Journal Article
No. 2017-18 | July 04, 2017
A theory of economic policy lock-in and lock-out via hysteresis: rethinking economists’ approach to economic policy

Abstract

This paper uses hysteresis to develop the concept of policy lock-in and lock-out. Policy changes may near-irrevocably change the economy’s structure, thereby changing the distribution of wealth, income and power. That may lock-in policy by changing the political equilibrium. Exit costs that block policy reversals also cause lock-in. Conventional thinking treats policy as a dial which is adjusted according to the economy’s state. Policy lock-in questions the dial formulation and raises new issues for optimal policy design. It also offers insights into economic and political crisis theory. Policy lock-in is illustrated with examples that include tax policy, government spending, the euro, globalization, and the neoliberal policy experiment.

JEL Classification:

D7, E6, F5, H3, L5

Assessment

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Links

Cite As

Thomas Palley (2017). A theory of economic policy lock-in and lock-out via hysteresis: rethinking economists’ approach to economic policy. Economics: The Open-Access, Open-Assessment E-Journal, 11 (2017-18): 1–18. http://dx.doi.org/10.5018/economics-ejournal.ja.2017-18


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