Thursday, October 12, 2017

Does Economics Derive From Normative Foundations?

Perhaps positive and normative economic statements aren't even really all that different, according to a recent paper which was noted at Marginal Revolution. Nevertheless, plenty of economists have long been leery of economic thought with normative implications, since "shoulds" and "oughts" sometimes include an ideological lens which distorts economic framing and the actual resources involved. In particular, Arnold Kling voices his doubts about normative sociological arguments. Recently he wrote:
Mainstream economists do have contempt for sociology. When Robert Solow wanted to write about the causes of sticky wages, he apologized for doing "amateur sociology".
Yet sticky wages - whatever their source - involve more than supply side or policy "shoulds" or "oughts", given the implications they hold for consequent resource capacity and monetary flows. While positive economic discussion is defined as objective and fact based, normative economic dialogue is said to be subjective and value based. Nevertheless, the most obvious long term relevance of sticky wages, occurs via fact based outcomes.

At first glance, resource scarcity may appear as though mostly relevant for positive economic framing. But once resource scarcities become driven by artificially restricted supply side means, they include normative underpinnings (societal assumptions re economic value) which affect the practicality of consequent positive - or normative - economic arguments.

One reason economic discussions could be objectively framed for so long, is the nature of tradable sector activity, which remained dominant for centuries. Since tradable sector product "escapes" so many specific time and place connections, it likewise escapes many of the normative associations of these relatively fixed attributes.

So what has changed? Since today's dominant non tradable sector activity emphasizes both specific time and place, subjective considerations are becoming more relevant. While this circumstance is not particularly helpful at political levels (to say the least), it does highlight the relevance of individual interaction in local settings. After all, time as an economic unit, includes experiential desires and aspirations as part of economic processes. It makes a lot more sense to leave room for "should" and "ought" in individual conditions, than in general equilibrium circumstance.

In order for normative discussions to gain more practical value, why not focus on potential and specific resource use means (what could work), instead of broad generalizations about what doesn't work. For example, when we highlight factors which prevent economic participation, make the moment count, by addressing at the same time, potential means by which individuals might discover new and lasting economic connections.

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