What Is Normative Economics?

Normative economics refers to those who put forward certain standards for analyzing and dealing with economic problems based on certain value judgments, and use them to establish the premise of economic theory as the basis for economic policy formulation. Due to the scarcity of resources, it will inevitably face the problem of selection in its multiple uses. There is a selection criterion for selection, which is the norm of economic activity. It can be seen that what the normative economics wants to solve is the question of "what should be". In contemporary western economic theory, microeconomics and macroeconomics are basically empirical economics, while institutional economics, welfare economics, and radical economics are mainly normative economics. Since the 1970s, normative economics has received increasing attention. Especially in macroeconomics, normative analysis has been continuously strengthened. ^[1]

Normative economics

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Normative economics

Normative economics considers how, such as

Normative economics involves ethical tenets and judgments of value. Do the poor have to work to get government help? Should improve

Right

The emergence of normative economics lies not only in its recognition of the subjective tendencies inherent in value judgments, but also in its profound epistemological basis. Normism is an important influence

About

But other normative economists insist that any economic theory is constructed on the basis of certain ethical norms, and ethical norms determine

The emergence of normative economics lies not only in its recognition of the subjective tendency inherent in value judgments, but also in its profound epistemological basis. Normism is an important philosophical faction that influences this important economic methodology--it is the product of the development of utilitarianism. It attaches importance to the ethical basis of values and behavioral tendencies. Regular knowledge is effective or even necessary. Descriptive knowledge of the inherent value of good and bad is possible. This knowledge can be used to draw rules about what is right and wrong, or what should and should not be done. In the study of countermeasures, normativeism has shown its huge role. There is no reason to think that normativeism is low-level. In economics research, "norm" includes at least the following different meanings:

Relevant parts of economic policy; categories of social ethics. Obviously, for economics, normative meaning not only has inherent universal meaning like empirical meaning, but also the normative method used in research has a broad scope of application like empirical method.

Milton Friedman explained the relationship between empirical economics and normative economics in the famous article "Methodology of Positive Economics". From Friedman's point of view, the conclusion of empirical economics seems to be, and indeed is, directly related to important normative issues, such as "what should be done" and "how to achieve the set goals". Moreover, "the engineering of normative economics and economics cannot be independent of empirical economics. Any policy conclusion must be based on predictions of the consequences of doing something but not another, and predictions necessarily or implicitly depend on Empirical economics. "Here we emphasize the inseparable connection between empirical economics and normative economics, that is, empirical research serves normative goals, and normative policies must use empirical conclusions to achieve results. People's different views on the normative goal of "what should be?" Lead to controversy, because people in different positions have different values based on maximizing their own interests. For example, some people think that the government should help the poor in trouble. , While others think they deserve it, the government has no obligation to help them. However, Friedman believes that this is not the focus of the debate, he boldly put forward a proposition, "In the current Western world, especially in the United States, the differences in public policy between unbiased citizens are mainly rooted in Different predictions of the economic consequences of acting according to policies. In principle, through the development of empirical economics, we can eliminate these differences; because these differences are different from fundamental differences in basic values, which in the end can only Lead to a fight. "Friedman then elaborated on this proposition, using the example of minimum wage legislation. Unbiased people can reach a consensus that "everyone should have a living wage," but they are divided on whether minimum wage legislation can achieve this goal, that is, how effective "minimum wage legislation is in achieving people's agreed goals." Proponents believe that minimum wage legislation can increase the wages of workers below and above the wage line, while opponents believe that minimum wage legislation has led to worsening employment conditions and worsening poverty. There are two issues here. First, can people agree on goals? If consensus cannot be reached, differences must arose. Due to different ethical positions and values, people in reality are unlikely to reach consensus on policy or legal goals. Although Friedman's argument implies this, he emphasizes that unbiased people can reach consensus. Secondly, if the goals are the same, will there be differences over whether the legislation can achieve the goals? The reality is that there are differences, just like the differences over minimum wage legislation. Friedman pointed out that laymen, like experts, inevitably try to transform empirical conclusions to fit the normative preconceptions they strongly advocate, when the normative meaning of empirical conclusions-or so-called normative meanings-is inappropriate. When it comes to taste, they refuse to accept these empirical conclusions. In other words, many people, including experts, often disrespect the empirical laws and "think of it" or even "cover the ears". However, Friedman believes that this disagreement is due to differences in people's understanding of the laws of empirical economics. However, "because of the same goals, after a long way, people will reach an agreement." Friedman concluded that "the consensus reached on the 'right' issue is not so much derived from the development of normative economics as it is from the development of empirical economics, which can be concluded to be worthy and widely accepted. And the main reason for the strict distinction between empirical economics and normative economics is that this distinction promotes consensus on economic policy. "Because Friedman states that empirical economics is independent in principle For any particular ethical position or value judgment, the task of empirical economics is to provide a generalized system for making accurate predictions of the consequences of any change in the environment, and for the accuracy of the speculations it makes, Scope and consistency are assessed. In short, empirical economics is, or can be, an "objective" science in the sense of natural science. In this way, Friedman established that the unbiased people can reach a consensus on the normative level, and attributed the reason why people can't reach consensus on the achievement of normative goals in empirical economics to the methodological issues of empirical economics. After the methodology of economics, all economic issues become objective scientific issues. Thus, although Friedman discussed the inseparable relationship between empirical economics and normative economics, he used people's confusion about the two to repel normative economics and follow the Keynesian tradition to limit economics to just Positioned as empirical economics research.

Normative economics focuses on "what should be?" For example, should a minimum wage be imposed? Should I cut taxes? Should personal income tax be implemented in a progressive manner? Should the government implement environmental controls? and many more. We should distinguish the goals and rules in "what should be". Tax reduction itself is a government action, specifically manifested as tax reduction rules, but the goal of tax reduction is another issue, which may be to stimulate the economy or it may be Hiding in the people. For another example, China's current urbanization policy can be used to promote China's economic growth and domestic demand in the future, or it can solve the urban-rural difference under the dual urban-rural structure. Rules are closely related to goals, and different goals mean different rules. The goal of normative economics is either the specific operation of democracy, the so-called "consensus", or the government as a new subject to maximize social welfare. Of course, the latter is still constrained by democratic institutions in a democratic society. Different democratic systems have different consensus. For example, the representative democracy in the United States and the people's congress system in our country are different. The maximization of social welfare is an abstract concept, which is mainly reflected in the maximization of the total utility of utilitarian social members in the old welfare economics, while it is reflected in the maximization of the social welfare function in the new welfare economics. But how to calculate the total utility of members of society is not a simple matter. Bentham stated in the beginning of "Principles of Legislation" that "legislators should take the public interest as the goal, and the widest range of utility should be the basis of all his thinking. Understanding what the true interest of the community is is the legislative scientific mission. The key is Find the means to realize this benefit. But the precise meaning of "utility" and the moral arithmetic of calculating the sum of utilitarian may be benevolent see wisdom and wisdom. In the calculation of the maximization of social welfare function, it is assumed that the utility is cardinal and interpersonal comparable and negative The results of the two hypotheses are definitely different, and the calculation methods of Pigou and Huang Youguang, which insist on base quantifiability and interpersonal comparability, are also different. In this way, standard economics has become a value judgment outside the economic model. Steven Randberg tried to overcome this situation by demonstrating that the objective function of the social planner was formed endogenously and that the objective function formed endogenously was the only "correct", so as to establish a scientific normative economic methodology. This is also to establish a pragmatic economy A basis for learning, because whether the actual effect can reach the "correctness" of the normative goal directly turn off.

Friedman tried to separate empirical economics from normative economics and study economic issues through scientific methods, with a view to resolving disputes over economic policy. However, the development of empirical economics alone cannot lead to consensus on economic policies. Empirical economics only describes, explains, and predicts economic phenomena. It will tell us the consequences of different economic policies and cannot tell us how to choose, because the question of how to choose depends on the goals of economic policy. Empirical economics just tells us the distance between different economic policies and the agreed goals when the goals of economic policies are agreed. But the determination of the goal is directly related to whether it can be achieved through economic policy or law. On the issue of minimum wage legislation, Friedman's discussion is too simple, because the level of the minimum wage determined by the "survival wage" consensus is directly related to the achievement of the goal. If the minimum wage is too high, it may meet the opponents The judgement not only did not help the workers, but made them poorer. If the minimum wage is moderate, it may be that the supporters win, and the welfare of the workers is improved without damaging the labor relations. In other words, whether the goal can be achieved is directly related to the goal itself, just as whether the ideal can be achieved is directly related to the level of the ideal. If the ideal is not high, it may be achieved soon, and the ideal is high and may never be achieved Become "so high and far away". When changing society through legislation, the rational discussion of legislative goals is of paramount importance. The achievability of legislative goals itself needs to be demonstrated, because goals, means and effects are trinity. If we want to ensure the actual effect of economic policies and laws, we must rationally explore the legal or policy goals, and at the same time explore the achievability of the laws of empirical economics on the goals. We can say that empirical economics and normative economics are inseparable.