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BY 4.0 license Open Access Published by De Gruyter Open Access July 4, 2017

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

Thomas Palley EMAIL logo
From the journal Economics


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


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Received: 2016-10-31
Revised: 2017-06-03
Accepted: 2017-06-23
Published Online: 2017-07-04
Published in Print: 2017-12-01

© 2017 Thomas Palley, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

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