Positive and Normative Economic Statements

Positive and Normative Economic Statements

Consider the following statements:

(a) = positive, (b) = both, (c) = normative

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

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

Overseas investment in the U.K. will fall when we leave the European (c)

These are all factual, and therefore positive statements because we can find evidence to see if they are true or not. But note that gathering the evidence and proving or disproving the statement might not be easy. This is particularly true in statement (b), since a rise in the NLW could be accompanied by an increase in unemployment, but this increase in unemployment could be due to another cause, unrelated to a rise in the NLW; for instance there might be a recession.

Positive and Normative Economic Statements, figure 1

Now consider the following statements:

Raising interest rates is the best way to reduce the rate of inflation (a)

The government should reduce benefits for non-working adults to encourage them to get back into work (b)

Increasing the rate of economic growth is a more important economic goal than reducing poverty (c)

All these statements are expressions of opinions and cannot be shown to be true or false. They are statements of values rather than fact, and are called normative statements. They are to do with what we think is desirable/undesirable, better or worse, good or bad.

Normative statements will often contain the word should __or __ought, but not always.

Note that some statements contain both positive and normative elements. Look at (b) above. It is claiming that reducing benefits will get people back into jobs. This is a factual (positive) statement that could be true or false. But the word ‘should’ implies that this is a desirable outcome, and therefore it is a normative statement too.

Economists are concerned with both positive and normative statements, because they are interested in establishing facts about how the economy works, and they will have views about how they can make the economy work better.

Positive, normative or both?Faster growth in the U.K. has usually resulted in an increasing current account deficit.
Positive, normative or both?We should leave European Union so that we will have more money to spend on the NHS.
Positive, normative or both?Raising taxes on the rich is a fairer way to reduce government borrowing than cutting public expenditure.