The Foreign Service Journal, February 2011

F E B R U A R Y 2 0 1 1 / F O R E I G N S E R V I C E J O U R N A L 41 F OCUS ON THE E CONOMIC /C OMMERCI AL F UNCT ION T HE T OP 14 E CONOMIC W ONKISMS very profession has its own unique lexicon, and economics is no exception. The use of specialist shorthand increases markedly during pe- riods of high economic uncertainty. Economists and journalists use jargon they expect their readers to know, or they fail to give context, because they imagine readers have been assiduously following previous explanations. This article attempts to decode some concepts and terms lay people encounter but seldom see defined. To quote the late, great Anna Russell, many of these wonkisms should have the caveat, “I am not making this up.” 1. China hits its Lewis Turning Point when it runs out of people. A challenge facing Beijing’s medium-term growth prospects is the so-called Lewis Turning Point, which occurs when the supply of surplus rural labor starts to diminish. At that point the work force that has mi- grated to the cities and industrial centers from the vil- lages will begin to have greater bargaining power to demand larger wage increases, and China’s labor-inten- sive competitive advantage on world markets will erode. Today employment is still larger in the agricultural sector, but current trends suggest it might be overtaken by employment in the industrial sector by 2015. How- ever, given the country’s population, it would not take much of a change in demographic and social attitudes for an increase in births to postpone this turning point far into the future. 2. Developing economies fear the dreaded Trilemma Paradigm . According to the Trilemma Paradigm of open-economy macroeconomics, a country may face a situation where policymakers are able to select only two out of three choices: (1) a pegged or managed exchange rate, (2) free flows of capital and (3) independence of monetary policy. (Some economists prefer to call the Trilemma the “impossible trinity.”) It has troubled poli- cymakers for the better part of a century, and is exasper- ating them again now. Just think what several of the troubled euro area coun- tries could do if they had a floating exchange rate and managed their own monetary policy. If the tensions W HO SAYS ECONOMICS IS A DISMAL SCIENCE ? H ERE IS A TONGUE - IN - CHEEK GUIDE TO HELP YOU KEEP UP WITH THE CURRENT POLICY DISCUSSION . B Y S TEPHAN T HURMAN E Stephan Thurman is the lead international macroecono- mist in the Office of Economic Policy Analysis and Public Diplomacy in the Bureau of Economic, Energy and Busi- ness Affairs. Prior to coming to the State Department in 2002, he was principal analyst in the Economics Depart- ment of the Organization for Economic Cooperation and Development in Paris, and has also held positions with the U.S. Congressional Budget Office and the Federal Reserve Board of Governors, among other organizations.