Positive economics is a social science that avoids value judgments and focuses on factual analysis and cause and effect. It aims to determine the factors that affect economic situations and predict the outcomes of policy changes. The distinction between positive and normative economics was first elaborated by John Neville Keynes and later by Milton Friedman.
Positive economics is a social science based on factual analysis and cause and effect that avoids value judgments, opinion or moral and ethical statements. Unlike normative economics which subjectively emphasizes what should be, positive economics states what is, what was, or is likely to be in a way that can be tested for accuracy. For example, the statement “lowering interest rates will encourage consumers to spend” might be considered positive, while “the government should regulate the cost of food to help feed the poor” is a normative economic statement. The first is a neutral statement based on facts that can be substantiated with observable evidence, while the second is a subjective statement presented as an emotional appeal.
The reason an economic situation has developed is a typical focus of positive economics. If the price of a commodity is shown to have dropped suddenly or risen significantly over a few months or a year, the positive economist would try to determine the factors that affected the price. In contrast, a normative economist can suggest what policy should be adopted to reverse the effects of rising or falling prices.
Positive economists also help determine the likely consequences of a new economic policy or policy change, such as a tax increase. One of the most common tools used for this evaluation is called cost-benefit analysis. Cost-benefit analysis compares a company’s total costs with its anticipated benefits. Other related assessment tools include economic impact analysis, tax impact analysis, and cost-benefit analysis.
While positive economics can help predict the outcomes of an economic policy through methodology and statistical theory, positive economists do not purposely seek policy changes or pass judgment on existing or past rules. Instead, they try to objectively resolve economic issues by studying and testing evidence. Politicians and the general public are left to assess and choose which economic policies to discard, adopt or change based on the results.
The distinction between positive and normative economics was first elaborated by John Neville Keynes in the late 19th century and more recently in a 1953 essay by Milton Friedman. Friedman postulated that, as a science, positive economics should deal with objective and observable statements. The value of a theory of economics, according to Friedman, is determined by its accuracy as a predictor of future economic events and consequences.
A combination of positive and normative economic statements are commonly used in the media. Normative economic statements are preferred by political leaders who propose solutions to economic problems or who wish to influence economic policy. Positive economists emphasize the scientific aspect of a particular field and limit themselves to questions that can be resolved with observable evidence.
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