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Solidarity With the Germans (Project Syndicate, 5 min read) Former Greek finance minister Yanis Varoufakis believes the EU Recovery Fund will divide Europe, not least because German workers will divert their anger towards their Italian, Spanish, and Greek counterparts as they feel they are paying for other countries even as inequality in Germany increases. [Bearish euro]
Aging Economies May Benefit Less From Fiscal Stimulus (IMF Blog, 2 min read) The IMF finds thatfiscal policy is less effective in aging economies. Meanwhile, countries with larger working populations benefit because there is more scope for corporate hiring. [Bearish Japan, Europe]
Modern Pandemics: Recession and Recovery (Fed, 30 page read) The COVID-19 pandemic shares characteristics of previous health crises. Those other ‘modern pandemics’ have caused real GDP growth to fall, bounce back, but remain below pre-shock levels for at least five years. Unemployment also falls, especially for females and the less educated. What are the positives? Countries with larger first-year government spending responses have felt the negative effects less.
Market Power, Inequality and Financial Instability (Fed, 29 page read) The secular rise of firms’ market power can explain a number of trends in the US economy: the decrease in both the labour and capital share, the increase in the profit share, the increase in income inequality, the increase in the credit-to-GDP ratio, and the associated rise in financial instability.