Positive Versus Normative Economics: What’s The Connection .
Public ChoiceDOI 10.1007/s11127-010-9700-zPositive versus normative economics:what’s the connection? Evidence from the Surveyof Americans and Economists on the Economyand the General Social SurveyBryan Caplan · Stephen C. MillerReceived: 28 May 2009 / Accepted: 1 August 2010 Springer Science Business Media, LLC 2010Abstract Previous research suggests that positive and normative beliefs about economicsare largely unrelated. Using questions from two national surveys, this study finds that: (a) theunderlying determinants of positive and normative beliefs are strikingly similar; (b) education is by far the strongest overall determinant of both positive and normative beliefs; and(c) the variables known to push positive beliefs in the same direction as formal economictraining—education, male gender, income growth, and job security—also push normativebeliefs in the same direction. These results strongly suggest that the positive-normative connection has been underestimated.Keywords Economic beliefs · Positive economics · Normative economicsJEL Classification D83 · A11 · D841 IntroductionBeliefs about positive economics and normative economics are logically distinct. A personwho holds the normative belief that free trade is good does not have to accept the positivebelief that free trade promotes growth. He might even favor free trade on the grounds thatgrowth is bad, and free trade retards growth. Nevertheless, economists often assume thatpositive and normative beliefs are closely connected. Milton Friedman provides the canonical statement of this position:B. CaplanDepartment of Economics, Center for Study of Public Choice, and Mercatus Center,George Mason University, Fairfax, USAe-mail: bcaplan@gmu.eduS.C. Miller ( )Western Carolina University, Cullowhee, USAe-mail: smiller@wcu.edu
Public ChoiceI venture the judgment, however, that currently in the Western world, and especiallyin the United States, differences about economic policy among disinterested citizensderive predominantly from different predictions about the economic consequences oftaking action—differences that in principle can be eliminated by the progress of positive economics—rather than from fundamental differences in basic values, differencesabout which men can ultimately only fight (1953: 5).When researchers have tested Friedman’s conjecture, however, their results have been surprisingly negative (Blinder and Krueger 2004). If Friedman is right for any segment of thepopulation, one would expect it to be his fellow economists. But in fact, economists’ normative beliefs appear to be largely disconnected from their positive beliefs (Fuchs et al. 1998;Fuchs 1996; Ricketts and Shoesmith 1992). If even the experts fail to adjust their policypreferences in light of the perceived facts, what chance is there that laymen’s normative beliefs “derive predominantly from different predictions about the economic consequences oftaking action”?In this paper, we perform a robustness check which suggests that previous literature underestimates the connection between positive and normative economics beliefs. Analyzingboth categories of beliefs, we show that for the general public, (a) the underlying determinants of positive and normative beliefs are strikingly similar; (b) education is by farthe strongest overall determinant of both positive and normative beliefs; and (c) the variables known to push positive beliefs in the same direction as formal economic training—education, male gender, income growth, and job security—do the same for normative beliefs.The key assumption of this paper is that if positive and normative economic beliefs werereally unrelated, we would expect their underlying determinants to differ. Imagine, for example, if education had a large effect on positive beliefs, with no effect on normative beliefs,while income had a large effect on normative beliefs, with no effect on positive beliefs. Thiswould support the view that positive and normative economics are disconnected. On theother hand, if education were the main determinant of both positive and normative beliefs,this would bolster the theory that the two categories of belief are intertwined.Of course, none of our findings decisively proves that positive and normative economicbeliefs are connected. Yet from a Bayesian point of view (Howson and Urbach 1989), theyappreciably raise the probability of a connection. Let P (A) be our prior probability thatpositive and normative economic beliefs are connected, and P (A B) be our posterior probability that positive and normative economic beliefs are connected given our main results. 1. SinceOur main results are clearly more likely if a genuine connection exists: PP(B A)(B)P (A B)P (B A)P (A B)according to Bayes’ Law, P (A) P (B) , we can infer that P (A) 1 as well. Our findingstherefore imply that a positive-normative connection is more likely to exist than it initiallyappeared. The stronger the findings, of course, the more likely they reflect a genuine connection rather than coincidence.1Admittedly, if our prior probability of the hypothesis were extremely low, it might beuninteresting to discover that it is more likely than we thought. Our prior probability of aconnection between normative economic beliefs and American Idol viewership, for example, is presumably trivial.2 If the underlying determinants of normative economic beliefs andAmerican Idol viewership were similar, the hypothesis that the two are connected would become more likely, but the findings still probably wouldn’t pass the “worth reporting” thresh1 We thank an anonymous referee for suggesting this point.2 We thank an anonymous referee for suggesting an example along these lines.
Public Choiceold. In contrast, almost all economists would assign a moderate or high prior probability tothe hypothesis that positive and normative economic beliefs are connected. Since we alreadytake this hypothesis seriously, evidence that significantly changes our posterior probabilitydeserves our attention.Our evidence comes from two distinct data sets: the Survey of Americans and Economists on the Economy (Washington Post, Kaiser Family Foundation, Harvard UniversitySurvey Project 1996; Blendon et al. 1997; henceforth SAEE), and the General Social Survey (2008; henceforth GSS). One of us has already extensively explored the SAEE (Caplan 2001, 2002a, 2002b, 2006, 2007). Since Caplan interpreted all of the questions onthe SAEE as positive, however, none of his prior research on this data set was able totest for a connection between positive and normative beliefs. In contrast, while the General Social Survey contains questions about both positive and normative economics, researchers are only beginning to study the responses to these questions3 (Miller 2009;Caplan and Miller 2010).Relying solely on the GSS, we can test for—and demonstrate the presence of—strongparallels between positive and normative economics. But this could merely reflect a primingeffect. Positive and normative economic beliefs might seem related in the GSS becausepeople were surveyed about both subjects at the same time (Krosnick and Alwin 1987;Foss 1982). Combining the SAEE’s positive questions with the GSS’s mix of positive andnormative questions helps overcome this concern. Using two independent data sets, onewholly positive, the other largely normative, confirms that the positive-normative connectionis as strong as you would conclude if you analyzed the GSS in isolation.The next section discusses the two data sets. Section 3 analyzes the underlying determinants of economic beliefs. Section 4 checks whether both data sets share common signpatterns. Section 5 discusses the broader significance of the results. Section 6 concludes.2 DataOur analysis builds on two distinct data sets: the Survey of Americans and Economistson the Economy, and the General Social Survey. Since the SAEE specifically focuses oneconomics, we follow Caplan (2001, 2002a, 2002b, 2006, 2007) in using virtually all of thequestions, 37 in total (Table 1). The GSS, on the other hand, covers literally hundreds ofsubjects, so we had to select a sub-set of economically relevant questions. We settled on 34(Table 2). Both data sets have nearly identical sets of control variables (Tables 1 and 2).Our next step was to carefully examine each question and classify it as positive or normative. We classified all 37 questions in the SAEE as positive. The questions about whetherX is “good or bad for the nation’s economy” are the toughest call. In our judgment, however, they are as empirically testable as questions about whether a drug is good or bad for aperson’s health. In contrast, many of the questions in the GSS are clearly normative becausethey explicitly ask about desirable economic policy. In the end, we classified 11 of the 34questions from the GSS as positive, and the rest as normative.3 Caplan (2007) briefly discusses a few questions from the GSS, but does not systematically study its questionsabout economics or econometrically analyze the responses.
Public ChoiceTable 1 SAEE questions and control variablesVariableQuestionMeanPositive questionsRegardless of how well you think the economy is doing, there are always some problems that keep it frombeing as good as it might be. I am going to read you a list of reasons some people have given for why theeconomy is not doing better than it is. For each one, please tell me if you think it is a major reason theeconomy is not doing better than it is, a minor reason, or not a reason at all.0 “Not a reason at all”; 1 “Minor reason”;2 “Major reason”TaxhighTaxes are too high1.50DeficitThe federal deficit is too big1.73ForaidForeign aid spending is too high1.53ImmigThere are too many immigrants1.23TaxbreakToo many tax breaks for business1.29InadeducEducation and job training are inadequate1.56WelfareToo many people are on welfare1.61AaWomen and minorities get too many advantages under affirmative action0.75HardworkPeople place too little value on hard work1.43RegThe government regulates business too much1.22SavingsPeople are not saving enough1.39Now I am going to read you another list of reasons, having to do with business, that some people have givenfor why the economy is not doing better than it is. For each one, please tell me if you think it is a major reasonthe economy is not doing better than it is, a minor reason, or not a reason at all.0 “Not a reason at all”; 1 “Minor reason”;2 “Major reason”ProfhighBusiness profits are too high1.27ExecpayTop executives are paid too much1.60BusprodBusiness productivity is growing too slowly1.19TechTechnology is displacing workers1.26OverseasCompanies are sending jobs overseas1.59DownsizeCompanies are downsizing1.51CompeducCompanies are not investing enough money in education and job training1.55Generally speaking, do you think each of the following is good or bad for the nation’s economy, or don’t youthink it makes much difference?0 “Bad”; 1 “Doesn’t make much difference”; 2 “Good”TaxcutTax cuts1.47womenworkMore women entering the workforce1.48TechgoodIncreased use of technology in the workforce1.57TradeagTrade agreements between the United States and other countries1.34DowngoodThe recent downsizing of large corporations0.60Some people say that these are economically unsettled times because of new technology, competition fromforeign countries, and downsizing. Looking ahead 20 years, do you think these changes will eventually begood or bad for the country or don’t you think these changes will make much difference?change200 “Bad”; 1 “Won’t make much of a difference”; 2 “Good”1.15
Public ChoiceTable 1 (Continued)VariableQuestionMeanDo you think that trade agreements between the United States and other countries have helped create morejobs in the U.S., or have they cost the U.S. jobs, or haven’t they made much of a difference?Tradejob0 “Cost the U.S. jobs”; 1 “Haven’t made much difference”;0.642 “Helped create jobs in the U.S”.Which do you think is more responsible for the recent increase in gasoline prices?Whygassd0 “Oil companies trying to increase their profits”; 1 “The normal law ofsupply and demand” [“both” coded as 1; “neither” as 0]0.26Do you think Improving the economy is something an effective president can do a lot about, do a little about,or is that mostly beyond any president’s control?Pres0 “Beyond any president’s control”; 1 “Do a little about”;2 “Something president can do a lot about”0.92Do you think the current price of gasoline is too high, too low, or about right?Gasprice0 “Too low”; 1 “About right”; 2 “Too high”1.68Do you think most of the new jobs being created in the country today pay well, or are they mostlylow-paying jobs?Newjob0 “Low-paying jobs”; 1 “Neither”; 2 “Pay well”0.37Do you think the gap between the rich and poor is smaller or larger than it was 20 years ago, or is it about thesame?gap200 “Smaller”; 1 “About the same”; 2 “Larger”1.70During the past 20 years, do you think that, in general, family incomes for average Americans have beengoing up faster than the cost of living, staying about even with the cost of living, or falling behind the cost ofliving?income200 “Falling behind”; 1 “Staying about even”; 2 “Going up”0.39Thinking just about wages of the average American worker, do you think that during the past 20 years theyhave been going up faster than the cost of living, staying about even with the cost of living, or falling behindthe cost of living?wage200 “Falling behind”; 1 “Staying about even”; 2 “Going up”0.34Some people say that in order to make a comfortable living, the average family must have two full-timewage earners. Do you agree with this, or do you think the average family can make a comfortable living withonly one full-time wage earner?need2learn0 “Can make living with one wage earner”; 1 “Agree that need two wageearners”0.87Over the next five years, do you think the average American’s standard of living will rise, or fall, or stayabout the same?stan50 “Fall”; 1 “Stay about the same”; 2 “Rise”0.93Do you expect your children’s generation to enjoy a higher or lower standard of living than your generation,or do you think it will be about the same?Childgen0 “Lower”; 1 “About the same”; 2 “Higher”1.06[If you have any children under the age of 30] When they reach your age, do you expect them to enjoy ahigher or lower standard of living than you do now, or do you expect it to be about the same?Childstan0 “Lower”; 1 “About the same”; 2 “Higher”1.30When you think about America’s economy today, do you think it is. . .Curecon0 “In a depression”; 1 “In a recession”; 2 “Stagnating”;3 “Growing slowly”; 4 “Growing rapidly2.59Control variablesAge(1996—birth year)44.44Male1 male; 0 female0.47
Public ChoiceTable 1 (Continued)VariableQuestionMeanWhat race do you consider yourself?Black 1 if black, 0 otherwise0.08Other 1 if other non-white, 0 otherwise0.06In politics today, do you consider yourself a Republican, a Democrat, or an Independent?Partyid“Democrat” 1; “Independent” 0; “Republican” 1 0.04Othparty 1 if other party, 0 otherwise0.04Would you say that your views in most political matters are very liberal, liberal, moderate, conservative, orvery conservative?Ideology 2 “Very liberal”; 1 “Liberal”; 0 “Moderate”; 1 “Conservative”;2 “Very conservative”; 3 “Don’t think in those terms”0.14othideology 1 if ideology 3, 0 otherwise0.02How concerned are you that you or someone else in your household will lose their job in the next year?Jobsec0 “Very concerned”; 1 “Somewhat concerned”; 2 “Not tooconcerned”; 3 “Not at all concerned”1.89If you added together the yearly incomes, before taxes, of all the members of your household for the lastyear, 1995, would the total be:Income1 10,000 or less5.132 10,000– 19,9993 20,000– 24,9994 25,000– 29,9995 30,000– 39,9996 40,000– 49,9997 50,000– 74,9998 75,000– 99,9999 100,000 or moreDuring the past five years, do you think that your family’s income has been going up faster than the cost ofliving, staying about even with the cost of living, or falling behind the cost of living?Income growth0 “Falling behind”0.751 “Staying about even”2 “Going up”What is the last grade or class that you COMPLETED in school?Education1 “None, or grades 1–8”4.552 “High school incomplete (grades 9–12)”3 “High school graduate (grade 12 or GED certificate)”4 “Business, technical, or vocational school AFTER high school”5 “Some college, no 4-year degree”6 “College graduate (B.S., B.A., or other 4-year degree)”7 “Post-graduate training or professional schooling after college(e.g., toward a master’s degree or Ph.D.; law or medical school)”3 Determinants of economic beliefs in the SAEE and GSSMost studies of positive versus normative economic beliefs directly test for a connectionbetween the two. While this has obvious advantages, it is also very limiting. If each normative belief depends upon a long list of noisily measured positive beliefs, for example, simple
Public ChoiceTable 2 GSS questions and control variablesVariableQuestionMeanNormative questionsHere are some things the government might do for the economy. Circle one number for each action to showwhether you are in favor of it or against it.1 “Strongly in favor of”; 2 “In favor of”;3 “Neither in favor nor against”; 4 “Against”; 5 “Strongly against”SetwageControl of wages by legislation.3.34SetpriceControl of prices by legislation.3.08LessregLess government regulation of business.2.60On the whole, do you think it should or should not be the government’s responsibility to. . .1 “Definitely should be”; 2 “Probably should be”;3 “Probably should not be”; 4 “Definitely should not be”PriceconKeep prices under control.2.10AidindusProvide industry with the help it needs to grow.2.23ReqinfoIt is the responsibility of government to require businesses to provideconsumers with the information they need to make informed choices.2.221 “Agree strongly”; 2 “Agree somewhat”;3 “Disagree somewhat”; 4 “Disagree strongly”What do you think the government’s role in each of these industries should be.1 “Own it”; 2 “Control prices and profits but not own it”;3 “Neither own it nor control its prices and profits”OwnpowerElectric power.OwnsteelThe steel industry.2.282.60OwnbanksBanking and insurance.2.41EconsysOn the whole, do you think our economic system is. . .2.471 “The best system we could possibly have”;2 “Basically okay but in need of some tinkering?”;3 “In need of some fundamental changes?”;4 “Needing to be replaced by some other system?”BuspowHow about business and industry, do they have too much power or too littlepower?2.471 “Far too much power”; 2 “Too much power”;3 “About the right amount of power”;4 “Too little power”; 5 “Far too little power”PriventPrivate enterprise is the best way to solve America’s economic problems.2.461 “Strongly agree”; 2 “Agree”; 3 “Neither agree nor disagree”;4 “Disagree”; 5 “Strongly disagree”To what extent do you agree or disagree with the following statements?1 “Strongly agree”; 2 “Agree”; 3 “Disagree”; 4 “Strongly disagree”profits2Corporations should pay more of their profits to workers and less toshareholders.2.03On these cards are some opinions about the government and the economy. For each one I’d like you to tellme whether you. . .1 “Strongly agree”; 2 “Somewhat agree”;3 “Somewhat disagree”; 4 “Strongly disagree”equal7Generally speaking, business profits are distributed fairly in the United States.2.83
Public ChoiceTable 2 (Continued)VariableQuestionMeanLetinDo you think the number of immigrants from foreign countries who arepermitted to come to the United States to live should be. . .3.741 “Increased a lot”; 2 “Increased a little”; 3 “Left the same as it isnow”; 4 “Decreased a little”; 5 “
while income had a large effect on normative beliefs, with no effect on positive beliefs. This would support the view that positive and normative economics are disconnected. On the other hand, if education were the main determinant of both positive and normative beliefs, this would bolster the theory that the two categories of belief are .
Normative economics and Positive Economics: Normative economics refers to value judgments, e.g. what “ought” to be the goals, of public policy. Normative statements cannot be tested. Positive economics, by contrast, is the analysis of facts and behavior in an economy or
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The levels view: Political and moral theories are concerned with different normative facts, which belong to different ontological levels. The normative facts of political theory belong to a higher—more coarse-grained—ontological level than those of moral theory. Normative political facts are “multiply realizable” by moral facts, so
types of influences: normative age graded, normative history graded, and non-normative. Normative age graded influences are'biolog:1 and environmental determinants that in terms of their onset and duration are highly correlated with chronological age. Examples are walking and talking, going
What influences of adult development result in change? Normative age-graded influences Normative history-graded influences Non-normative life events Let’s take a closer look at each of these! Normative age-graded influences include:
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