What is 'Normative Economics'
Normative economics is a perspective on economics that reflects normative judgments or opinionated reactions toward economic projects, statements, and scenarios. Unlike positive economics, normative economics heavily concerns itself with value judgments and theoretical scenarios and economic statements that present "what ought to be" rather than facts and cause-and-effect statements. Normative economics expresses judgments about what may result of economic activities if public policy changes are done.
BREAKING DOWN 'Normative Economics'Normative economics aims to determine people's desirability or the lack thereof to economic programs, situations and conditions by asking what should happen or what ought to be. Normative statements typically present an opinion on economic statements rather than an objective analysis that presents facts.
As positive economics describe economic programs, situations and conditions as they are, normative economics aim to prescribe solutions. Normative economic statements are used to determine and recommend ways to change economic policies or to influence economic decisions.
Pairing Normative Economics With Positive Economics
Normative economics may be useful in establishing and generating new ideas from different perspectives, but it cannot be the only basis for making decisions on important economic issues as it does not take an objective angle that focuses on facts and cause-and-effects.
Economic statements coming from the positive economics angle can be broken down into determinable and observable facts that can be examined and tested. Because of this characteristic, economists and analysts often practice their professions under the positive economic angle. Positive economics, being the measurable perspective, helps policy-makers and other government and business authorities to decide on important matters that affect particular policies under the guidance of fact-based findings. However, policy makers, business owners and other organization authorities also typically look at what is desirable and what is not for their respective constituents, making normative economics an important part of the equation when deciding on important economic matters.
Paired with positive economics, normative economics can branch into many opinion-based solutions which mirrors how an individual or one whole community portrays particular economic projects. This kind of views are especially important for policy makers or national leaders.
Examples of Normative Economic Statements
An example of normative economics would be, "We should cut taxes in half to increase disposable income levels." By contrast, a positive or objective economic observation would be, "Big tax cuts would help many people, but government budget constraints make that option infeasible." The provided example is a normative economic statement because it mirrors value judgments. This particular judgment assumes that disposable income levels must be increased.
Economic statements that are normative in nature cannot be tested or proven for factual values or legitimate cause and effect. Samples of normative economic statements include "Women should be provided higher school loans than men," "Laborers should receive greater parts of capitalist profits," and "Working citizens should not pay for hospital care." Normative economic statements typically contain keywords such as "should" and "ought."