Professor Propaganda: Is German Economist Exascerbating Euro Crisis?

[sysop]

Germany's Hans-Werner Sinn is fighting desperately against the euro rescue. His controversial theories fill the pages of newspapers for days at a time, but his answers are often simplistic. A growing number of his colleagues are distancing themselves from the influential Munich economist.

http://www.spiegel.de/international/...844590,00.html

[Julio Saavedra]

Just for the record: Professor Sinn has never applied for a position in the Council of Economic Advisors or been approached for this purpose. To set a further point straight: he was not the initiator of the economists' appeal against expanding the ESM to engage in bank rescues, nor in recruiting signatories. He was merely among the first to endorse the appeal and, like many others, contributed with suggestions regarding its wording.

Julio C. Saavedra
Director of External Relations
CESifo Group Munich

[SHBasse]

To prop up the southern European economies only makes sense if a viable solution to the problems are in sight which is not the case.
The understanding of the origin of the crisis is shallow and the explanation that we have overspent is simplistic and primitive.
How can it be that all the old industrialized countries have ended up in not only one but two simultaneous crisis’s!
The economic crisis is getting all the attention, but the deeper and even more serious crisis is the production crisis. We are continuing to lose jobs and competitiveness to the Far East. Germany and the other Northern European countries too!
It does not help the old industrialized countries that their companies are successful if the jobs and the profit are created abroad. It is now proven that it is only the company activities in a country that benefit said country!

http://unifiedscience2.blogspot.com/...-downturn.html

Of course if you are drowning everything is better than going down! That is the only sound reason for continuing to prop up the Southern European countries

[derscheintrügt]

and Sinn has been pointing it out for a long time. The german financial and political establishment is desperately trying to keep up the appearance of "everything will be alright" by spreading BS of all kinds and by all possible means (including propaganda articles like the present one), but Germans are not buying it. Why else would many of them try to get rid of Euro banknotes from risky members of the Euro area as soon as possible, checking their serial number as soon as they receive them?

People understand and don't like when they are lied to, at the latest when their immediate personal experience clashes with the purported "reality". Lied to? Well, yes, unfortunately. One example of many:

...he adds everything to his list that he can drum up: the bailout package for Greece, the euro bailout funds, the European Central Bank'spurchases of government bonds and the German Bundesbank's claims against the European Central Bank system. Using this approach, he comes up with almost €800 billion ($983 billion) in liability for Germany alone.

Currently Target II alone stands at roughly €800 billion, and it is growing by €50-60 billion a month. Half of that is owed by Spain alone. How are mediterranean countries supposed to pay back these debts? By exporting olive oil and cheese?

People understand that - like in the US - their leaders are "backs to the wall", be it because their body language gives them away, be it because they are aware that spending more than you earn is not sustainable, neither on an individual level nor as a society.

If for lack of convincing arguments reputed media (sic) like Spiegel Online have to lower themselves to Ad Hominem Attacks to discredit their critics, the desperation and the stench of fear in the corridors of power must really be at extreme levels, and it might be time to check the hatches for one last time before the incoming storm.

[donlast]

I am not sure what this ad hominem article seeks to achieve. Prof Sinn would surely be flattered to think that he, Godlike, is creating problems that might otherwise not exist but for his intervention and theories.

The truth is that Prof Sinn's "propaganda" is irrelevant. What is relevant, if the author cares to look, is the chart showing the liabilities Germany is taking on board in lending to the heavily indebted. The curve is rising like the north wall of the Eiger. Germany's credit standing and financial solvency is threatened. It is impossible for Germany to bail them out. The sums involved are huge and quite beyond the capacity of Germany to supply. And for what purpose?

When debt becomes excessive it becomes toxic. It creates a debt death spiral. The engine rising asset values that previously supported and fuelled more debt reverses and the impact is deadly. For now we have falling assets values and activity and the capacity to pay down the debt shrinks. The only avenue then is either to write down the debt or write it off.

The belief that the way out is to pump money into the system to raise economic activity is doomed to fail because the gross misallocation of resources caused by the debt bubble then simply becomes embedded and frozen. It is a false market structure that could only last by injecting fresh debt - the so-called Ponzi process. In other words, Schumpeter's "creative destruction" of a recession is not allowed to work its curative effect. So Prof Sinn is not a propagandist: he just doesn't want Germany to go bust.

[jl1632]

The author writes “With Sinn, the problem is that he shares with missionaries the belief in eternal truths and infallibility, especially his own. But economics just happens to be a social science, not a natural science.”

The author overestimates the influence of the science subject on the nature of statements that can be made. In nature and economics you need an approximating model and assumptions about the initial conditions. From there you can make approximating statements about future states of your model. These predictions will usually become less certain the further you look depending on the mathematical model properties – but not because of the science subject.

The difference that the author might have in mind is that in nature science you can – in theory – justify your model by looking at more fundamental nature laws and sometimes draw some conclusions ab initio from (very) solid ground. But in practice this is mostly not feasible.

If I now look at Prof. Sinns arguments with the eyes of a nature scientist then I find his concepts and arguments (model), observations (initial condition) and predictions (extrapolation) convincing. Although I have no economic background I can see that the Euro zone is in several aspects in a bad shape (by construction) and that many proposals made by politicians are going in the wrong direction. I am thankful that Prof. Sinn points out the mistakes – and, of course, he wants to be noticed, not because it is so satisfying for him but because it is so important for us.

[sbanicki]

Originally Posted by sysop

Germany's Hans-Werner Sinn is fighting desperately against the euro rescue. His controversial theories fill the pages of newspapers for days at a time, but his answers are often simplistic. A growing number of his colleagues are distancing themselves from the influential Munich economist.

http://www.spiegel.de/international/...844590,00.html

Frankly, his eyes are wide open. The euro will not survive without a politically united Europe and the countries are just not ready for that.

"The crisis in the euro zone may be easing at long last, Standard & Poor’s said, citing the agreements reached last week by European leaders as important steps toward ending the chaos that has led to questions about the very future of the 17-nation currency zone.", Relief May Be In Sight For The Euro Zone, Standard & Poor's Says, New York Times, July 4, 2012

Remember, S&P was one of the rating agencies giving bonds backed by sub-prime loans an investment grade rating. It is true that the current chaos may subside as a result of the recent agreements, however, the core issue of creating a political union is unresolved. http://bit.ly/FF1207use