Year of the Gripping Hand

By John Mauldin


This week’s letter is the first part of my 2021 forecast. There is simply too much to cover in one letter, and today we’ll start with the most important factor, a known unknown, that I think will be the driver for 2021.

Before beginning, I want to make two points, one about my personal investment position and one about recent events.

First, when I read articles about myself, I’m usually called “bearish.” I never know whether to be amused or mystified. 

If you looked at my portfolio, you would see I’m almost fully invested, not in gold and/or survival stocks but a full range of assets. I have fixed income and private credit and I also participate in the stock market, but through active traders.

Then there is a smaller portion of my portfolio that is what I call the “long humanity” portion. Typically, technology of one form or another, and I don’t pay attention to volatility. I am long the “idea.”

So I am not bearish at all. I am quite optimistic. 

I may be currently bearish about long-only index funds at today’s unreasonably high valuations, and not terribly enthusiastic about bond funds at today’s low yields, but my portfolio and thoughts are quite optimistic. 

I just choose to express my optimism in different portfolios than mainstream managers usually suggest. I am a full-cycle investor, and we have not reached the conclusion of this current cycle.

Second, on this week’s events.

Thoughts from the Frontline is an economic/investment newsletter. I focus on larger macro themes. I try to not let my politics intrude, except when politics affects our portfolios and the economy, which is actually rare. The sturm und drang of the markets, as we certainly see now, tend to have their own rationale apart from politics.

As my friend David Bahnsen said, “Confusing what one WANTS to happen in POLITICS, with what WILL happen in MARKETS, is perhaps the most dangerous and avoidable mistake around. History can’t be any clearer.”

That being said, I know from my inbox and Twitter feed readers want to know what I think about the current events and their effect on the markets.

Frankly, I think the debacle we witnessed this week will have a major impact on the country’s psyche and the way the world views us. I have been talking and writing for quite some time about Neil Howe’s The Fourth Turning, George Friedman’s The Storm Before the Calm, and most recently Peter Turchin’s theories about societal dynamics and how societies tear themselves apart. 

I have my own concept of The Great Reset. I have long thought the 2020s will be tumultuous. 

What we are seeing may just be the beginning of woes.

It’s hard to express the emotions I feel right now. From an economic and investment standpoint, which is the purview of this letter, recent events may be less significant than the impact of the incoming Biden administration. It is not yet clear to me how that will play out.

To really grasp that will require some time and thought. Shooting from the hip today would be a huge disservice to you, and disingenuous for me. 

Frankly, your portfolio should be invested in such a way that whatever the outcome you have the potential to maintain if not grow your investments.

I know that is not sufficient for many of you. My good friend George Friedman’s first note simply said, “There are moments in history best grasped by silence. Silence is the best I can do now.”

There are others who have more eloquently said what I feel and are more qualified to do so. Let me offer a few links that express some of the emotions I feel, even though I know they have inconsistent conclusions as to what should happen.

My country has been attacked, there is a deep political divide but at the same time we are still family who share the same country. We have been through such times before, with much loss and sorrow, but the Republic survives. I have no reason to think this time will be different.

But meanwhile, here are three perspectives that, in different ways, helped me process what is happening.

Peggy Noonan, probably the greatest essayist of our generation, in an elegant and passionate column describes the need to bring justice to those who stormed the capital.

George Friedman, a Hungarian immigrant who has been passionately involved in the American experiment for all of his adult life, tries to express his own emotions in his latest essay.

And finally, Trump’s Rebellion Against Reality is Yuval Levin’s historical analysis of the dysfunctions that brought us here.

I also think today’s Wall Street Journal lead editorial is on target. 

When the WSJ editorial board calls for a sitting president to resign, no further comment is needed. It should give you reason to pause and reflect.

I don’t know about you, but I find myself running the gamut of emotions then trying to take a deep breath and reflect. Each of the above expresses some of what I feel.

Now, on to my forecast for a Year of the Gripping Hand.

One reason humans love to divide everything in half is the two-handed design of our bodies. Thinking in pairs is a simple, intuitive mental shortcut. Harry Truman famously asked for a one-handed economist so he could stop hearing, “On the one hand, but then on the other hand...” But what if we had three hands?

That’s exactly the kind of strange scenario science fiction writers love. Larry Niven and Jerry Pournelle related one in their 1974 book The Mote in God’s Eye. 

The story features an alien species with three arms—two “normal” hands and a stronger, but less dexterous one called the “gripping hand.” 

So when humans might describe a question as “On the one hand/on the other hand,” these aliens would add a third alternative, “On the gripping hand.” 

The strong gripping hand was their most powerful alternative.

That seems simple but it opens up a profoundly different thought process, one the authors explored in a later sequel, The Gripping Hand. Today I will do the same in a smaller way. Every January I give you my yearly forecast, but this time two hands simply can’t capture the nature of the forces we face.

On one hand, we have some extraordinarily good reasons for optimism. On the other hand are several potentially severe problems. On the far stronger gripping hand, we have the coronavirus that last year overwhelmed everything else. And could do so again, if we let it.

Reasons for Hope

We’ll start with the good news. There’s plenty of it out there, but I’ll focus on four key points.

First, we now have weapons against the virus. The US has two approved vaccines. England, China and Russia have developed their own vaccines. Additional options are under development, and will likely be available later this year. These will be game changers if we manage to deploy them widely and quickly. Which, I admit, is a big “if.”

The initial rollout has been slow almost everywhere. (Israel and surprisingly West Virginia being impressive exceptions. West Virginia was the one state that did not use the federal nursing home rollout plan. They ran their own process, showing how this is really a state-by-state problem.) But I think the logistical issues will get solved and people will gain confidence as side effects prove minimal.

Moreover, we will see improvement long before the “herd immunity” threshold. Protecting the most vulnerable groups will reduce pressure on hospitals and hopefully let governments lighten business restrictions. I don’t expect anything like normalcy until the second half of the year, at the earliest, but we should feel a difference sooner.

Second, the recently passed fiscal package will give some relief to unemployed workers and small businesses. The process was late-night political sausage-making at its worst. It took way too long. I dislike some of it but had the bill not passed, I think we would certainly be looking at a double-dip recession in early 2021.

With the Democrats controlling the Senate, we will probably see more cash payments, at least an increase to the $2,000 many wanted (adding to the $600 that passed). It will aggravate an already high national debt but should also boost consumer spending, as we saw with similar payments last year. 

And, if the vaccines do their part, this time people will be more inclined to spend it in the hard-hit restaurant, entertainment, and travel sectors. We are also likely to see a major infrastructure bill as well as additional stimulus. Again, this will blow apart any thought of budget restraint. Sigh.

Third, 2020 was (of necessity) a year of massive innovation throughout the economy. Businesses forced into an “adapt or die” position worked hard to adapt. A disturbingly high number didn’t make it but many did, finding creative ways to operate under new constraints. Those investments having been made, we can now begin to reap the benefits.

I talked with Richard Fisher this week, former president of the Dallas Fed, who is on the PepsiCo board. He noted that under the urgency of COVID-19, consumer goods companies like PEP have accelerated innovation, productivity, and brand positioning over the past nine months that would otherwise have taken five or more years.

It is not just consumer goods companies. An enormous amount of innovation has been pulled forward in a wide variety of businesses and industries. Hundreds of teams of brilliant scientists singularly focused on one problem. The incredible discoveries they are making and the knowledge that they have developed will be applied in scores of different fields.

We would be in a far worse position right now if not for the hard work of millions, everyone from healthcare professionals to farmers, warehouse and delivery workers, store clerks, and others who risked their health to keep society going. Add to that list the scientists and entrepreneurs who developed the vaccines that will get us out of this, and figured out how to do business in tough conditions.

Fourth, US trade policy should change for the better this year. President Trump’s tariffs—one of his worst mistakes, in my view—won’t disappear instantly but hopefully the Biden team will take a much more nuanced and focused approach and ditch the tariffs. They are attacks on American consumers, and specifically the Walmart nation.

The president-elect says, at least, he will continue taking a hard line against China’s unfair practices. He should. But I think he will be more conscious of minimizing the collateral damage to our own nation, and will return the US to organizations like the WTO. This will be critical as we try to get the world economy back on its feet in 2021.

Note: I am an unapologetic proponent of true free trade. But I also recognize that we need to help workers that are caught in the crossfire The benefits of free trade cannot accrue only to a portion of the country They must be shared widely, even if that means government assistance for some workers for a period of time.

So those are some reasons to be hopeful about 2021. But remember, we have three hands.

Four Challenges

This year will bring challenges—some we may not yet foresee. But I can already identify at least four.

First, the pandemic is permanently changing certain parts of the economy. I’ll start with the one most familiar to me: business travel. It came to a screeching halt last spring. Airlines, hotels, and so on since recovered a little but are nowhere near normal, nor are most profitable. They’re just holding on.

The problem is their best customers have now learned how to do business with significantly less travel. I, for one, look forward to flying again, though I doubt that many of us will do as much as we did in the past I don’t see large conventions (that require months of planning and preparation) returning until late 2021, at best. And even beyond that, I bet they’ll be smaller. This is bad news for that industry and entire cities, like Las Vegas, that depend on it.

Second, these changes will cascade through the economy. When a restaurant or hotel closes, its workers, suppliers, and landlord suffer, too. The impact on commercial real estate has barely started but I think will be gigantic. The post-pandemic economy will need fewer shopping malls, retail strip centers, hotels, and office buildings. At the same time, we’ll see higher demand for warehouses and shipping infrastructure. It will all sort out but will take time. And there will be losers.

As for housing, close to 40% of rental homes and apartments in this country are owned by small investors who now have difficult choices. Are they better off working with distressed tenants, particularly when stable tenants are in short supply? As I’ve repeatedly said, the world, and by that I mean almost everything, is going to be repriced.

Third, after almost a year of radical, unprecedented Federal Reserve action, it’s not clear whether we actually have functional capital markets anymore. The bond market, at least, is totally at the Fed’s mercy. Their purchases of Treasury bonds and corporate bond ETFs have let the government and large companies borrow huge amounts on some of the best terms in recorded history. This cash isn’t necessarily being used productively, though, which is going to be a big problem at some point.

Further, the Fed is making the wealth and income disparity divide even worse. Their financial repression is crushing savers, almost forcing retirees to choose riskier alternatives at precisely the time in their lives when they shouldn’t be. And given today’s valuations, this could have disastrous effects.

Fourth, a lot of fiscal and monetary aid found its way into the stock market, driving share prices far above any remotely fair valuation. As I’ve said, these manias can continue longer than we expect, but eventually something triggers a collapse. We have multiple plausible candidates, too, not least of which is the prospect of higher corporate tax rates. Biden and the Democrats basically want to reverse the 2017 tax cuts. If they succeed, it’s fair to expect some of the market gains since then to reverse as well. That, in turn, could have a negative “wealth effect” by making investors save their cash instead of using it to buy stocks. This would remove some of the market’s fuel and put even more downward pressure on prices.

So we’ve looked at one hand and the other. Which brings us to…

The Gripping Hand

That alien species with the third limb doesn’t have three equivalent hands. One of them is far stronger than the others. They call it the gripping hand.

In 2021, the gripping hand is the virus. It can sweep away every other concern and take control any time it wants—though that’s probably the wrong word. Viruses don’t have “wants.” They have no feelings, they don’t want to make money, they don’t respond to insults or threats. They just spread until something stops them. Viruses gonna virus.

Now we have the beginnings of what we need: vaccines to deprive the virus of new hosts. If enough of us get vaccinated, it will have nowhere to go and recede to manageable levels. That’s probably this year’s most critical economic variable. The global economy will recover in direct proportion to our success in vaccinating people.

This is where the news is problematic. Bluntly, potential production of the vaccines approved so far is nowhere near enough to cover the most vulnerable in the US and Europe by the end of the third quarter, let alone emerging markets. This is sadly realistic math.

We desperately need the vaccine Johnson & Johnson is developing, with their enormous potential production capacity. We also need additional new vaccines. 

Without a great deal of new production, 2020’s lockdowns and restricted economic environment may continue long into 2021. The 100,000 small businesses we have lost? 

More may follow.

The World Bank’s annual forecast was very plain about this. They have four scenarios in which global growth ranges from 5% this year on the upside, to an unspecified below-zero number in their “severe downside” scenario. 

The primary difference between these scenarios is vaccine progress. If it goes well we could bounce back quickly and strongly. If not, we will stay in recession. 

That’s the gripping hand and it really isn’t complicated. And it’s why investors and business people ought to be very concerned about the slow start, though fortunately it is improving somewhat. We don’t have weeks to waste here.

Just to make matters more interesting, the virus is not waiting for us to get our act together. New variants are emerging that seem to spread faster. They may slow down progress when, as noted, time is not on our side, economically speaking.

What do I think, you ask? Longtime readers may remember I last used this gripping hand analogy 15 years ago in my 2006 forecast. That year turned out okay, but some of the issues I mentioned worsened considerably in the years that followed.

Timing is hard. A month ago, I was fairly optimistic. Even two weeks ago I was glad to see the new fiscal package pass, thinking it would at least keep GDP positive in the first quarter. Now, I really don’t know.

On the one hand I’m confident. On the other hand, I’m cautious. But the gripping hand is strongest. It could go either way.

We will get into more specifics in the next two issues. Stay tuned…

Resolutions, Unstoppable Progress, and Whigs

I generally resist making New Year’s resolutions. I am not very good at them. But this year I really need to focus my resolve. There are things that must be done.

First, I have to finish my book. Things keep changing and my thought processes evolve. In engineering terms, I need to “lock it down,” get the product out and make changes to the next edition.

Second, I am noticing a serious difference in the way I consume information that is impacting my personal thought. I have access to an enormous amount of information, for which I am grateful. 

But the number of “serious” books I read is down significantly from a decade ago. 

Books tend to go deep on a single idea, giving you greater understanding of the topic. I resolve to read at least two serious books a month. In addition to my usual recreational reading.

And of course, this year I really mean to get in better shape and down to 185 pounds or less. More outdoor activities with friends.

I have been on a number of calls in the past few weeks focused on new technologies. It is hard not to be optimistic. One amazing new technology could double the production of proteins from chicken and eggs with no additional cost. 

A new prostate cancer urine test will not only tell if you have prostate cancer, but show its stage with some precision. It would replace many cancer biopsies.

The agricultural world is getting ready to go through a revolution. 

Non-GMO crops will proliferate with fabulous traits using revolutionary new processes. Cheaper, less need for pesticides and disease control, less need for fertilizer and more nutritious. I hear many such things weekly. How can you not be optimistic about humanity’s future?

I had a long talk with Neil Howe Wednesday night. We generally start intending to go 30 minutes and two hours later we hang up. We came to several interesting thoughts, but I will share one: The times in which we are living in the US are historically most analogous to the 1850s and the dissolution of the Whigs. 

They had a different set of tensions, but a clear trend towards new political and regional coalitions nonetheless. One of the serious books I read this year will be on that period.

And speaking of serious reading, let me suggest, if you’re not already, that you subscribe to my friend George Friedman’s Geopolitical Futures. You can get his 2021 forecast and an annual subscription for a deeply discounted $49 with this link.

It is time to hit the send button. Let me end by wishing you the best of 2021, and expressing my thanks for your time and attention. 

This letter is now 21 years old, and I further resolve to make this the best year ever for my friends and readers. 

Have a great week and year. Like you, I am so ready to get my vaccine and again enjoy face-to-face time with friends Perhaps I can one day meet with you. I would like that.

Your actually excited about the coming year analyst,

The perverse political effects of Covid-19

Both the US and EU may end up being politically strengthened by the pandemic

Gideon Rachman

    © Ellie Foreman-Peck

Nothing, it seems, can get in the way of geopolitical rivalry. 

Not a pandemic, not the collapse of international travel or a worldwide recession. 

In different ways China, the US and the EU have all treated Covid-19 as a very public test of their rival approaches to governance — and as part of an international contest for prestige and influence. 

The obvious preliminary conclusion is that the pandemic will turn out to be an overall geopolitical win for the People’s Republic of China. 

The PRC’s success in largely suppressing the disease stands in marked contrast with the terrible toll that Covid-19 has taken on the west. 

But politics moves in unexpected ways. 

Paradoxically, there is a strong case to be made that both the US and the EU may also end up being politically strengthened by Covid-19. 

In America, the year started with Donald Trump in a strong position to win a second term in the White House. But the US president’s manifest incompetence in dealing with Covid-19 (an injection of disinfectant, anyone?), probably put paid to his chances of re-election. 

As a result, Covid-19 may indirectly have saved American democracy. And by helping to remove an erratic isolationist from the White House, the pandemic has also given the US a much better chance of preserving its status as the world’s most powerful nation. 

Covid-19 has also taken a terrible human and economic toll in Europe. But, in political terms, the EU followed a similar arc to the US — with near disaster giving way to an unexpected upside.

When the pandemic first hit the European continent, it looked like the latest demonstration that, under severe pressure, European unity collapses. This is what happened during the Iraq war, and throughout much of the euro crisis. In the first days of the pandemic, some frontier controls were reimposed and there was bitter recrimination between northern and southern Europeans. 

But, over the summer, this narrative changed dramatically. The EU agreed to the creation of a €750bn solidarity fund to be used for Covid-19 relief. 

In a break with its longstanding policy, the Merkel government in Germany agreed that the money would be raised by the issuance of common EU debt. This was a historic advance for European integration — potentially the biggest since the creation of the euro itself almost 30 years ago. And the breakthrough was brought about by Covid-19.

It will take a while for the full political impact of Covid-19 on the US and the EU to sink in. 

When the clocks strike on New Year’s Eve, the conventional wisdom is still likely to be that the year of the pandemic was one which saw real geopolitical gains for China. 

This, too, was an outcome that could not have been foreseen at the beginning of 2020. 

The pandemic originated in China and initially looked like a disaster for President Xi Jinping. But, over the course of the year, Mr Xi and his cohorts have turned the narrative around. 

There have been a reported 4,770 Covid-19 deaths in China, compared with over 330,000 in the US. The UK, France, Italy and Spain have all suffered from even higher per-capita death tolls than the US. 

The Chinese economy will grow this year, while the major western economies have suffered deep recessions. Estimates of when China’s economy will surpass America’s in size have been brought forward.

China’s relative success in handling the pandemic has also handed Mr Xi a propaganda bonus — both at home and abroad. China looks more advanced, more organised and better able to look after its citizens. 

But there is a catch. 

The increased global prestige that China might have expected to enjoy as a result has not shown up in international polls. On the contrary, a recent survey of 14 countries for the Pew Research Center showed that in nine of them — including the UK, Germany and South Korea — negative views of China have reached their highest levels in more than a decade. 

This slump in Chinese soft power suggests that people in the countries polled are more impressed by the fact that the virus originated in China, than by Beijing’s subsequent success in stopping its spread. 

China’s aggressive response to any hint of international criticism — through its so-called “wolf warrior” diplomacy — has also probably been counter-productive.

Geopolitical strategists in Beijing may comfort themselves with the thought that, whatever the collateral damage Covid-19 has inflicted on China, the damage to western standing has been worse. 

But if the US and the EU now roll out vaccine programmes with reasonable speed and efficiency, they will begin to repair some of the economic and reputational damage they have suffered because of their handling of Covid-19.

If President-elect Joe Biden is lucky and skilful, he will also benefit from a post-pandemic economic bounce, while being able to pin the blame for previous missteps on his incompetent predecessor. 

America’s allies will be all too eager to embrace this narrative and to give the US a second chance. In reality, the country’s international standing has been deeply damaged both by the Trump presidency and by Covid-19. 

But, with a new president in the White House, America will be back in the geopolitical game.

Repurposing drugs

Another life-saving treatment is found for covid-19

Two drugs for arthritis prove strikingly effective

GOOD NEWS from covid-19 wards is hard to come by these days. A relentless surge in infections is overwhelming hospitals around the world. 

But the results from clinical trials of two drugs announced today just improved the prognosis, for both patients and hospitals.

The two drugs, called tocilizumab and sarilumab, are currently used to reduce inflammation in patients with arthritis. 

Hyper-inflammation, whereby the immune system goes into overdrive and destroys the organs, is how covid-19 tends to kill. 

The search for suitable anti-inflammatory drugs for covid-19 has already turned up one, dexamethasone. 

It is a cheap steroid that dampens the immune system across the board. In contrast, tocilizumab and sarilumab are more targeted. 

They are both made of antibodies that block the effect of interleukin-6, a protein that stokes the immune response and has been prominent in patients with covid-19.

The clinical trial of tocilizumab and sarilumab enrolled 800 patients hospitalised for covid-19 who were ill enough to require transfer to intensive-care units (ICUs). 

The trial was conducted in six countries, with most of the participants in Britain. (It has an efficient programme of covid-19 drug trials, in which a quarter of hospitalised patients are enrolled). 

Half of the 800 patients received one of the two drugs on top of the standard treatment, and the other half received only the standard treatment (including dexamethasone).

Nearly 36% of patients in the standard-treatment group died, compared with 27% of patients in the group that also received tocilizumab or sarilumab. In other words, it cut the death rate by about a quarter. 

Moreover, the patients treated with these drugs recovered faster and were discharged from hospital seven to ten days earlier. The reduction in hospital stay would free up lots of ICU beds—welcome news in places like Britain and America, where lots of hospitals are running out of beds.

The two drugs appear to work equally well, though the results are more certain for tocilizumab which is an older, more widely available drug and was, therefore, given to the vast majority of participants in the new-treatment arm of the trial.

The drugs are not cheap, and so may be beyond the means of developing countries. In Britain a course of intravenous treatment costs £750-1,000 (about $1,000-1,400). 

The shorter ICU stay more than offsets this amount; a day at the ICU costs the country’s National Health Service (NHS) around £2,000 per patient. And, in general, patients who spend fewer days in intensive care recover faster afterwards and need less rehabilitation.

The NHS will start using tocilizumab immediately for covid-19 patients at ICUs. Hospitals already have supplies of the drug and the government is working with Roche, a drug manufacturer that makes it, to increase supplies. 

For now, Britain has banned exports of both tocilizumab and sarilumab. 

As covid-19 deaths continue, the trial results bring a ray of hope for patients, exhausted health workers and the millions of people under lockdown.

In Arab Monarchies, Absolute Rule May Be Dwindling

The world’s last remaining absolute monarchies are facing calls for reform.

By: Hilal Khashan

The Arab world’s eight monarchies are among the last remaining absolute monarchies on Earth. 

In some ways, they have proved surprisingly durable. 

Compared to Arab republics, Jordan, Morocco and the six countries of the Gulf Cooperation Council (Saudi Arabia, the United Arab Emirates, Oman, Qatar, Bahrain and Kuwait) escaped the Arab Spring uprisings relatively unfazed. 

But some of the Arab kingdoms are also facing new challenges that threaten to end decades of monarchial rule.

The Role of Affluence

In 2010, Tunisian street vendor Mohamad Bouazizi set himself on fire after a police officer assaulted him for parking his produce cart in an unauthorized spot. 

This event was the catalyst for the Arab Spring protests that spread through large parts of the Middle East. Despite the fact that the protesters were demanding democratic reforms, the spark for the movement was actually the region’s dire economic conditions. 

In Tunisia and Egypt, organized labor unions spearheaded the demonstrations and mobilized the public. In Syria, the uprising broke out in the southwest, a bastion of support for the Assad regime where the deteriorating economy reduced state welfare spending and alienated the population.

However, the Gulf Cooperation Council countries managed to weather the storm of the Arab Spring much better. 

That’s because their rentier economies guaranteed that their citizens enjoyed per capita incomes far exceeding those in the countries of the Arab uprisings. Qatar boasts a per capita income of $69,000; the UAE's is $43,000. 

Even Oman’s $16,500 per capita income is much higher than Egypt’s ($2,500) or Tunisia’s ($3,450). 

Right after the uprising in Egypt began in January 2011, Saudi King Abdullah spent $37 billion on the military, civil service personnel and religious foundations to maintain loyalty to the royal family. 

The UAE spends more than 15 percent of its federal budget on financial and social support to the local population.

Cosmetic Changes

Opposition groups in Arab countries recognize the legitimacy of the monarchs – with the exception of those in Saudi Arabia and Bahrain – and tend to press only for political reforms. 

In general, however, Arab monarchies have resisted making such changes, fearing that they could usher in an accountable and transparent political system. 

Instead, they have implemented cosmetic changes meant to appease the opposition, avoid criticism from international organizations and get Western countries off their backs. 

For example, in 1926, Ibn Saud established the Consultative Council, a legislative body that advises the king on critical issues. 

However, after the Saudi Cabinet was formed in 1953, the Consultative Council became mostly meaningless. King Fahd reactivated it in 2000 but gave it no executive or legislative powers. 

Monarchs dismiss parliaments and cabinets at will, and in this regard, the Arab monarchies differ little from their Arab republic counterparts. 

Despite claiming to be making progress on political participation and social inclusion, the monarchies’ democratic index scores are even worse than those of Arab republics. 

In the U.K.-based Economist Intelligence Unit’s Democracy Index, Saudi Arabia ranked 159 out of 167 countries, while Bahrain came in at 149 and the UAE at 145. 

According to the index, Kuwait and Jordan are the least authoritarian countries among their peers, tied at 114th place.

Cultural and Religious Continuity

The failure of the political reforms can be explained in part by cultural and religious factors. As a religion that believes in the sovereignty of God and requires obedience to Allah, the Prophet Muhammad and the caliph, Islam is incompatible with democracy. 

The principles of republicanism – liberty, civic virtue and the rule of law – therefore do not resonate with some Arab publics and rulers.

In the second half of the 19th century, Egyptian religious reformer Mohammad Abdu pleaded for the rise of an enlightened despot who could spread fairness and justice in Arab-Islamic societies, but he imagined his ideal state in the context of a caliphate, not a republic.

In 1919, the King-Crane Commission toured Greater Syria and concluded that its people wanted to create an Arab kingdom under the leadership of Faysal, son of Sharif Hussein of Hejaz, who launched the 1916 Arab rebellion against the Ottomans and demanded the caliphate’s resurrection under an Arab king. 

In 1920, Faysal proclaimed himself head of the Syrian Arab Kingdom before the French defeated his army in the Battle of Maysalun, shattering his imperial ambitions and imposing artificial republican systems.

In Morocco, the king plays a religious role that extends legitimacy to his sovereign political position. 

The Alaouite dynasty that has ruled the country since 1666 tracks its origins to Imam Ali bin Abi Talib, the fourth Rashidun caliph who presided over the Islamic community between 656 and 661. 

Thus, the public has not revolted against the monarchy despite Morocco’s high poverty levels, poor human rights record and persecution of political activists.

Indeed, the royal family’s prestige and religious authority have thus far shielded it from potential uprisings. 

Textbooks assert the monarch’s rare qualities and magnanimity and celebrate the contributions of the state’s founders. The king’s commands come with divine sanctity. 

He provides largesse for his subjects and pardons wrongdoers. In 2005, he pardoned more than 7,000 prisoners on the day of Crown Prince Moulay Hassan’s royal circumcision.

The GCC countries have deeper political roots in power than the Arab republics, all of whom are post-World War I creations. 

The first Saudi state, Oman’s al-Busaid dynasty, Kuwait’s House of Sabah, Bahrain’s al-Khalifa, and Abu Dhabi’s al-Nahyan family all established their rule between 1744 and 1764. 

Al-Thani’s rise in Qatar goes back to 1847. All of them sought British protection to consolidate their power.

Showing Cracks

However, monarchical systems are showing cracks in three Arab countries: Jordan, Bahrain and Saudi Arabia. In Jordan, the Bedouins – the Hashemites’ traditional base of support – are beginning to turn their backs on the regime. 

The future direction of the Israel-Palestinian conflict will determine whether the country can survive in its current state.

In Bahrain, the oppression of the Shiite majority and the monarchy’s refusal to implement equitable reforms has made the situation untenable. In 2011, the authorities, aided by Saudi and Emirati troops, crushed a Shiite uprising and killed dozens of protesters. 

Bahraini courts routinely issue harsh prison sentences for Shiite clerics who criticize the government. The country, moreover, is highly dependent on Saudi Arabia for financial aid and security support.

In Saudi Arabia, the government faces a number of serious challenges. It has clamped down on all reform movements since the country’s founding in 1932, regardless of whether they were loyal to al-Saud or supporters of a constitutional monarchy. 

The Shiite minority has long been a concern. Despite an uprising in 1979 in Qatif in the Eastern Province, the group has been excluded from public office.

One group that has been particularly concerning for the Saudis is Islamic fundamentalists. In 1979, Wahhabi Salafists, infuriated by what they considered the Saudi royals’ deviation from the path of pure Islam, seized Mecca’s Grand Mosque. 

In 1990, the arrival of hundreds of thousands of U.S. troops in Saudi Arabia to expel the Iraqi army from Kuwait angered many Saudis who resented the presence of “infidels” in their lands. 

Other Saudis saw in it an opportunity to effect political change, although London-based opposition groups such as the Committee for the Defense of Legitimate Rights and the Movement for Islamic Reform in Arabia failed to attract a following at home.

The U.S. occupation of Iraq in 2003 unleashed a spate of al-Qaida attacks that took the security forces three years to subdue. The regime then launched a relentless campaign against civil rights activists and clerics, both pacifist and radical.

Saudi Arabia’s cohesion rests on three factors: the religious establishment, comprehensive welfare provisions, and the unity of the royal family. But all three of these pillars are now under threat. Crown Prince Mohammad bin Salman weakened the religious establishment and ended its autonomy.

Dwindling oil revenues curtailed subsidies, necessitated the imposition of taxes and tariffs, and sharply reduced the state’s ability to provide welfare services, and the celebrated Vision 2030 is unlikely to deliver on its promise to reduce the kingdom’s reliance on oil rents. 

Salman shattered the unity of the Saudi royals, detaining hundreds of princes and influential businessmen in 2017.

The Seven Secrets of 2020

This year has resembled a rapidly receding tide, forcing us to confront submerged truths. One lesson we learned in 2020 is that national governments had been choosing not to exercise their enormous powers so that those whom globalization had enriched could exercise their own.

Yanis Varoufakis

ATHENS – A house of cards. 

A set of lies we have unconsciously accepted. 

That’s what our certainties seem like during profound crises. 

Such episodes shock us into recognizing how unsafe our assumptions are. That is why this year has resembled a rapidly receding tide, forcing us to confront submerged truths.

We used to think, with good reason, that globalization had defanged national governments. 

Presidents cowered before the bond markets. 

Prime ministers ignored their country’s poor but never Standard & Poor’s. 

Finance ministers behaved like Goldman Sachs’s knaves and the International Monetary Fund’s satraps. Media moguls, oil men, and financiers, no less than left-wing critics of globalized capitalism, agreed that governments were no longer in control.

Then the pandemic struck. 

Overnight, governments grew claws and bared sharpened teeth. 

They closed borders and grounded planes, imposed draconian curfews on our cities, shut down our theatres and museums, and forbade us from comforting our dying parents. 

They even did what no one thought possible before the Apocalypse: they canceled sporting events.

The first secret was thus exposed: Governments retain inexorable power. 

What we discovered in 2020 is that governments had been choosing not to exercise their enormous powers so that those whom globalization had enriched could exercise their own.

The second truth is one that many people suspected but were too timid to call out: the money-tree is real. 

Governments that proclaimed their impecunity whenever called upon to pay for a hospital here or a school there suddenly discovered oodles of cash to pay for furlough wages, nationalize railways, take over airlines, support carmakers, and even prop up gyms and hairdressers.

Those who normally protest that money does not grow on trees, that governments must let the chips fall where they may, held their tongue. Financial markets celebrated, instead of throwing a fit at the state’s spending spree.

Greece is a perfect case study of the third truth revealed this year: Solvency is a political decision, at least in the rich West. 

Back in 2015, Greece’s public debt of €320 billion ($392 billion) towered over a national income of only €176 billion. 

The country’s troubles were front page news around the world, and Europe’s leaders lamented our insolvency.

Today, in the midst of a pandemic that has made a bad economy worse, Greece is not an issue, even though our public debt is €33 billion higher, and our income €13 billion lower, than in 2015. 

Europe’s powers that be decided that a decade of dealing with Greece’s bankruptcy was enough, so they chose to declare Greece solvent. 

As long as Greeks elect governments that consistently transfer to the borderless oligarchy whatever (public or private) wealth is left, the European Central Bank will do whatever it takes – buy as many Greek government bonds as necessary – to keep the country’s insolvency out of the spotlight.

The fourth secret that 2020 brought into the open was that the mountains of concentrated private wealth we observe have very little to do with entrepreneurship. 

I have no doubt that Jeff Bezos, Elon Musk, or Warren Buffett have a knack for making money and cornering markets. 

But only a tiny percentage of their accumulated loot is the result of the creation of value.

Consider the stupendous increase since mid-March in the wealth of America’s 614 billionaires. 

The additional $931 billion they amassed did not result from any innovation or ingenuity that generated additional profits. 

They got richer in their sleep, so to speak, as central banks flooded the financial system with manufactured money that caused asset prices, and thus billionaires’ wealth, to skyrocket.

With the record-fast development, testing, approval, and rollout of COVID-19 vaccines, a fifth secret was revealed: science depends on state aid, and its effectiveness is oblivious to its public standing. 

Many commentators have waxed lyrical about markets’ capacity to respond quickly to humanity’s needs. But the irony should be lost on no one: the administration of the most anti-science US president ever – a president who ignored, intimidated, and mocked experts even during the worst pandemic in a century – allocated $10 billion to ensure that scientists had the resources they needed.

But there is a broader secret: While 2020 was a banner year for capitalists, capitalism is no more. 

How is that possible? 

How can capitalists flourish as capitalism evolves into something else?


Capitalism’s greatest apostles, like Adam Smith, emphasized its unintended consequences: precisely because profit-seeking individuals have no regard for anyone else, they end up serving society. 

The key to converting private vice into public virtue is competition, which impels capitalists to pursue activities that maximize their profits. In a competitive market, that serves the common good by boosting the range and quality of available goods and services while constantly lowering prices.

It is not hard to see that capitalists can do much better with less competition. This is the sixth secret that 2020 exposed. 

Liberated from competition, colossal platform companies like Amazon did astonishingly well from capitalism’s demise and its replacement by something resembling techno-feudalism.

But the seventh secret that this year revealed represents a silver lining. 

While bringing about radical change is never easy, it is now abundantly clear that everything could be different. 

There is no longer any reason why we should accept things as they are. 

On the contrary, the most important truth of 2020 is captured in Bertolt Brecht’s apt and elegant aphorism: “Because things are the way they are, things will not remain the way they are.”

I can think of no greater source of hope than this revelation, delivered in a year most would prefer to forget.

Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.

New U.S. Dietary Guidelines Reject Recommendation to Cut Sugar, Alcohol Intake Limit

A scientific advisory committee had advised lower limits on sugar and alcohol, citing health risks

By Andrea Petersen


The federal government on Tuesday issued new dietary guidelines that keep current allowances for sugar and alcohol consumption unchanged, rejecting recommendations by its scientific advisory committee to make significant cuts.

The scientific committee, which was composed of 20 academics and doctors, had recommended cutting the limit for added sugars in the diet to 6% of daily calories from 10% in the current guidelines, citing rising rates of obesity and the link between obesity and health problems like Type 2 diabetes, heart disease and cancer. 

The committee also recommended lowering the limit for alcoholic beverages for men to one drink per day from two, matching the guidance for women. It pointed to research linking greater alcohol consumption to a higher risk of death.

The new guidelines do include the scientific committee’s recommendation that children under age 2 consume no added sugars at all. 

This is the first time the guidelines have included recommendations for babies and toddlers. Added sugars are those found in processed foods—in everything from soda to breakfast cereal—as well as honey and sugar itself. 

They don’t include sugars naturally found in foods like fruit and milk.

The dietary guidelines, which are updated every five years, have a wide impact: They shape school lunch programs, mold state and local health-promotion efforts, and influence what food companies produce.

The U.S. Departments of Agriculture and Health and Human Services reviewed the committee’s recommendations, which were released in July, and decided not to include the lower limits because “the new evidence is not substantial enough to support changes to quantitative recommendations for either added sugars or alcohol,” said Brandon Lipps, deputy undersecretary for food, nutrition and consumer services at the USDA. 

Mr. Lipps said that the new limits recommended by the scientific committee didn’t meet a “preponderance of the evidence” standard required by law.

Food industry groups had lobbied intensely against the scientific committee’s proposed new limits. 

When asked if pressure from business groups had played a role in the government’s decision, Mr. Lipps said “to the extent that stakeholders provided input about whether the science was being properly reviewed, we took that into consideration,” and noted that the government received more than 106,000 comments from the public. 

“We committed to issuing guidelines based on sound science in an open and transparent process. We believe that at the end of the day, that’s what we did,” he said.

Poor diet is linked to rising rates of obesity and chronic illnesses including Type 2 diabetes. 

More than 70% of U.S. adults ages 20 and older are overweight or obese, according to 2015-2016 figures from the Centers for Disease Control and Prevention. About 42% are obese, according to 2017-2018 CDC data.

Overall, the new Dietary Guidelines for Americans 2020-2025 advise people to “follow a healthy dietary pattern” that consists primarily of vegetables, fruits, whole grains, lean meat and poultry and low-fat dairy, as well as seafood, nuts and vegetable oils. 

They also advise limiting added sugars, saturated fats, sodium and alcoholic drinks and staying within recommended calorie limits.

USDA and HHS are launching a public-awareness campaign about the new guidelines that centers around the tagline “Make every bite count.” 

“Our goal is to get Americans to make healthy dietary choices every day at every meal,” said Mr. Lipps. 

The USDA is also launching a new website that will include a quiz to show people how closely their own eating habits meet the dietary guidelines as well as tools to get personalized eating recommendations, recipes for healthy meals and tips for eating on a budget.