Normative economics

Normative economics (as opposed to positive economics) is a branch of economics, the objective of which is fairness or what the outcome of the economy or goals of public policy ought to be.

Economists commonly prefer to distinguish normative economics ("what ought to be" in economic matters) from positive economics ("what is"). Many normative (value) judgments, however, are held conditionally, to be given up if facts or knowledge of facts changes, so that a change of values may be purely scientific. On the other hand, welfare economist Amartya Sen distinguishes basic (normative) judgements, 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.

Positive and normative economics are often synthesized in the style of practical idealism. In this discipline, sometimes called the "art of economics," positive economics is utilized as a practical tool for achieving normative objectives, which often involve policy changes or states of affairs.

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 deserve a higher living standard and that family farms ought to be saved.

Normative economics predicates itself upon maximizing both an agents social and political utility, recognized as "aggregating interests".

Subfields of normative economics include social choice theory, cooperative game theory, and mechanism design.

Over time, divergence in normative economics has given rise to various economic schools of thought as various intellectuals and economists have debated over the effectiveness and morality of various economic systems. In the modern era, these have been broadly classified into "left" and "right" leaning patterns. Left-leaning economic thought is based on Marxist economic theory and advocates a change to a communist economy wherein workers own the means of production and goods are distributed based on individual needs, either through government intervention in the economy in the case of socialism or through direct abolition of the state; the origins of left-wing economics are ancient, with key values such as land reform advocated for by Tiberius Gracchus in the 2nd century BC, although modern socialism and communism draws largely from Marxian economics theorised in the 19th century. On the other side of the spectrum, right-leaning (liberal) economic thought tends to advocate for minimal government intervention in the economy. Liberalism, largely developed by the Dutch and British, is a right-leaning economic ideology that calls for market factors such as supply and demand to determine production and consumption of goods within a capitalist economic system. Liberal normative economic philosophy is attributed principally to British thinker Adam Smith. In The Wealth of Nations, Adam Smith advocates a laissez-faire approach, arguing markets are best when they are controlled naturally by private consumers and businesses, with no or minimal market controls nor government intervention. Historically, a principal antithesis to capitalism was Marxism-Leninism, an application of Marxist principles through political and economic restructuring which emerged spreading to corners of the globe, it advocates for state-controlled determination of production and consumption. Communist theory is widely attributed to Karl Marx and Friedrich Engels. Academic debate is still open over the merit of state involvement in the economy and its resulting political and social implications, with substantial improvements in physical quality of life nonetheless observed in socialised systems.Cereseto, Shirley; Waitzkin, Howard (1988). "Economic Development, Political-Economic System, and the Physical Quality of Life". Journal of Public Health Policy. JSTOR 3342145 – via JSTOR.

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.

See also

• Distribution (economics)
• Economic ideology
• Is-ought problem
• Justice (economics)
• Normative science
• Positive economics
• Social welfare function
• Social choice theory
• Welfare economics
• Economic progressivism

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.
• Silvestri P. (ed.), L. Einaudi, On Abstract and Historical Hypotheses and on Value judgments in Economic Sciences, Critical edition with an Introduction and Afterword by Paolo Silvestri, Routledge, London - New York, 2017. DOI: https://doi.org/10.4324/9781315457932.