Normative economics
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Normative economics
Label attributed to the economist Milton Friedman concerning economic policy that attempts to have direct effects in markets and in the economic process; contrasts with positive economics.
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Normative Economics
A perspective on economics that incorporates subjectivity within its analyses. It is the study or presentation of "what ought to be" rather than what actually is. Normative economics deals heavily in value judgments and theoretical scenarios. It is the opposite of positive economics.
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Normative statements are often heard in the media because they tend to represent a theory or opinion rather than objective analysis. Normative economics is a valuable way to establish goals and generate new ideas, but it should not be used as a basis for policy decisions.
An example of a normative economic statement 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."
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Normative economics
Normative economics (as opposed to positive economics) is that part of economics that expresses value judgments (normative judgments) about economic fairness or what the economy ought to be like or what goals of public policy ought to be.[1]
It is common to distinguish normative economics ("what ought to be" in economic matters) from positive economics ("what is"). But many normative (value) judgments are held conditionally, to be given up if facts or knowledge of facts changes, so that a change of values may be purely scientific.[2] But welfare economist Amartya Sen distinguishes basic (normative) judgments, which do not depend on such knowledge, from nonbasic judgments, which do. He finds it interesting to note that "no judgments are demonstrably basic" while some value judgments may be shown to be nonbasic. This leaves open the possibility of fruitful scientific discussion of value judgments.[3]
An example of a normative economic statement is as follows:
The price of milk should be $6 a gallon to give dairy farmers a higher living standard and to save the family farm.
This is a normative statement, because it reflects value judgments. This specific statement makes the judgment that farmers need a higher living standard and that family farms need to be saved.[1]
Subfields of normative economics include social choice theory, cooperative game theory, and mechanism design.
Some earlier technical problems posed in welfare economics and the theory of justice have been sufficiently addressed as to leave room for consideration of proposals in applied fields such as resource allocation, public policy, social indicators, and inequality and poverty measurement[4]
See also
Notes
- ^ a b Paul A. Samuelson and William D. Nordhaus (2004). Economics, 18th ed., pp. 5-6 & [end] Glossary of Terms, "Normative vs. positive economics."
- ^ Stanley Wong (1987). “Positive economics," The New Palgrave: A Dictionary of Economics, v. 3, p. 21.
- ^ Amartya K. Sen (1970), Collective Choice and Social Welfare, pp. 61, 63-64).
- ^ Marc Fleurbaey (2008). "Ethics and economics," The New Palgrave Dictionary of Economics. Abstract.
References
- Andrew Caplin and Andrew Schotte, ed. (2008). The Foundations of Positive and Normative Economics: A Handbook, Oxford. Description and preview.
- Marc Fleurbaey (2004). "Normative Economics and Theories of Distributive Justice," The Elgar Companion to Economics and Philosophy, J.B. Davis and J. Runde, ed., pp. 132-58.
- _____ (2008). "Ethics and economics," The New Palgrave Dictionary of Economics. Abstract.
- Milton Friedman (1953). "The Methodology of Positive Economics," Essays in Positive Economics
- John C. Harsanyi (1987), “Value judgments," The New Palgrave: A Dictionary of Economics, v. 4, pp. 792–93
- Daniel M. Hausman and Michael S. McPherson (1996). Economic Analysis and Moral Philosophy, Cambridge: Cambridge University Press.
- Phillipe Mongin (2002). "Is There Progress in Normative Economics?" in Stephan Boehm et al., eds., Is There Progress in Economics?, pp. 145-170.
- Amartya K. Sen (1970), Collective Choice and Social Welfare. "5.3 Basic and Nonbasic Judgments" & "5.4 Facts and Values," pp. 59–64.
- Stanley Wong (1987). “Positive economics," The New Palgrave: A Dictionary of Economics, v. 3, pp. 920–21.
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