Hans-Werner Sinn - Economic-policy Positions

Economic-policy Positions

With regard to long-term structural problems, Sinn is a proponent of supply-side positions. In 2005 he was one of the first German economists to sign the "Hamburger Appell", which argued for fundamental market-economy reforms and rejected demand-oriented concepts of economic policy. At the same time Sinn employs the instruments of Keynesian demand theory for his analyses of economic activity. With his studies on pension insurance, in which he argued for partial capital funding, as well as by providing direct advice to the Federal Ministry of Labour and Social Affairs (Germany) (through CES, his university institute) and by contributing to an expertise on pensions for the Ministry of Economics, Sinn had a hand in the introduction of the "Riester-Rente", a privately financed pension scheme support by the German government in the form of grants and tax deductions.

In 2003 he saw Germany's attractiveness as an investment location endangered by too high labour costs and called for structural reforms of the labour market. These include escape clauses for collective wage agreements, the abolition of dismissal protection laws and longer working hours without wage compensation. He has also criticised the employment-restricting effects of the German wage replacement system. As an alternative he developed in 2002 the model of activating social welfare. His policy recommendations influenced the Agenda 2010 reforms.

Sinn has called the German economy a bazaar economy since the share of input from abroad in German industrial production is on the increase. At the same time he points out that this is not to be equated with a breaking off of value added in exports. Instead Germany has decimated its domestic sector via excessive wage increases and has driven excess amounts of capital and skilled labour into the labour and knowledge-intensive export sectors, where fewer less-skilled workers can be employed as have been set free in the domestic sectors. At the expense of the domestic sectors, Germany has inflated value added in exports too strongly and at the same time has placed too much emphasis on the final stages of production. As a result a pathological export boom occurred.

The world economy crisis is traced back by Sinn to an abuse of liability limitation by American investment banks. The lack of capital reserve requirements gave these banks the possibility to pursue their business with inadequate capital reserves and encouraged them to gamble. In addition the lack of personal liability for homeowners created in a similar way an exaggerated willingness to take risks and thus caused the American real-estate crisis. To correct this situation Sinn has called for considerably higher capital reserve requirements, the balancing of offshore business and a return to the accounting principle of the lower of cost of the German Commercial Code (HGB).

Against the background of the world economic crisis, Sinn advocates a return to the tradition of ordoliberalism and of ordoliberal economists like Walter Eucken, Alfred Müller-Armack, Alexander Rüstow, and Ludwig Erhard, who argued a strong state should provide a framework or economic order inside which market forces and free market competition can develop. Markets do not regulate themselves (Selbstregulierung), but are capable of self controlled processes (Selbststeuerung) inside an institutional framework provided by the state.

Sinn accuses the Greens of pursuing environmental protection policies with unsuitable means and of ignoring the economic laws of the European emissions trading system as well as the worldwide market for fossil fuel. In his book, The Green Paradox, he argues for including all countries of the world in a post-Kyoto, joint emissions trading system. He also favours employing a withholding tax on the yields of financial investments to curb the desire of the resource providers to extract more fossil fuels.

During the 10th Munich Economic Summit, Sinn brought to public attention the fact that the ECB had been conducting what he termed a “stealth bailout” of Greece, Ireland, Portugal and Spain for the past three years, financing capital flight and/or current account deficits by allowing them to accumulate massive liabilities in their TARGET2 accounts. He subsequently published his views in the press and specialized websites, followed by a working paper that analyzed the issue in detail. He also discussed Germany's capital exports since the introduction of the euro and the prospects such exports could face if the euro crisis continues and leads to the introduction of Eurobonds, which he opposes.