Trilemma - Trilemmas in Economics

Trilemmas in Economics

In 1952, the British magazine, The Economist, published a series of articles on an "Uneasy Triangle," which described "the three-cornered incompatibility between a stable price level, full employment, and . . . free collective bargaining." The context was the difficulty maintaining external balance without sacrificing two sacrosanct political values, jobs for all and unrestricted labor rights. Inflation resulting from labor militancy in the context of full employment put powerful downward pressure on the pound sterling. Runs on the pound triggered a long series of economically and politically disruptive "stop-go" policies (deflation followed by reflation). John Maynard Keynes had anticipated the severe problem associated with reconciling full employment with stable prices without sacrificing democracy and the associational rights of labor. The same incompatibilities were also elaborated on in Charles Lindblom's 1949 book, Unions and Capitalism.

In 1962 and 1963, a trilemma (or "impossible trinity")

was introduced by economists Robert Mundell and Marcus Fleming in articles discussing the problems with creating a stable international financial system. It refers to the trade-offs among the following three goals: a fixed exchange rate, national independence in monetary policy, and capital mobility. According to the Mundell–Fleming model of 1962 and 1963, a small, open economy cannot achieve all three of these policy goals at the same time: in pursuing any two of these goals, a nation must forgo the third.

In 1989 Peter Swenson posited the existence of "wage policy trilemmas" encountered by trade unions trying to achieve three egalitarian goals simultaneously. One involved attempts to compress wages within a bargaining sector while compressing wages between sectors and maximizing access to employment in the sector. A variant of this "horizontal" trilemma was the "vertical" wage policy trilemma associated with trying simultaneously to compress wages, increase the wage share of value added at the expense of profits, and maximize employment. These trilemmas helped explain instability in unions' wage policies and their political strategies seemingly designed to resolve the incompatibilities.

Steven Pinker noted another social trilemma in his book The Blank Slate: that a society cannot be simultaneously fair, free and equal. If it is fair, individuals who work harder will accumulate more wealth; if it is free, parents will leave the bulk of their inheritance to their children; but then it will not be equal, as people will begin life with different fortunes.

Arthur C. Clarke cited a management trilemma encountered when trying to achieve production quickly and cheaply whilst maintaining high quality. In the software industry, this means that one can pick any two of: fastest time to market, highest software quality (fewest defects), and lowest cost (headcount). This is the basis of the popular project-management aphorism "Quick, Cheap, Good: Pick two".