GREAT BRITAIN UNDER SIEGE

On December 8, Margaret Keenan, a 91 year old British grandmother, became the first person in Britain and the West to receive a vaccine against Covid-19. This was a big deal, and much of the British population celebrated, filled with pride and hope that there was light at the end of a long, unsettling and painful tunnel. Two weeks later jubilation turned to trepidation when epidemiologists discovered that a new and 56-70% more contagious variant of the coronavirus was sweeping the United Kingdom. As if this was not enough, many in the country were becoming increasingly apprehensive about the consequences of Brexit negotiations with the EU, which were in their ultimate phase, but not terribly promising. Brexit being concluded by the end of the year was long anticipated. However, reality was finally sinking in. All in all the U.K. experienced a double whammy. The more immediate crisis, the coronavirus variant, generated anxious responses from all over. Prime Minister Boris Johnson intensified the U.K. lock-down protocols, essentially eliminating most Christmas celebrations. One nation after another imposed flight restrictions on Britain. France barred entry of trucks from the U.K., and even though this edict lasted only a few days, the border closing left more than 1,500 trucks stranded as the Port of Dover and the Euro tunnel were shut to outbound traffic, multiple countries began establishing and requiring systematic testing for the virus for people coming in from Britain. New York governor Andrew Cuomo demanded a halt to flights, and insisted that airlines flying into New York from the U.K. mandate that all passengers produce a negative Covid-19 test before boarding flights. The remainder of the country followed suit as of December 28. The panic response developed late and was probably less than effective. Infectious disease experts, including Dr. Anthony Fauci, opined that there was a good chance that the variant was already here. In light of the improbability that the variant had remained confined to Britain, the European Commission recommended rather quickly that member states lift their blanket bans on Britain. However, the emotional damage was already done. As this crisis developed, Brexit negotiations reached a last minute push for a U.K.-EU trade agreement with a December 31 deadline looming and progress fleeting. While P.M. Boris Johnson and European Commission president Ursula von der Leyen meeting over dinner, and Mr. Johnson suggesting that he would leave without a deal, opinion polls in the U.K. indicated that positions in the country had shifted after its 2016 referendum. Currently 51% of those interviewed indicated they actually wanted the U.K. to remain part of the EU. At stake was not only termination of the free movement of goods across the English Channel for the first time in half a century. The recent memory of hundreds of trucks stuck at the Port of Dover only represented a small example of what could be anticipated during the logistical nightmare expected once the country effectively separated from the EU. Every day 10,000 trucks cross the Channel on ferries moving half of all goods between the U.K. and the continent. Terminating EU membership would mean that drivers and cargo required documentation going forward. New customs officers would need to be hired to test imports of meat and fresh produce, which meant that shipments that once breezed through could be held up for hours or days. It is estimated that for every 2 minutes of delay at the Port of Dover, a 17 mile traffic jam will be created on access roads. Besides, a "no deal" Brexit would mean that the EU could start taxing British imports from the beginning of January on, substantially raising prices. A last minute agreement was reached, which avoided the immediate imposition of tariffs on $900 billion of cross border trade. This is significant because last year the U,K relied on the EU for 50% of imports and 47% of exports, making it the U.K.'s single largest trading partner. However, the outcome is no substitute for the unfettered access to the largest single market in the world. The new agreement still throws more obstacles in the way for traders. The British government estimates that there will be 215 million extra customs declarations a year, nearly 600,000 a day, businesses have to process. And it is anticipated that the cumulative drop in GDP over the next 15 years could be a whopping 4%. Moreover, the prospect of a traffic nightmare at the Port is still expected to become a reality. Political opposition to Brexit is still powerful and is only getting stronger. Leaders in Scotland and Northern Ireland were quick to express their displeasure. Scotland's First Minister Nicola Sturgeon issued the statement that "Brexit is happening against Scotland's will - and there is no deal that will make up what Brexit takes away from us." Northern Ireland's Social Democratic Labor Party leader Colum Eastwood chimed in, stating: "The entire Brexit fantasy is a future that people here do not want and did not vote for." The British government may believe that, for now, it is managing to limit the fallout of the recent crises it was forced to address. It ought to get prepared to confront the political backlash it is certain to encounter. The country is under stress. Its population feels besieged and may well be ready to shake off a populist yoke. Brexit, after all, was a populist pipe dream. Ultimately, national cohesion could be at stake. Theo Wierdsma

INCOME INEQUALITY THREATENS SOCIAL STABILITY

One way or another, politicians running for elective office have been pointing out that economic inequality in this country is spiraling out of control, shrinking the middle class and endangering social stability. During the 2016 election, then candidate Donald Trump effectively used this condition by pointing out how globalization had killed industries in our industrial heartland, forged the closure of many businesses, and shifted thousands of jobs into skill sets workers were not prepared for. He promised to revitalize industries like steel and coal, which had traditionally been the livelihood for many now unemployed. Self proclaimed democratic socialist Bernie Sanders, never subtle, hammered on the "super rich" and large corporations suggesting that the country needed to dramatically reform the tax code and essentially redistribute some of the wealth. He and others pointed out that the wealth gap between the richest and the poorer families had more than doubled since 1989. And, during the most recent campaign, now President- Elect Joe Biden also ran on a platform of policy proposals designed to narrow this gap. Economic inequality is somewhat of a complex concept. It involves the distribution of income - the amount of money people are paid, and the distribution of wealth, the amount of wealth people own. On the one hand, the wealth gap, while growing steadily, is typically not considered to be easily actionable through government intervention. The richest one percent takes in about one third of the country's net worth. The catch phrase "the rich are getting richer, the poor get poorer," is not just a platitude. People who already hold wealth have the resources to invest or to leverage the accumulation of wealth, which creates new wealth, leading to what is called "wealth concentration." Income inequality, on the other hand, has become more of a political football. It refers to a significant disparity in the distribution of income between individuals, groups, populations, social classes, or even countries. Among the G-7 countries, composed of the world's largest developed countries, the U.S., the most prosperous country in the bloc, has the highest level of income inequality, and, by far, exhibits the worst poverty rate. Causes of steadily increasing inequality include a number of factors: the growth in technology, continued gender income differentiation, the decline of organized labor and the influence of globalization. Wages are a function of the market price of skills required for a job, which, in turn, is determined by supply and demand. Rapidly changing technologies demand specific skill sets many workers won't possess and which may be difficult to acquire by an aging, relatively uneducated labor force. Salaries for women in the U.S. are still only 77% of that of men. The share of workers represented by labor unions has dropped by half, to just over 10%, during the past four decades, shrinking the power to bargain for higher wages and benefits. Globalization has reduced global inequality between nations, but it has increased inequality within nation-states. Significant income inequality has consequences. A major downside is diminished economic growth. MIT professor David Autor argues that "dynamism," characterized by vigorous activity and progress, gives rise to "dynasticism." Kids of affluent parents, even of mediocre talent, go to the best schools and talented kids from less affluent families don't, which ultimately means our society will be less productive. Besides, people on the lower steps of the economic ladder may become discouraged as they experience diminished economic opportunity and mobility. Severe income and wealth inequality also tends to have a negative effect on the political influence of the disadvantaged. Moreover, regional income producing activities, be they industrial, agricultural or others, may create geographic segregation by income. When asked, 61% of Americans (78% Democrats and 41% of Republicans) believe that there is too much economic inequality in the U.S., but fewer than half call it a top priority Those who say there is too much inequality see merit in a variety of approaches: Ensure workers have the skills they need for today's jobs (65% of Democrats and 56% of Republicans); increase taxes on the wealthiest Americans (69% of Democrats and 36% of Republicans). (PEW Research, Jan. 9, 2020). More than half of those who believe there is too much inequality believe that the government needs to be instrumental in mitigating this condition and has the responsibility to provide all Americans with high quality K-12 education, adequate medical care, health insurance, adequate income at retirement and a decent standard of living. What is the point of living in the most prosperous country in the world when 50 million people are hungry and well over half a million have no roof over their heads. A considerable basket of policy objectives for our politicians to pursue. Kenneth Rogoff, professor of public policy and economics at Harvard University, cautions that: "there is no doubt that income inequality is the biggest threat to social stability around the world, whether it is in the United States, the European periphery, or China." ("In the long run we are all equally dead," The Economist, July 7, 2020.) Theo Wierdsma