What is Positive Economics?
Positive economics represents an objective analysis in the study of economics. By examining what has happened and what is currently happening in an economy, economists form predictions for the future through investigative processes.
Key Insights
- Objective Analysis: Positive economics relies on facts and what is happening now in the economy.
- Verifiable Data: Conclusions in positive economics can be backed by hard data.
- Non-Prescriptive: Unlike normative economics, positive economics doesn’t provide advice or instructions.
- Complementary Approach: Both positive and normative economics are essential for developing effective policies.
Understanding Positive Economics
Positive economic practice focuses on fact-based relationships and cause-and-effect interactions to develop economic theories. People make rational financial choices based on available information, creating what is known as ‘what is’ economics.
A Look Back: History of Positive Economics
Dating back to the 19th century, economists like John Neville Keynes and John Stuart Mill distinguished between ‘what is’ and ‘what should be’ in economic study. Contemporary economists, such as Milton Friedman, further refined these theories into tools used for understanding economic behavior and policy development.
Testing Positive Economic Theories
The strength of positive economics lies in its reliance on empirical data. Predictions such as increased savings rates resulting from higher interest rates demonstrate positive economic principles through historical patterns and behaviors.
Advantages of Positive Economics
Positive economics is grounded in objective data, avoiding the influence of opinions and emotions. This objectivity helps policymakers implement measured strategies for economic conditions by providing concrete evidence.
Disadvantages of Positive Economics
While fact-based, positive economics cannot entirely eliminate emotional influence on economic conditions. Furthermore, objective data may not always yield universally applicable solutions, highlighting the need for a mixed-method approach in policymaking.
Real-World Examples of Positive Economics: The Case of Seattle’s Minimum Wage
In Seattle, a phased increase in the minimum wage provides an insightful illustration of positive economics. Studies reveal divergent outcomes, with one indicating increased earnings for restaurant employees and another highlighting reduced hours for low-wage workers.
Positive Economics FAQs
What Is Positive Economics and Examples?
Positive economics involves objective investigation to forecast future economic trends based on what has transpired. Examples include inflation rates, unemployment statistics, housing market figures, and consumer spending patterns.
What Are the Differences Between Positive and Normative Economics?
Positive economics is rooted in objective data, while normative economics relies on subjective, value-driven judgments.
What Is a Positive and Normative Statement?
Positive statements are verifiable theories, in contrast to normative statements, which are subjective and opinion-based.
What Are Examples of Normative Economics?
Normative economics uses value-based judgments to suggest what should occur, such as advocating for higher corporate taxes based on earnings data.
The Bottom Line: Integrating Economics for Optimal Results
By blending positive economics’ factual grounding with normative economics’ value-driven insights, societies can develop well-rounded, effective policies.
Related Terms: Normative Economics, Behavioral Economics, Supply and Demand, Monetarism, Monetary Policy.
References
- Policonomics. “Positive economics”.
- Britannica. “John Neville Keynes”.
- Policonomics. “John Stuart Mill”.
- Foundation for Economic Education. “The Great Depression According to Milton Friedman”.
- Fight for 15. “About Us”.
- Office of the Mayor. "$15 Minimum Wage".
- Institute for Research on Labor and Employment. “The New Wave of Local Minimum Wage Policies: Evidence from Six Cities”, Page 9.
- Evans School of Public Policy & Governance. “MINIMUM WAGE INCREASES, WAGES, AND LOW-WAGE EMPLOYMENT: EVIDENCE FROM SEATTLE”, Page 2.
