The core tenets of classical economics have been challenged over recent years, with behavioural, institutional and methodological insights upgrading and overhauling classical models. The application of these insights has proved highly effective in some areas but core economic policy as practised by many governments appears to have changed remarkably little.

This paper examines six areas where classical economic views have been overhauled over recent decades: 

• sentiment effects
• mental accounting and fungibility
• shrouding
• preference inconsistency
• ‘irrational’ cooperation
• the role of institutions. 

The policy implications of updating the classical model are considered for each of these areas. A central theme is how information flows and is used. Government ‘just getting out of the way’ to let the market solve these informational issues often leads to non-optimum outcomes. The implications are extensive and point towards neglected policy levers with the potential to significantly boost economic growth and improve outcomes.

Treasuries should seize the moment to explore the full range of possible responses to stagnant wages and pressure on public finances, including testing different ideas to see if these can reignite a new phase of inclusive growth for their nations and people.