrong. A normative economic analysis is open to being disputed in two ways. You may question the positive information behind the analysis by bringing in contradictory facts. On the other hand, you might choose instead to dispute the validity of the objective conclusion.

This latter approach is problematic, since there is no way of proving that a value judgment is right or wrong.

Positive vs. normative economic analysis in policy making
It is important to be clear about the distinction between positive and normative economic analysis, particularly when it comes to formulating policy. Bear in mind that economists are not only academics in ivory towers. Frequently an economist may wear a second hat as a business consultant or government policy advisor.

Business owners and politicians alike should make an effort to distinguish when economists are simply presenting the facts of the matter and when they are making judgments rooted in their own individual values.