Positive and normative statements, and three statements classified

The distinction. An economy can settle its central problems through different mechanisms, and economists study them in two ways. Positive analysis works out how a mechanism functions and what outcomes it is likely to bring; normative analysis asks whether the mechanism and its outcomes are desirable. A positive statement is therefore a claim about what is, was or will be; a normative statement is a judgment about what ought to be.

Two points help in classifying statements. A positive statement need not be true: a wrong prediction is still positive, because evidence can show it to be wrong. And the line is not perfectly sharp, since positive and normative questions are closely linked and neither is fully understood without the other: a sound view of what ought to be done needs a correct view of what a policy will do.

Statement (i), the minimum wage and unemployment. This is positive. It makes a cause-and-effect claim about the labour market. A minimum wage is a price floor in that market, and a floor set above the equilibrium price leads to excess supply: here, more people seeking work than employers wish to hire, which is unemployment. Whether a particular minimum wage actually has this effect, and how large it is, can be checked against employment data. Economists may disagree about the answer, but the disagreement is about facts, so the statement stays positive.

Statement (ii), the 5% target. This is normative. The word ought marks a value judgment. No data can prove that 5 per cent is the right ceiling rather than 3 or 7 per cent; the choice depends on how much weight one gives to jobs against other aims of policy. People with the same facts can reasonably disagree.

Statement (iii), health spending and total spending. This is positive. It predicts what will happen to a measurable total: if public health expenditure rises, the government's overall expenditure rises. The claim can be checked against budget figures. It holds as long as spending on other heads is not cut by an equal or larger amount, and that too is a matter of fact. The statement says nothing about whether more health spending is good or bad.

Conclusion. Statements (i) and (iii) are positive, since each claims a cause and effect that evidence can confirm or refute; statement (ii) is normative, since it states what ought to be and rests on a value judgment.