Positive vs. Normative Economics: What’s the Difference?

Positive vs. Normative Economics: An Overview

Economics is a field that exists between scientific objectivity and subjective interpretation. Suppose a policymaker is trying to decide whether a proposed new tax is a good idea. One economist might advise, “This tax will likely increase government revenue by 10% per year,” while another says, “The government should use taxes to reduce inequality.” The first statement is factual—something that can tested. The second is an opinion rooted instead in values about what’s fair or right.

Thus, in economics, as in many other disciplines, it’s crucial to distinguish between descriptions of what is the case (“robberies are high in this city”) and what’s ethically right or should be the case (“stealing is wrong” or “robberies should be far lower”). For this reason, in the last 19th century, John Neville Keynes (the father of John Maynard Keynes) made the distinction between positive and normative economics by differentiating one as “the science of what is” vs. “the science of what ought to be.” Positive economics focuses on the former, making objective and testable economic analysis based on data; normative economics focuses on the latter, with value-based assessments and recommendations about desirable economic outcomes.

In theory, this might sound straightforward. However, it becomes more complicated in practice because economic analyses frequently mix elements of both. We dig into these complications below.

Positive Economics

Positive economics focuses on describing and explaining economic phenomena as they are. It’s supposed to be using models based on objective data. This is the part of economics that, since Adam Smith, has always aimed to be a science. Positive economic statements are specific and should be testable against evidence​.

The goal is to understand the workings of the economy without bringing in personal opinions or making moral judgments. For example, “Government-provided healthcare increases public expenditures” is a positive economic statement​: we can examine data from countries with socialized healthcare to see if public spending is indeed higher. But then, that seems to be the case definitionally. We’d want ultimately to conclude how efficient they are and what kinds of health outcomes different systems have so we can then say what kind of system we should have.

Because positive economics relies on data and observable facts, it avoids using loaded words like “should” or “ought to.” Policymakers rely on positive economics to answer questions like, “What will happen if we raise the gasoline tax?” or “How would increasing the minimum wage affect unemployment?”

The predictions made by economists tackling such questions describe likely outcomes without stating whether those outcomes would be good or bad. Instead, they help policymakers and economists understand how to achieve their goals: if a government aims to improve health outcomes, positive analysis can be used to answer fiscal and other outcomes in different healthcare systems.

Normative Economics

Normative economics focuses on values-laden perceptions of what are desirable vs. undesirable outcomes instead of analyzing factual data and cause-and-effect relationships. As such, it is often regarded as the “what ought to be” side of economics.

Normative statements reflect subjective viewpoints because they originate from individual values, cultural beliefs, and political ideals. The use of words like “should,” “ought,” “better,” and “worse” in normative economics suggests that they should be considered alongside other ethical and moral judgments.

Since normative economic statements reflect individual moral judgments, they can’t be validated or disproven by data analysis alone. For example, “The government should provide basic healthcare to all citizens” is a normative claim. This statement reflects a value judgment that considers universal healthcare a worthy ideal—a moral viewpoint.

Because of this, reasonable people can and often do disagree about normative economic statements even when they agree about the positive economic facts associated with them.

From Description to Prescription

The distinction between positive and normative economics highlights the dual nature of economics as both a science and a social discipline concerned with human welfare. While the two approaches differ fundamentally in their orientation and methodology, they are often taken as complementary rather than antagonistic. Indeed, effective economic analysis and policymaking typically involve elements of both.

Normative discussions about what the economy should aspire to depend on a factual foundation provided by positive economics. An understanding of economic systems and policy effects must precede meaningful debates about better economic policies.

Normative discussions can become detached from reality without accompanying positive economic analysis, which can result in good intentions producing harmful policy outcomes. Meanwhile, positive economics by itself often proves inadequate. Positive economic analysis at its most rigorous fails to define which policy objectives we need to prioritize or which trade-offs we should accept. Is economic growth more important than protecting the environment? Is it appropriate to support policies that create wealth at the expense of increasing social inequalities? Positive economics alone can’t answer these questions because they demand normative judgments about our values and priorities.

In addition, the way positive economics frames given sets of economic facts or has an interest in one area of the economy rather than others could mean norms are never too far away.

The Bottom Line

Both positive and normative economics are essential for analyzing and discussing contemporary economic matters. Positive economics establishes the factual basis for how the economy functions, while normative economics informs economic goals according to society’s moral ideals and priorities. 

Good policy decisions typically require both: A thorough, positive analysis combined with normative reasoning that identifies which outcomes should be pursued.