I asked in the first part of this article already how the increase of the  German current account surplus can be explained if one adheres to the thesis that it is due to the regular flow of capital (which is derived from the identity between the net flow of goods and the net capital flow) taking over the leadership role so to speak (we dealt here with this thesis and the sources on which it is based and we clearly rejected it). Now it is possible to provide an even clearer refutation.

If you would be a sincere scientist, the finding that the German current surplus account also clearly increased with the EMU countries would instantly prompt you to revisit your own thesis (which I call the Sinn hypothesis for short and which is also used by left wing social scientists (see here)) in order to figure out which changes occurred in the determinants of capital flows during the last year and which fit into your explanation of the dominance of capital flows.

It does not work like this in the field of economics. On the contrary, one devises a thesis, which is empirically built upon a single case (in Sinn’s original work it was Spain) and all those who find it hard to think for themselves quickly follow and confirm the abstruse findings. When new events occur that put the thesis in doubt, one simply remains silent and waits until the storm blows over, just as politicians do. This is, of course, only possible because there are too little critical voices within the universities who recognise such undesirable developments and act against it. Even more deplorable is the fact with the economics institutes that are heavily funded by the state no one takes up this challenge. We will not even mention the council of so-called economic experts.

When one looks at the development of the German current account surplus and breaks it down regionally, it quickly become clear that the movement in 2015, i.e. an increase by 40 billion euro compared to 2014, is spread regionally fairly even. This flatly contradicts the Sinn-hypothesis because it is extremely unlikely that in many countries simultaneously events take place that make German capital decide to invest in these countries. Conversely, if one accepts that its cause is located in Germany itself, as we explained in the first part, one can readily explain the uniform response found in many countries.

In addition, there have been no changes in the capital markets last year that could be responsible for an increase in net capital imports. Hans-Werner Sinn and his apologists have always argued that, with the single European currency, interest rates in some southern countries dropped dramatically. Because of this, housing bubbles in the south arose which sucked up immense amounts of capital from the north. In the meantime, the housing bubble in the south has been over for a long time, yet there is still capital flow towards a number of southern countries is increasing.

Sinn is wrong on two counts. First – and this is bizarre – he conceptualises Germany as a sort of bazaar economy, an economy which cannot achieve surpluses by itself and only exchanges back and forth. Historically, this is, of course, a complete error. Second, he developed the hypothesis that bears his name. This work has a simple ideological function: it is mean to show that the economic mistakes that have been made come from somewhere else, anywhere except from Germany. After the outbreak of the global crisis and, later, the euro crisis, Sinn defended the view – and this is also bizarre – that the German current account surpluses are now a thing of the past. Under these bad economic conditions, there is supposedly no longer a reason for German citizens and companies to export large amounts of capital. This is also wrong.

You simply cannot go wrong in a more grandiose manner than this man. Strangely enough, it does not harm its reputation in Germany at all. This shows that the peculiar German variation of economic research simply has nothing to do with proper science. It is religion. Religious leaders are never being sent into the desert because they were wrong. New interpretations of their words are produced until the point can be made that the leader has never been wrong. A cleric simply cannot be wrong, otherwise he would not have become a cleric.

The economists from the political left who support the Sinn-hypothesis must ask themselves what happened to their professional ethics when they learn of the new development of the German surplus. Just as the political right, they obviously do not want to admit that the error was made in Germany and that its name is German wage moderation. But if you are not ready to admit the truth – regardless or your motive, be it careerism, peer pressure or ideology – you too are starting to act like a cleric who hides when this work and his ‘personal truth’ is in danger of being refuted.
In the end, it is all quite simple. There is only one thesis which explains the facts and that is the one that ascribes the cause of crisis of the euro zone to the flow of goods and the changes in prices and wages that lie behind it. It is important to understand that one needs to know the volume of net capital outflows and net export of goods, but that this by itself does not help in finding a reasonable theory. You need to discover plausible relationships and think thoroughly and unprejudiced about the causes and effects that are involved. One has to search for facts that either support or contradict the theory, both in time and in different geographical areas. One should never close his eyes to facts that refute findings and show holes in theoretical work. On the contrary, only those who deal with facts and do not compromise their scientific standards from the moment that their own beliefs are at risk are capable of contributing to something to what is commonly called science.