The Foreign Service Journal, May 2012

M A Y 2 0 1 2 / F O R E I G N S E R V I C E J O U R N A L 37 ay readers often suspect those of us in the “economic priesthood” of deliber- ately shrouding the great mysteries of our profession through the use of code words — otherwise known as “wonkisms.” But while our use of such specialist shorthand does increase markedly during periods of high economic uncertainty like the present, most economists use such language precisely because they believe they are communicating more effectively with their audience. Since that is usually not the case, however, this article at- tempts to decode some concepts and newly popular terms readers regularly encounter but seldom see defined. 1. A black swan has nothing to do with ballet. Rather, ever since Nassim Taleb published a book with that title in 200 7 , economists have called an event that when they cannot explain exactly how or why it occurred. Such developments are so rare that they go beyond any previous experience that might be used to describe them. Thus, a rapid resolution of a finan- cial or currency crisis has been described as a black swan, al- though one wag dubbed such a fortuitous outcome a golden swan — even more rare. A market failure , by contrast, is used to explain why an economist’s firm and unyielding un- derstanding of an event turns out to be wrong. 2. The Rule of 72 , a quick approximation of simple com- pound interest, is all the mathematics economists need to know. One of the best-kept secrets of our profession, the rule reveals how long it will take for an amount of money to dou- ble, given an average annual growth rate (divide 72 by the growth rate to get the number of years). Conversely, if you want the amount to double in a set number of years, the rule will tell you at what rate it must grow (divide 72 by number of years to get the required growth rate). To double an amount in 10 years, for example, requires an average annual growth rate of 7.2 percent. But like much in economics, this is only an approximation, and good only for small numbers. 3. Financial inclusion allows poor people in developing economies to access banking services, sometimes through non-traditional means, such as with a cell phone. Without physically visiting a bank building, they can use their phones to make payments or otherwise keep an account current. They are now “included,” as it were, in the global financial marketplace — though that has not been the safest of locales for several years now, thanks to global financial and debt crises. 4. Technology infrastructure leapfrogging (ribbit, rib- bit) occurs when developing economies that previously could not afford to finance expensive infrastructure — brick-and- mortar branch banks or land-based telephone lines—are able to move beyond such requirements through innovative and relatively inexpensive new technologies, such as cell-phone banking. 5. A Berlin Alexanderplatz event is a long, drawn-out and complex occurrence with many different viewpoints, which for many aptly describes the “Sturm und Drang” of re- cent financial crises. I confess that I didn’t understand this reference when I first heard a commentator use it, but an on- line search informed me that the expression originates from a 1929 book of that title, followed by several movie adaptations over the years. For reference, the most famous cinematic U NDERSTANDING E CONOMICS : A T OP D OZEN W ONKISMS E CONOMICS DOESN ’ T HAVE TO BE A DISMAL SCIENCE , AS THIS TONGUE - IN - CHEEK GUIDE DEMONSTRATES . B Y S TEPHAN S. T HURMAN Stephan S. Thurman is an international economist in the State Department’s Bureau of Economic and Business Affairs. The views expressed in this article are those of the author alone and do not necessarily represent the views of the U.S. De- partment of State or the U.S. government. L