Peter Dorman — GDP and Well-Being, Positive and Normative

...It all goes back to the primordial distinction between positive and normative analysis. Positive analysis is explanatory, predictive, or simply descriptive: what and why. Normative analysis is evaluative: should. We economists beat the heads of our poor charges each year in introductory classes with this distinction. Positive analysis, we say, can be validated by reasoning and evidence, while normative analysis is ineluctably conditional on the values of whoever is doing the evaluating.

Yes and no. The distinction is important, but it is not ironclad. There are lots of ways the two types of analysis are connected, and I won’t get into the philosophical issues here, but it is obvious, just from paying attention, that economics wants to have a single analytical framework to answer both positive and normative questions.

Economists don’t want one model to predict what the equilibrium outcome will be and another, using completely different elements and based on different assumptions, to rank that outcome against others according to how beneficial it is. Most models in economics do double-duty: they support positive and normative analysis equally...

And where does that leave us? The distinction between positive and normative analysis is important and needs to be maintained. There should be no presumption that the concepts and models that work for one will work for the other. We should not sacrifice the fit between model and purpose in one realm in order to be able to shoehorn it into the other. I think, though I will not follow it up here, that welfare economics has suffered mightily from attempts to squeeze its analysis into the same models that work well for positive—explanatory and predictive—work.

So let’s not visit the same damage on our properly-functioning positive models, like GDP. Keep and even improve GDP as a measure of the size of monetary flows within an economy, and look elsewhere for appropriate indicators of human well-being. (I have a hunch that economists, who are good at the first task, will prove to be less well-suited to the second.) Do positive well, and do normative well, and don’t let either get in the way of the other.

EconoSpeak

GDP and Well-Being, Positive and Normative
Peter Dorman | Professor of Economics, Evergreen College

Neoliberalism is a conflation of the social and political with the economic at the opposite end of the spectrum from Marx, who also assumed that economics is foundational to the social and political.

At bottom both these views are materialistic and deterministic in contrast to the humanistic and evolutionary.

In addition, the absolute dichotomy between positive and normative, public and private, and other such distinctions in economics are the products of erroneous essentialist thinking that assumes that words denote essences or classes, thereby conflates special cases with a general case.

Words have a range of meaning dependent on context. At their extremes concepts like positive and normative, public and private are dichotomous but not as they approach mid-range. For example, economics is law-based and positive law is grounded in the ethical norms of a society. In addition, markets are dependent on a unit of account and in modern economies, the unit of account is the currency established by government.

This is not merely a feature of language richness. Cognitive science reveals that positive and normative overlap in brain functioning where perceiving, reasoning and feeling are entangled. This is obvious at the surface level when words have a neutral denotation but a positive or negative connotation. However, this is not always obvious but rather is embedded and remains implicit instead of being explicit.