Have a question for dochawk? See answers at askdochawk!

Modern economics tends to have more in common with the natural sciences than the other "social sciences." In fact, though I have a Ph.D. in economics, I'm still not quite sure what "social science" means—when I hear the term, it more often than not seems to be used as a shillelagh to claim exemption from the scientific method.

Economists tend to look with skepticism upon the other social sciences, who in turn look back skeptically, often over our obsession with the quantitative over the qualitative, or over data rather than explanation.

Economic behavior is certainly not as easy to test as the phenomena studied by most of the natural sciences. It is not, for example, possible to run the 2004 economy over again with a different tax code. Nor can we remove the social safety net to see how many people would starve in the absence of a government program. Nonetheless, particularly over the course of the second half of the Twentieth Century, the field has increasingly moved from "intuition" to the scientific method and its use of testable hypotheses.

Most of the time.

Practiced properly, economics is split between "positive economics" and "normative economics," which share the same distinctions as positive and normative statements. Positive statements are statements about "what is," and are testable. Normative statements are about norms—what "should" be, or what is "better." The statement, "Bill Clinton walks down Pennsylvania Avenue every Saturday morning at 10:00 A.M. in a purple polka-dot dress." is a positive statement. It is also false (at least as far as we know). On the other hand, "Bill Clinton should be marched down Pennsylvania Avenue every Saturday morning at 10:00 A.M. in a purple polka-dot dress" is a normative statement: it is a statement of opinion, and necessarily involves a value judgment. It is also possible to mix the two: "Bill Clinton should be marched down Pennsylvania Avenue every Saturday morning at 10:00 A.M. in a purple polka-dot dress for harassing Linda Tripp." makes the positive claim that Linda Tripp was harassed, and then draws a normative conclusion as to the appropriate response.

Economics follows a similar split. Unfortunately, this is honored far too often in the breach rather than practice. For example, no honest economist can make either the statement "Cutting tax rates increases revenue." or that "Cutting tax rates decreases revenue." These are both testable positive statements, and both are false. We know about situations in which cutting rates increases revenue, and about others in which it decreases revenue. Nonetheless, there are groups that always argue for tax cuts with the claim that they well increase revenue, and those that always argue against them with claims that they will cost the government revenue.

To be honest in such cases, we must split the argument into positive and negative components. The positive component, for example, could be that "Decreasing the top marginal rate to 33% will lead to increased economic activity increasing the GDP by 1%, creating one million new jobs, and increasing federal revenue next year by forty billion dollars." This is a testable statement, and may or may not be true. If the statement is true, it would be hard to make a normative argument against the cut, save out of spite.

Another possibility, though, is "Decreasing the top marginal rate to 33% will lead to increased economic activity increasing the GDP by 1%, creating one million new jobs, and reducing federal revenue next year by ten billion dollars." Assuming that the statement is true, it is a more common type of economic tradeoff. In particular, a choice must be made between jobs and revenue. Positive economics tells us what the choice is. Normative economics tells us which choice we should make.

In this case, and in nearly any case of actual interest, different people will come to different conclusions about what should be done. Economists have a dominant role to play in finding the tradeoffs. We have no better claim to making the normative choices, however: your opinion on which choice we should make is entitle to the same weight as that of a consensus of a dozen Nobel laureates in economics.

Unfortunately, political discourse rarely gets this far. We can identify members of Congress that will always argue for or against the tax cut, or for or against a change in the minimum wage, or changes in Social Security, without ever asking what the tradeoff is. Unfortunately, I could even name "economists" with widely recognized names that behave in the same manner. Think about it: how many times can you actually remember Congress (or your state legislature) actually discussing the tradeoffs, and whether or not the tradeoff was worth making, rather than putting it in terms of "help the poor," "make the rich pay their share," or "it will help the economy." Unfortunately, the blinders are often on so tight that even when the choice should be easy, such as the choice above in which jobs and revenue are both gained, people argue against it out of party loyalty or other political motivation.

Such tradeoffs also come into play in social spending. Very few Americans would actually want to end all social spending and income redistribution. Similarly, very few would want to spend the entire national output on such spending, such that we all received exactly the same income and benefits in every respect. Positive economics can tell us things such as, "It costs $345.23 for each child that we save with the new vaccine," "This prenatal care program costs $543.33 for every child whose live is saved" or "Every job saved in this program costs $145,000." There is nothing evil, heartless, or insensitive about making such measurements. In fact, I maintain that it is morally indefensible to not make such measurements (a normative stance, to be sure). By quantisizing such programs, we are able to choose which are the most valuable to society, and where we will spend resources. This allows us to make informed, rather than knee-jerk, normative choices. Four million dollars for a literacy program that will teach three thousand people to read may sound great on its own. However, if that same four million dollars could save three thousand lives, most people would make the normative choice that saving lives was more important.

Finally, we must admit that the positive choices are not always clear. Different economics using different methods may indeed come to different conclusions (in fact, this is likely). This is normal for science. Physicists argue hotly about different theories of gravitation and cosmology, for example. These differing theories make different predictions, which are tested as new data found, and the theories are revised. Economists are, or at least should be, no different than others in this regard. Economic predictions cannot be exact. They can, however, be free from systematic error—when we find an economist who consistently over-predicts revenue loss, for example, and refuses to adjust his methods in the face of the error, we should recognize him as a shill rather than an economist, just as other fields reject their cranks. Over time, we will learn which methods are more accurate—but ignoring the data in the meantime is not an acceptable alternative!

While its predictions are not always correct, economics can play an important roll in our policy decisions by explaining what the choices are. The nature of the choice does not depend upon a person's politics or values—only the "correct" response to that choice. By carefully separating the positive and normative aspects, we can more efficiently expend the resources that society expends, regardless of our own politics.

© Richard Edmund Hawkins, MMV

Related Columns

What a four day television tells us about America today:

Links of interest

Read

Dr. Hawkins is a statistician, antitrust attorney, and Assistant Professor of Economics at the Pennsylvania State University.

Cite or link to this page as http://dochawk.org/column.050223.html,