Positive and Normative Statements

Written by Amina Shafkhatova | Proofread by Yasmin Uzykanova

Economists engage in two distinct, but related activities. They conduct research on economic issues, e.g. to determine cause and effect. For example, why did unemployment increase rapidly in 2008 and 2009?

Economists also make policy recommendations. For example, what should the federal government do in response to the increase in unemployment?

The first type of activity is economic science, based on theories and evidence, where researchers attempt to determine how the world (or at least the economy) works. This is called positive reasoning, and the conclusions are called positive statements. A relevant conclusion might be that because the level of employment is based on production in the economy (i.e. GDP), the increase in unemployment was because of the slowdown in GDP over that time period. This slowdown has been called the Great Recession.

The second type of activity is more subjective, and is inevitably based on the researcher’s values. This is called normative reasoning, and the conclusions are called normative statements. A policy recommendation could be that since unemployed workers are not earning income, the government should try to stimulate demand in the economy, so unemployed workers could get back to work. A different policy recommendation could be that stimulating demand could involve running a larger federal budget deficit, which future generations would have to pay back through higher taxes, so the government shouldn’t try to stimulate demand. Which of these recommendations is the right one? That depends on your subjective values.

Positive statements:

• Positive statements are objective that can be tested, amended or rejected by referring to available evidence.

• Positive economics deals with objective explanation and the testing and rejection of theories.

• A false statement is also a positive one!

For example: 

1. Fallen incomes will lead to a rise in demand for own label supermarket foods 

2. The falling price of crude oil and world markets will lead to a reduction in the demand for fuel-efficient cars.

3. GDP has grown at a faster rate in the U.K. than in France over the last 5 years

4. A rise in the National Living Wage (the legal minimum rate of pay) will cause unemployment to increase.

5. Overseas investment in the U.K. will fall when we leave the European

Normative statements:

• Normative statements are subjective statements - i.e. they carry value judgements about what ought to be. 

• They are often a matter of opinion, maybe a matter of ethics, something that someone thinks is how the world should be.

For example: 

1. A high level of unemployment is more harmful to the economy than a high rate of inflation 

2. Pollution is the most important economic problem

3. Raising interest rates is the best way to reduce the rate of inflation

4. Increasing the rate of economic growth is a more important economic goal than reducing poverty

It’s not uncommon for people to present an argument as positive, to make it more convincing to an audience, when in fact it has normative elements. Opinion pieces in newspapers or in other media are good examples of this. That’s why it’s important to be able to differentiate between positive and normative claims.

More Examples:

1. "Paying people who aren't working, even though they could work, is wrong and unfair." 

Is it a normative statement or a positive statement? To say something wrong or unfair is a matter of opinion, hence this would be a normative statement. And it is impossible to test whether a statement is wrong and unfair, the conclusion often comes down to one’s belief & morals.

2. Programs like welfare reduce the incentive for people to work. 

Is this a normative statement or a positive statement?

Even though it could seem like the statement is normative, it actually can be tested. You could institute a welfare program on some small scale and compare it to a relevant place where there isn't a welfare program and see what it does for incentives to work (by surveying people and seeing how many people work in one situation or another). It might be a false statement, it might be a true statement. Either way, it actually can be tested, so this would be a positive statement 

3."Raising taxes on the wealthy to pay for government programs grows the economy." 

Is that a normative statement or a positive statement? 

It can be tested. Though it is possible to get an inconclusive result, it can be tested by running a simulation or looking at case studies of countries that did it versus ones that didn’t. Hence, it is a positive statement.