Politics and Economics are two social sciences which affect the common man the most. One shall believe that Economy and Politics help each other while one creates policies that look sinister toan outsider why would than someone think that Corporates so rule the world while the not so representative ,representatives just take taxpayers money and go on so called study tours and just chillax. While the common man suffers. Don’t worry it so happens Economics and politics or their mutant simple amalgamation Political Economy isn’t the Devil , it does has flaws and restrictions on it put by its Parents like so many of us.
The most famous so famous that the Economist has an article on it, the Wikipedia page is not full of jargon and that concept is The(Impossible) Trilemma aka by its official name Mundell- Fleming Model What is it and how does it restrict Political Economy?The Mundell-Fleming Model is an economic model which is known as the IS-LM-BoP model.The IS-LM model as simply is a model created by some great economists who are long dead and gave in their inheritance a complex model. Basically for this article you have to understand that it shows the relation between Money Market( the market where all your transactions take place that include Virtual and Real money)and Goods Market( the old school simple 5 sector market)Robert Mundell and John Marcus Fleming a Canadian and British Economists independently while working for the IMF’s department of research.
Both created a model which expanded the IS-LM model which is based on a closed economy to a open economy by addition of Balance of Payments as a variable.Input image of graphNow to the main part why is it called the Unholy Trinity.This means that in simple words not beating around the bushThere can only be a combination of two out of three.
These three sides of the triangle are Fixed exchange rate, Independent monetary policy and free capital movement i.e. as Paul Krugman stated in 1999 “…It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain – or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today,or for that matter most of Europe).” The unholy trinity has its true reputation as whenever any nation has tried to follow all three policies,even India also did it for some time, they have ruined their economy.So, like a good child never ever try to follow all the Trinity at the same time or else the Economy will be destroyed and your Political career dead.