Background
The economy has predictive potential, which can be used to make government decisions in the economic sphere. To make prognosis more successful, one needs to understand the current situation correctly, influence factors, calculate potential consequences, and maximize benefits. At the same time, the economy often draws a line between fairness and efficiency, which are respectively represented by positive and normative theories. Despite their differences, it is crucial to take both approaches into account to making economic decisions.
Positive economics is focused on the processes, influence, and essence of economic phenomena, and it seeks to identify specific patterns. It is based on facts and does not depend on subjective judgments. Moreover, affirmations of positive economics can be verified and confirmed or refuted in practice. Thus, the main focus of the positive theory is on specific things already present in the economy. Normative economics, in turn, is not studying what it is but how everything should be (MIT OpenCourseWare, 2012). This approach reflects subjective judgments, values, and ethics adopted in society, particularly the concepts of justice and equality. It seeks to find answers about how permissible or unacceptable, correct or wrong a specific action is by theorizing. Since normative economics is based on theory and subjective judgments, its statements cannot be proved or refuted, but it makes recommendations.
Positive economics and normative economics represent contrasting approaches to assessments of situations or phenomena. For example, the recommendation that colleges and universities should make education more accessible to the population is normative. The advice is based on subjective judgments and values that education is too expensive, but everyone deserves it equally. The statement that reducing the cost of education at a particular college will attract more students will be positive. Such an opinion is subject to verification and can be confirmed or refuted over time, unlike the normative one. For this reason, normative economics can generate controversy, as it does not provide clear evidence. Nevertheless, it offers moral guidance and cannot be omitted from decision-making.
In some cases, the division between positive and normative economics can be complex. Moreover, according to Colande and Su (2015), many economists criticize the distinction and consider it implausible. Moreover, some of them also believe that positive-normative division is a source of problems for economics, while others think it is unrealistic (Colande & Su, 2015). The authors are confident that these statements are incorrect, and the reason for the misconceptions is a misunderstanding of the roots of distinction and its inaccurate interpretation. In particular, the distinction was considered as generated by the logical positivist tradition, for which ethics is meaningless. Colande and Su (2015) propose to study and interpret positive-normative distinction as arising from the works of the scientists – Mill and Keynes. Notably, they recognized the limits of theory and empirical testing and warned economists against excessive subjectivity. Thus, positive and normative economics should be used in a balanced manner, which would give the best result.
Public Goods
Two Main Characteristics
Public goods play an important role in the life of the state. An essential task in the governments’ activities is to ensure favorable conditions for citizens’ lives: protection, infrastructure, and similar benefits. Public goods are products and services that bring positive externalities and are given to citizens free of charge. Understanding the concept of public goods is based on the study of its two main characteristics – nonexcludable and nonrivalrous.
The first characteristic, nonexcludable, means that such goods are inherent in everyone and cannot be taken away from a person. The opposite of public goods – private goods belong to the one who acquired them, and comparing these phenomena contributes to their better understanding. For instance, when buying food from a store, a person does not have to give it to others as it is a private product. However, another example is when government spending covers roads’ construction expenses, and no one can prohibit citizens from using them since roads are a public good. The second characteristic, nonrivalrous, means that all people can enjoy the public good, avoiding losses for others (Greenlaw & Taylor, 2017). In the mentioned examples, the food purchased as a private good cannot yet be bought by another person, a competitive consumer. The use of the road, in turn, is possible by many people, and this fact does not infringe on the capabilities of others, and they are not competitors.
Difficulties in Public Goods Allocation
The production and delivery of public goods are complex processes. In particular, they cannot be created without significant financial resources. For example, governments receive the necessary resources through taxes, which the country’s citizens pay. However, there is an issue that impediments public goods allocation known as free rider problem. It assumes that some users of the public good, free riders, allow others to pay for it without making their contribution (Anomaly, n.d.). Thus, there are always several people in society, for example, tax evaders who enjoy the public good at the expense of conscientious and conscious citizens.
At the same time, such situations also harm the volume and quality of the public good. An equal contribution, becoming a public good, increases its profitability and is distributed evenly among citizens (Greenlaw & Taylor, 2017). In the case of a free rider, the goods will also be distributed evenly but will not correlate with the contribution – the one who paid will receive less, and the one who did nothing, receive benefits. Anomaly (n.d.) proposes to use altruistic punishment to solve the problem of free riders. Such punishment involves an action that is expensive for the perpetrator but benefits others. Thus, the allocation of public goods is a complex and time-consuming process that faces impediments.
Should Government Allocate Public Goods or They Should Be Privatized
Currently, most public goods are provided by the government at various levels – local, federal, or state. However, not only the state can offer them, but also some private sources. Greenlaw and Taylor (2017) give an example of radio – everybody without exception can listen to programs with no competition and no ability to exclude someone. Public goods provided by private individuals are called privatized, and there are different views on which supplier is better – a private or a state.
When privatizing public goods, the problem of free riders is solved, and potential competition can improve the quality of services. Moreover, some world states have a severe crisis of dishonesty among government representatives, and resources that should be used for the public good can be stolen. However, privatization may create another problem – people who do not want to contribute more than others can delay the decision, and, as a result, no action will be taken at all. Perhaps a balance will be an appropriate option – on the condition of an honest government, part of the goods can be provided by states and another part by private individuals. For example, building roads throughout the country will be more convenient to implement for state representatives, and a private company can arrange a garden or sports ground in the community.
References
Anomaly, J. (n.d.). Political: What are public goods? Khan Academy. Web.
Colander, D., & Su, H. C. (2015). Making sense of economists’ positive-normative distinction. Journal of Economic Methodology, 22(2), 157-170. Web.
Greenlaw, S. A. & Taylor, T. (2017). Principles of economics. OpenStax. Web.
MIT OpenCourseWare. (2012). Lec 1 | MIT 14.01SC principles of microeconomics. YouTube. Web.