A theory of economic policy lock-in and lock-out via hysteresis: Rethinking economists' approach to economic policy

Thomas Palley

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2017, vol. 11, No 2017-18, 18 pages

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.

Keywords: economic policy; lock-in; hysteresis; globalization; euro; neoliberalism (search for similar items in EconPapers)
JEL-codes: D7 E6 F5 H3 L5 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: A theory of economic policy lock-in and lock-out via hysteresis: Rethinking economists' approach to economic policy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:201718

DOI: 10.5018/economics-ejournal.ja.2017-18

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