Positive vs Normative in Economic Logic transcript

hi everyone this is Dr Marx and our topic for today is positive versus normative economic thought now as you're going to learn in the policy realm we have to be able to think about both both positive elements and normative elements we can't escape that we have to think through both types of things let's get started when you think about college courses you're asked to do a lot of writing and it sometimes you're asked for your opinion and when we ask you for your opinion then the professor wants you to speak in the normative right so think about some of those position papers you've written or something about a highly controversial issue how do you feel about abortion what do you think about immigration Etc very normative because we want your opinion but other times especially in economics you're asked for some kind of analysis and that analysis is based on data observation fact and when we think about observations and being analytical and being objective what we're thinking about is thinking positively so we have normative thought your opinion we've got positive thought things that are based on analysis data and observation so let's start by thinking about positive statements because as economists we tend to understand those a lot better when we think about positive statements or thinking about things in the positive realm we're basing it on data what does the data tell us economic theory what is theory predict or some kind of economic model from which we can draw a conclusion generally we can confirm whatever we're investigating using some kind of scientific approach so we have some kind of generally accepted approaches to deciding how to do things in economics and applying Theory when we talk about things in the positive it doesn't reflect any opinions or any value judgments from us in this sense it's completely objective so positive statements are ones that are based on data economic theory economic models we can confirm them using scientific methods it doesn't involve opinions or value judgments it's purely objective for example here's a good statement in 2011 Longwood had its largest freshman class in the history of the University hopefully it's clear to you that that's a positive statement first I can confirm it with data I can subject this statement to testing to determine whether it's true or false it's clearly not my opinion and there's some generally accepted method of investigating validity and by generally accepted we would all agree on an approach for determining if this is true or not so this is clearly a positive statement here's another statement I might conclude that somewhere in my research if gasoline prices rise then airline travel prices will increase all right well again this is something that is positive because I've concluded this based on economic theory right we've got this whole model of price of inputs going up and changing Supply and driving prices up so I'm simply applying basic economic theory here so this is positive so what am I applying here as I said I'm applying the ideas of Supply we know that gasoline is an input to production and so when input prices go up remember this is a supply shifter so Supply is going to decrease when Supply decreases this makes market prices increase so again everyone agrees that I've used basic economic theory and I've used it correctly to come up with a conclusion so again this is positive I can further conclude that if airline ticket prices rise then consumers will purchase fewer airline tickets so again I'm using a basic princip principle of Economics what principle am I using here well obviously it's a law Demand right when prices rise quantity demanded goes down holding all else constant so I'm simply applying the law of demand here so again the analysis that we're going through is clearly positive there's no you know area open for interpretation I'm not infusing my own viewpoints or opinions or values so positive logic when we think about writing in the positive when we talk about applying positive thinking positive logic includes things that can be confirmed with data conclusions made from Theory so we're talking about basic economic principles and laws conclusions generated from Models so maybe I get a conclusion from supply and demand or from the solo growth model that you're going to learn in some of your classes or some of you already learned and again it's value free and opinion free when economists evaluate policy obviously we have to focus on the positive a very important element of evaluating policy is figuring out what does theory predict what does economics suggest we're usually as economists being asked for answers to questions and so when we're asked answers ask for answers for questions what are the impacts um how much will price go up these are things for which we need to apply models so a lot of what economists do is clearly positive we are estimating things we are um forecasting things and that is all positive so we might be asked what are the short run implications of this policy well that wouldn't be Dr Marx's opinion but kind of what is economic suggests would be the short run implications if we go forward with this policy who are the winners clearly some people will win from a policy change but who are the losers so economists might have to identify populations of people who will win under a policy and then who will be hurt under a policy I might be asked what tradeoffs are involved so what do we gain and what do we give up when we implement this policy are costs going to increase or are costs going to decrease and how much what long run impacts might need to be thought about are there any unintended consequences that we can think through so these are all ways of thinking in the positive based on this kind of information we might be able to decide if a regulation is a good idea or not we might decide if a policy will have the intended effects so we're implementing this policy because we're trying to achieve this outcome will we actually achieve that outcome or not but then there are harder decisions that are not positive so in a sense positive stuff is the easy stuff right it's what we're trained to do we have tools in our toolkit as economists you guys who are going to be taking econometrics at some point it's a really powerful tool that helps us generate really solid conclusions here are the things that are not so easy to Think Through is this policy fair is this justifiable when we make this change and there are winners and losers can we justify this is this policy worthwhile well those are different hopefully you're thinking those don't sound very positive because they're not this is what we call normative and things that are normative are not subjected to testing in the same way they're not coming from economic theory these are much harder for economists to answer normative statements are ones that involve a value judgment that value judgment might might incorporate the way we would like the world to operate or it might incorporate our perceptions of what is right and what is wrong and we don't all have the same perceptions generally when we talk about normative things these are not testable using some scientific method right because think about it how can I test your opinion how can I I test your values or your judgment I really can't so we've moved out of the thing that we train you on how to think positive to think about how to have good normative discussions and that's not so easy for example I might claim that Longwood should require all students to take a principles of economics course well hopefully you see that sounds very normative what word jumps out at you as being highly normative well hopefully the word should right Longwood should require this well should is very opinionated so clearly this is based on my own opinion it's a value judgment that I have and I can't test it there's no way for me to test that this should happen I'm not going to be able to prove that this is true it's simply how I feel if I had said the majority of fouryear Institutions require that students take a beginning economics course well that would be different the majority of four-year institutions require that students take a beginning economics course do you agree that when I reward it that way now it's positive it's not my opinion it's data it can be confirmed it's matter of fact and it doesn't reflect the way I think the world should be so clearly this is positive so make sure you understand the difference between students should all be required to take a class my opinion the majority of fouryear Institutions require students to take econ that's positive now normative arguments are often tied to ethics and what I mean by that nor ative arguments are often tied to ethics is that it's tied to this idea of what is right and what is wrong it might incorporate the idea of fairness and fairness is an ethical concept so hard to measure fairness hard for us all to agree what we mean by fairness your idea of what is fair might be different than my idea of what is fair for example is it fair that some people pay higher tax rates than others well we may not agree to this we might say well this is an ethical question it depends on how you think the world should work some people think that everyone should pay the same tax rate other people think that people with high incomes should pay higher taxes and people with lower incomes should pay lower taxes so you see what I'm getting at if we're going to be talking about this it's going to reflect our own judgments what we bring to the table so how do we think taxes should be divided evaluating policy requires both positive and normative thought and in econ 313 that this is a policy class we're going to be looking at things from the positive but we may also have some very normative discussions and it's okay for you to bring your ideas of what you think to the table as long as you can then also talk in the positive so let's consider some policy proposal XYZ and it doesn't even matter what it is well first you estimate that some people will win and some people will lose that's part of your job as an economist who will win who will lose how much will people win how much will people lose clearly this is positive you might calculate the gains and the losses so I estimate that the winners will win by this much and the losers will lose by this much again this is purely positive but then we have to decide some things that are a little bit harder is this tradeoff justifiable we've got winners and losers can we justify helping out one population while hurting another is this Fair can we defend this policy even though there's winners and losers do the benefits that are created justif these costs that are imposed on other people is this even an appropriate role for government maybe it's not so these are normative questions right so what makes policy difficult is that after we think about the positive and we do our estimations and we predict the effects and we think about unintended consequences now we have to have the normative discussion we know the costs we know the benefits we know the trade-off can we justify it is it fair can we defend it when we weigh benefits and cost does it make sense to have this trade-off should government even be going in this direction so normative thinking is going to come after we collect all of the positive information we have to arm ourselves with good positive information to then have that normative discussion sometimes the two approaches are going to emerge and we're going to see some of that so here's an example what if I want to learn about people's opinions about immigration well if I'm asking about immigration then I'm probably asking some normative questions so maybe I ask people do you think that there should be a a border wall between the United States and Mexico so should we build the wall well that's kind of a normative question right it's not Based on data and any kind of estimation I'm asking your opinion so I need to collect information but I have to collect the information in a positive way and what I mean by collecting information in a positive way is I have to do it in a way that doesn't reflect my own bias right I can't ask leading questions I can't ask them in a way that says you know given that immigrants have caused all these problems in our country should we build a wall if I ask a question like that oh given all the problems we have with immigrants we should build a wall right that would be very biasing and I don't feel that way so don't quote me on that I'm just using it as an example but I have to ask questions in a way that doesn't reflect my own bias so I have to use a well- constructed survey and that survey has to be very objective and not have leading questions so surveys are a positive approach to collecting information and they're a positive approach because we can report the findings we can say things like 63% of the people surveyed think that we should build a wall or think that we should not build a wall and this is a positive statement as I've written it because it's based on data 63% of people surveyed think this well that's just data collection so it's positive even though I'm asking a question that elicits normative responses right so if I'm being asked do you think we should build a border wall I might say yes I think we should build a border wall because I'm giving you my normative response but when you turn it into a data set it becomes positive so I'm against this proposal or I am for this proposal because I feel it's wrong too and I can start getting very philosophical and that's very normative but when you count the number of people who behave this way or answer this way versus that way all of a sudden you've got positive data now when it comes to policy we've said that there are winners and there are losers there are no policies where everyone wins I would challenge you to come up with some kind of government policy where every single person is a winner and I just don't think that you're going to find that there are no policies like that so normative thoughts always going to come into play right if everyone won then we don't have to get into the normative debate but because there's winners and there's losers that normative debate is always going to come in Pay we're gonna have to kind of duke it out to decide does it make sense to do this so we have to ask the normative and positive questions so to summarize then on the left some things that would be positive estimating costs estimating benefits recognizing trade-offs determining who will win determining who will lose analyzing the impact on the economy estimating the impact on budgets you guys get the idea they're all applying this Theory estimating this analyzing that determining calculating we on the right we've got normative types questions is this how we want the world to look is this Fair can we justify this is the expenditure worthwhile is the trade-off acceptable do you agree that those things on the right are kind of fluffier questions when we think about economics they're impassion with our opinions and our value judgments and the baggage we bring to the table maybe you're somebody who's really in favor of more redistribution and you're trying to debate with somebody who doesn't believe in much redistribution well now we're going to have a normative debate trying to get you know these passionate pleas about you know fairness and Equity so that's a much more difficult thing to achieve now when you're writing papers when you're writing papers you generally want to write in the positive most of the time when you're asked to do a paper you're being asked to write in the positive now that doesn't mean you're simply asked to quote other people if I ask you to um prescribe a policy or evaluate a policy I might be asking you to apply supply and demand the idea of elasticity thinking about unintended consequences Etc and that's all applying economic theory and thoughts and models and those things that we do as economists so they are positive unless you're asked to write a position paper based on your opinion and sometimes you are asked for that kind of paper maybe you're asked to write a paper on your feelings related to abortion that is going to be a normative paper now can you write a positive paper about abortion yes you can talk about numbers of abortions um health issues related to abortions you can talk about the Law related to abortions and that is all positive but when you're asked to write about your feelings now it's normative or maybe you're asked to take a side on an issue maybe some kind of normative thing and then defend it using positive logic that's a really challenging paper to write but you get the idea when you're writing you might be asked to write in the normative but most of the time if you've not been told you should be thinking in the positive so for example suppose I'm writing a paper on welfare reform and I say welfare is a destructive force in our society since it creates laziness for some people so again welfare is a destructive force in our society since it creates laziness for some people well this is clearly normative right it is kind of an opinion and this might be okay if it's a position paper but in economics we aren't usually looking for that kind of writing if normative is not okay given the assignment then freeframe what you're saying so what I'm suggesting is as you find yourself writing a statement like that reframe it so I'm going to go back instead of some researchers oh I'm sorry I'm not going back I lied I can't make it work so if normative is not okay then reframe what you were saying so the previous slide I was trying to show you said um something about welfare is not good because it creates laziness in people well what if I change it to this some researchers estimate that welfare reform has created some negative incentives for recipients do you see the difference here so instead of saying welfare is a destructive force because it creates laziness I'm saying some researchers estimate the word estimate is positive they estimate that welfare reform has created negative incentives that versus laziness negative incentives sounds a little bit more eony we're applying Theory rather than saying lazy which is opinionated so we can support this right how would I support this I might give data again positive I could have conclusions based on models about how people respond to incentives perhaps I can summarize the analysis of others you see where I'm going with this as you write look at your work and decide have you been normative and is it okay to be normative and if it's not okay you need to reframe what you're writing to be positive welfare spending has increased that might be one of my points I might say number of people on welfare has increased and I can give data I might say that surveys indicate that some portion of well re welfare recipients don't look for jobs again this is data related I might say economic theory suggests incentives are not well aligned giving people disincentives to work so you understand what I'm saying this is being objective this is taking a topic that's kind of heated and impassioned and I'm making it objective I'm making it positive so the bottom line for this class you need to be able to distinguish between statements that are normative and positive you need to be able to write in the normative when asked and you need to write in the positive when asked you need to be able to identify positive and normative elements of a policy so if I give you a policy I might ask you to have a normative discussion based on positive things that you have learned but we need to recognize the normative issues that surround all policies and programs at the end of the day every policy that has been implemented there has been a normative discussion about is this fair is this ethical does this make sense understanding this distinction between positive and normative can help you not just in economics but other classes as well especially ones that require writing because you might find that you're writing in the normative when that's not really the appropriate way to address your topic so for econ 313 guys we're going to be doing an assignment related to this so it's important that you understand this discussion because you're going to be applying both positive economic logic and normative discussions to some policies let me know if you have any questions and thank you for listening