‘What ought to be’ and ‘What is’
The two statements above are clearly equatable with normative economics and positive economics, respectively. This comes to us by Hume, Samuelson and Friedman. These terms I believe are less appreciated outside the glossary list of day one of economics 101 at various institutions. However, more than this I always felt another dichotomy existed. Specifically within positive economics. This secondary dichotomy is not so much a strict split, nor does it muddle the differences between normative and positive economics. There still remains a very distinct difference between what is and what ought to be.
Consider theoretical work on optimal decision making in any specific decision faced by an agent. Now let’s assume the work is game theoretic in nature and the suggestion by the economist is whether a certain decision is the optimal condition. Or rather claims multiple conditions based on multiple parameters are the most optimal. This still is a positive analysis. What is the best is clearly a ‘what is’ statement with no value added of the implications outside the paper for the claims, still that leap could be made easily in this hypothetical case. Though other positive economics statements are sometimes purely empirical and reached through economic tools and econometrics. Saying that “consumers in the tinplate industry faced gains due to increased international trade in the industry” is an empirical positive claim. The dichotomy, existing mostly between empirical and theoretical positive claims, exists only in partial form and is unnecessary to make note of. There are situations when claims by people recently introduced to behavioural economics or any sort of criticism of economic theory, such as expected utility theory come to believe because a purely or mostly theoretical paper using a rational actor is unrealistic it means that it is useless. To borrow Richard Thaler’s phrase for the rational actor, Econs, people who view a positive paper on Econs assume it is replicating reality rather than finding optimality or analyzing choices for the sake of analyzing choices. While there are sometimes gaps in descriptive analysis that behavioural economics has filled in, the pejorative of Econs doesn’t completely apply as a critique of positive economics.
Description isn’t the only acceptable form of economic science. Finding truth and knowledge is. And that can be found even in the strictest and unreal of assumptions. It may seem incredibly unintuitive for an individual who enters economics without any experience. However, if one ponders a research idea or is intrigued by a problem to solve then the economist becomes an engineer in a sense and those “unrealistic” foundations of some models in positive analysis becomes useful guides and benchmarks to normative science. This is why Milton Friedman’s writing on methodology, no matter how brash at first his statements for some on assumptions may seem, the insight into positive analysis in economics is very unique and not a diametric balance between unrealistic (bad/biased) and realistic (good/unbiased) assumptions. The assumptions economists make can be abused similarly to novel cases of p-hacking. However, science is hard and novel examples of unintended or intentional abuse of unrealistic assumptions shouldn’t discredit a field.
So, is the dichotomy I mentioned in positive economics that creates a secondary ‘what ought to be’ and ‘what is’ level of analysis real? Not fully, only a in a crude matter to non-economists like myself. But discussing this crude dichotomy may help some detractors, whether from unorthodox fringe schools of economics or media, understand the scientific method in economics.