Learn about the difference between the science and the art of economics.
Find out the difference between positive and normative economics and why it is important to distinguish between them.
Positive Economics Defined
The more you study economics, the more you’ill find that there is both an art and a science aspect to this field. It is important to know when economists are focusing on the science side, with objective fact-based reasoning, and when they are emulating the art side, with an opinion-based approach. The science side is often referred to as positive economics and is the branch of economics that is objective and fact-based. Positive economic statements do not have to be true, but they do need to be statements that can be validated as correct or incorrect.
The statement ‘Government Medicaid for low-income families increases the costs for all taxpayers’ is a positive statement. It can be proved or disproved through analytical data.Positive economics uses step-by-step procedures to validate statements in a similar way to the physical sciences. This scientific approach is important because it gives economists the credibility that is needed to influence many of our state and federal government policies dealing with taxes, interest rates, healthcare spending, money supply and so forth.It’s important to note that positive economics is often studied in contrast to normative economics.
This branch is the art side of economics. These statements are rooted in opinion and are difficult to prove or disprove. Normative statements usually use factual evidence as support, but are heavily focused on the individuals’ own opinions and value systems. When someone says ‘The government shouldn’t help low-income families through Medicaid,’ she or he is making a normative statement that is rooted in her or his own beliefs and values.Positive economics is sometimes referred to as the economics of what is, whereas normative economics focuses on what ought to be. The difference can be hard to distinguish at times, and it’s important to note that economic and government topics can be supported by a mix of the art and the science of economics.
If you’ve ever taken a high school science course, you probably had to use some scientific reasoning or method to prove something.
Your professor told you that you must follow a list of steps to solve your problem. Since positive economics is more on the science side of economics, it follows virtually the same procedures as the scientific method. Its goal is to use experimental testing and data to determine whether a hypothesis or economic statement is valid.Positive economists often follow various step-by-step procedures to prove something. The method can be slightly different based on the person and the situation, but it is often similar to the following steps:
- Creating a hypothesis – Here is an example of a hypothesis, which is an informed supposition: ‘As individuals make more money, their spending actually increases at a faster rate than their increase in income.
- Gathering data and research to support your hypothesis – This step involves analyzing existing research, studies and surveys from corporations and government and financial institutions.
- Testing your hypothesis – In this step, economists use analytics to find correlations between income and spending.
- Making predictions or forecasts based on your results – This is done if your testing was positive.
- Making recommendations for business or government policy – You can consult on economics decisions if the results are favorable and can be proven through testing. Additional credibility is given when enough time has passed for previous forecasts or predictions to be proven accurate.
Examples of Positive Economics
The following examples of positive and normative economic statements can help clarify and reinforce the differences in this area.
You can’t prove that it’s a fact that ‘Government should provide housing assistance to low income families.’ Therefore, this is a normative economic statement. You could give some economic facts and examples to support your statement, but the statement itself is an opinion. Since economists can analyze government spending and public expenses data to support or refute the statement ‘government-provided housing assistance increases public expenses,’ it is a positive economic statement.
Through an analysis of monthly and quarterly corporate and government data, you can prove the statement that ‘The unemployment rate is 7.5%,’ making this a positive economic statement.
Contrarily, the statement ‘The unemployment rate is too high’ is a normative economic statement. While most people would agree with this statement, the fact is that it can’t be proved. It is simply an opinion.
The statement, ‘An increase in consumer income will lead to higher car sales’ is a positive statement.
Whether it is true or not, doesn’t matter. The point is that it can be proved or disproved based on testing and economic history data.
Let’s review. Positive economics is the scientific branch of economics that is objective and fact based.
It uses step-by-step procedures to validate statements in a similar way to the physical sciences. The procedural steps involved include creating a hypothesis, gathering data and research, testing your hypothesis, making predictions or forecasts and making recommendations. Positive economic statements can be proved or disproved through data and testing and often are in contrast to normative statements, which are more opinion based.