The Passionate Economist

A tribute to Wolfgang Rosenberg (1914-2007) – scholar, public intellectual and gentleman.

Listener: 21 April, 2007.

Keywords: History of Ideas, Methodology & Philosophy;

There were many tributes to Wolf Rosenberg when he died recently at 92. As well as his considerable achievements as a teacher, writer and activist, people recalled his commitment to economics and law (a profession he took up after turning 65); to civil liberties, social justice and socialism; and to New Zealand solutions to New Zealand problems (for despite arriving here when he was 22, he had a less colonial mindset than some native-born New Zealanders).

Wolf, with his charming old-world courtesies, was much loved and respected even by those who politically disagreed with him.

For my own memorial tribute I want to have a dialogue with him, something I have done all my economic life, for he was the first economist I ever met. Because he is not here to tell me where I go wrong, I’ll bias the dialogue towards his views.

Wolf was one of the last of the generation scarred by the Great Depression of the 1930s. After Hitler’s rise to power in Germany, he lost his job and had to endure anti-Semitic insults. He migrated to “that wonderful country”, New Zealand.

Like others of his generation, he was an “elasticity pessimist”, arguing that market prices often reconcile supply and demand only at enormous social cost. (“Elasticity” is economist’s jargon for how sensitive supply and demand are to price changes.)

Thus he insisted on the need for import controls, believing that changes in the exchange rate would be insufficient to bring a balance between exports and imports. Instead, it would come via a quantity adjustment of higher unemployment, as workers were laid off to reduce the demand for imports.

When prices need to change a lot to get a quantity change, they can have a dramatic impact on income distribution. Modelling by Bryan Philpott in the 1980s suggested that the wages of the unskilled would have had to fall 27 percent to eliminate unemployment, with a devastating impact on workers’ standards of living.

Better, Wolf would argue, to intervene in the market with controls. (Instead, we left the unemployment, eliminating it over 10 years by a growing economy, with a huge current account deficit, heavy overseas borrowing and increased foreign ownership of New Zealand.)

Later generations were more elasticity-optimistic, as they saw how small price changes can lead to major adjustments, although they were not all as extremist as the Rogernomes.

Reconciling the elasticity optimists and pessimists can depend on the timeframe. Product markets often do not respond quickly to prices. But in the long run they may. Wolf, who could be very quick, might come back with Keynes’s “In the long run we are all dead”, then elaborate that the short-run damage could be catastrophic.

I’d probably respond by saying that the controls do not work very well either, especially in the post-Depression world of rising affluence and wide choices of products and technologies. Wolf might respond that unemployed workers don’t have a lot of choice. I’d leave with the sneaking feeling that we should not reject all controls.

I am not going to leave him with the last word. Mine is: farewell Wolf – passionate scholar, public intellectual and gentleman. We’ll miss you.

Of course I gave dear Woofie the last word. In a separate box there was:

* Economic policies must be formulated within the nation. Internationalism is desirable, It is co-operation between healthy nations.
* Without being able to pay its way internationally, a nation’s independent existence is threatened.
* There is no automatic mechanism to keep a nation’s imports within the limits of its exchange earning capacity,
* So without controls on foreign trade and exchange, a nation cannot simultaneously maintain external balance and full employment.
* Protection and import controls are a necessary but not sufficient condition for full employment.
* Planned policies of using internal resources for investment and qualitative improvement of the people and resources of New Zealand can only be successful if they do not cause foreign exchange crises.
* Import substitution, export promotion, social improvement of health and education, greater Maori self-determination and nature’s conservation and enhancement are essential conditions for full employment.
* We need a two-tier economy. One tier uses advanced techniques for export production through government-supported and intensified research and development, plus an expanding basis of universally accessible education. The other lower-tech tier creates the jobs to maintain full employment.
From his New Zealand Can Be Different and Better

My celebration on Wolf’s  80th birthday.