Economic and policy

Economics play a major role in helping governments to devise economic policy. In order to understand this role, it is necessary to distinguish between positive and normative statements. A positive statement is a statement of fact. It may be right or wrong, but its accuracy can be tested by appealing to the facts. ‘Unemployment is rising. Inflation will be over 6 percent by next year.’ ‘If the government cuts taxes, imports will rise.’ These are all examples of positive statements. A normative statement is a statement of value: a statement about what ought or ought not to be, about whether something is good or bad, desirable or undesirable. ‘It is right to tax the rich more than the poor.’ ’The government ought to reduce inflation.’ ‘Old-age pensions ought to be increased in line with inflation.’ These are all examples of normative statements. They cannot be proved or disproved by a simple appeal to facts. Economists can only contribute to questions of policy in a positive way. That is, they can analyze the consequences of following certain policies. They can say which of two policies is more likely to achieve a given aim, but they cannot, as economists, say whether the aims of the policy are desirable. For example, economists may argue that a policy of increasing government expenditure will reduce unemployment and raise inflations, but they cannot decide whether such a policy is desirable.