Normative economics

Normative economics (as opposed to positive economics) is a part of economics whose objective is fairness or what the outcome of the economy or goals of public policy ought to be.[1]

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.[2] 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.[3]

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.

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.[1]

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. Simply put, left-leaning economic thought tends to advocate for government intervention in the economy; on the other hand, right-leaning economic thought tends to advocate for minimal government intervention in the economy. Capitalism, largely developed by the Dutch and British, is a right-leaning economic ideology that calls for market factors to determine production and consumption. Capitalist normative economic philosophy is attributed to Adam Smith. Communism, which has spread to many corners of the globe, advocates for state-controlled determination of production and consumption. Communist theory is widely attributed to Karl Marx and Freidrich Engels. Much of modern politics revolves around the normative economic debate over state involvement in the economy and various other normative economic theories exist.

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.[4]