Normative economics involves interpreting data to determine how things should progress in the future, while positive economics focuses on hard facts. Normative statements are subjective and provide projections based on individual interpretation of available data. They can form the basis for new ideas and approaches and assist in setting achievable goals for the future.
Normative economics is an approach to analyzing economic events and factors in a way that leaves room for some degree or personal interpretation. This is in contrast to positive economics, where the general rule is to focus on hard facts with little or no subjective opinion included in the presentation. Often, the format of policy statements regarding economic events is worded that suggests possible future events as a result of current events, based on individual speculation and interpretation of available data.
Essentially, normative economics involves evaluating current data and determining how things should progress in the future, in order for the desired outcome to emerge. Subjective statements do not have to assume that the status quo will continue in the future, but rather that by following one or more specific courses of action, an economic situation very different from the current one will be produced. Often, statements of this type provide specific directives that, if implemented, have at least a chance of leading to the desired result.
The process of normative economics would involve making a statement of something that the speaker believes should take place in the future. For example, if a politician refers to current data on consumer spending within a given nation, and makes a statement that the government should cut taxes by a certain percentage to provide more disposable revenue to taxpayers, that statement it is based on projections of what could happen, rather than what is happening. Conversely, a positive or factual statement would imply that while tax cuts could be helpful, current data indicates that government agencies would have to reduce spending before a tax cut would be feasible. The difference is that one statement focuses on the possible outcome of making a change, while the other is concerned with what must happen before an opportunity can be made.
It is not unusual for normative economics to play a role in many statements made through the media. While those statements are subjective and sometimes considered impractical, that doesn’t necessarily mean they’re without basis. For a comment to be truly based on a normative economic approach, that comment must have a basis in currently verifiable facts, and provide a projection of at least some degree of logic in terms of how that proposed event would impact the economy. From this perspective, normative economics statements provide a valuable service, as they can form the basis for new ideas and approaches, and assist in setting achievable goals for the future.
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