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A Theory of Economic Policy Lock-in and Lock-out via Hysteresis: Rethinking Economists’ Approach to Economic Policy

Summary:
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 ...

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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 [...]
Thomas Palley
Dr. Thomas Palley is an economist living in Washington DC. He holds a B.A. degree from Oxford University, and a M.A. degree in International Relations and Ph.D. in Economics, both from Yale University.

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