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What is Normative Economics?

Malcolm Tatum
By
Updated Feb 19, 2024
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Normative economics is an approach to analyzing economic events and factors in a manner that allows room for some degree or personal interpretation. This is in contrast to positive economics, where the rule of thumb is to focus on hard facts with little to no subjective opinion included in the presentation. Often, the format of normative statements regarding economic events is couched in verbiage that suggests possible future events resulting from current events, based on individual speculation and interpretation of the available data.

Essentially, normative economics involves assessing current data and making a determination of how things should progress in the future, in order for a desired outcome to emerge. The subjective statements do not have to assume that the status quo will be maintained in the future, but that by pursuing one or more specified courses of action, a economic situation that is very different from the current one will come to pass. Often, statements of this type provide specific directives that, if implemented, have at least a chance of leading to outcome desired.

The process of normative economics would involve making a statement of something that the speaker believes should take place in the future. For example, if a politician refers to current data regarding consumer spending within a given nation, and makes a statement that the government should reduce taxes by a certain percentage in order to provide more disposable income to taxpayers, that statement is based on projections of what could happen, rather than what is happening. By contrast, a positive or objective statement would involve noting that while tax cuts might be helpful, current data indicates that government agencies would have to reduce expenses before a tax cut would become feasible. The difference is that one statement focuses on the possible outcome of making a change, while the other has to do with what must happen before a chance can be made.

It is not unusual for normative economics to play a role in many statements made through the media. While those statements are subjective and sometimes considered impractical, that does not necessary mean they are without basis. In order for a comment to be truly based in a normative economics approach, that comment must have a foundation in currently verifiable facts, and provide a projection that at least some degree of logic in terms of how that proposed event would impact the economy. From this perspective, normative economics statements provide a valuable service, in that they can form the basis for new ideas and approaches, and aid in the establishment of workable goals for the future.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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