Tuesday, June 20, 2017

At Subway, Kiosks Over Ingredients

Embattled fast-food giant Subway had a plan to reverse its five-year decline by boosting the quality of its ingredients. Food quality has declined since the chain’s peak in the 1990s while the market has been moving in the opposite direction, and regular customers have been going elsewhere in search of a healthier lunch. As of a year ago, the plan at Subway was for the rollout of new ingredients to start this summer.

Well, forget it. Subway faces other problems that include the death of its founder and the jailing of its spokesmodel, and executives decided better food was more than the restaurant chain could take on right now. Instead, Subway’s major initiative this year will be in-store kiosks where customers can tap out orders on a touch-screen, copying the success of this approach at Panera. Subway is also rolling out a mobile app that provides the same functionality. You’ll get the same dull fare, but faster than before.

Maybe it’s the right move. The digital ordering platform should cut in-store operating costs, eventually providing the financial wiggle room needed to address the bigger issue of food quality.

Tuesday, June 13, 2017

After EU Bank Deals, Overconfidence

Santander bought out the failing Banco Popular, one of the largest banks in Spain and Portugal. Santander will spend €5-7 billion to recapitalize the bank, but that budget is in line with many of its other expansion deals. A few days later, officials agreed on the outline of a scheme to rescue Monte dei Paschi. The deal protects retail investors who were sold bonds thinking they were getting certificates of deposit. That was the Italian government’s top priority, so the deal may be seen as a success even if the bank goes on to fail in the next recession, a prospect that seems almost as likely as not. 

With these deals, there is more than a sense of relief about European banks. Europe and observers have become overconfident about the banking system. While it’s good that stockholders and bondholders took the biggest loss in the Banco Popular resolution, more work needs to be done to untangle the banking system so that the sudden closing of one of the banking giants doesn’t pose such a hazard to all the other banks around.

Tuesday, June 6, 2017

How Bad Could It Get?

I do realize that many voters voted for Donald Trump as a joke or with the intention of blowing up the system or destroying the Republican Party. It was a calculated risk, but I am not sure everyone’s calculations took into account the magnitude of what could go wrong. The Trump presidency might be unprecedented in U.S. political history, but to get an idea of what can happen when a country is run by a corrupt fossil-fuel administration, one need only look at the current examples of Syria, Venezuela, and especially Brazil.

Brazil removed its president a year ago for illegal budget manipulations leading into the last presidential election. It was a curious move, as she was replaced by the seemingly even more corrupt vice president. New evidence has emerged about both, so that now it is hard to be so sure which way the comparison points, but there is little room for doubt that Brazil’s current president is in the middle of a coordinated bribery ring on a scale that would shock even Brazilians. He too will likely be removed from office by impeachment, if courts do not annul the last election result first. Hundreds of political figures in Brazil appear to have been involved in an expanding list of illicit schemes that drained public funds, distorted the political process beyond recognition, and moved billions of dollars out of the country to offshore accounts, helping to push the country into an economic depression. As terrible as the situation has become, it is important to remember that it was oil money that originally funded this systemic corruption.

Oil and coal money both are involved in political corruption in the United States, and in some ways the U.S. situation looks more gloomy than that of Brazil. Brazil is making a major effort to root out corruption even as the United States moves in the opposite direction. Corruption will not ruin the U.S. economy in a year, probably not in two years, but history tells us that no national economy can stand up under the weight of large-scale systemic corruption for very long.

So how bad could it get? Historically, every empire crumbles, and usually in little more than one lifetime. Some observers are already looking at the events of last week and worrying that this could be the United States’ time.

Sunday, June 4, 2017

The White House Is Still Standing, But There Is No One Home

The state of international politics can be summed up by looking at the most prominent statements of the last week from the leaders of countries, as measured by U.S. news coverage, with the key lines listed here by country. You can’t help noticing that one of these is not like the others.

  • Canada: Canada is unwavering in our commitment to fight climate change and support clean economic growth.
  • France: If we do nothing, our children will know a world of migrations, of wars, of shortage. A dangerous world.
  • United Kingdom: While we have made significant progress in recent years there is, to be frank, far too much tolerance of extremism in our country.
  • United States: Despite the constant negative press covfefe

“Covfefe” might be thought to be an attempt by a man’s fingers to tap out “coverage” on a touch screen while his brain, in a half-asleep stupor, is screaming “coffee!!” but the White House added fuel by insisting the next morning that the tweet was complete as posted. What happened? Everyone who tweets live, tweets in error sometimes, but this is not a case of an isolated misstatement. Trump’s only significant policy statement of the week, a Rose Garden announcement on climate policy, was nonsense of a different kind. It might have been stated in known Earth-language words, but there was no logic or sense to be found behind the words. Maybe, one might think, the message was just badly formed or badly delivered on this occasion, but follow-up comments from White House and diplomatic officials contradicted each other as widely as one could imagine possible, as if senior officials had not been briefed at all and were left to just make stuff up. It leaves little leeway to imagine that the White House, in fact, has a climate policy. This came just a week after, at a major summit meeting, Trump barely participated and seemed not to quite understand where he was.

This state of incoherence is a hole in the world, which had fallen into the habit of looking to the United States for leadership. The late Zbigniew Brzezinski noticed this predicament before most of us and had commented on it a month ago:

Sophisticated US leadership is the sine qua non of a stable world order. However, we lack the former while the latter is getting worse.

Brzezinski made a career of world order, but obviously, there is more at risk than that. In U.S. politics, this could be the end of the Republican Party. Everywhere, if global energy policy cannot be reformed, the land that half of the world’s human population lives on could be converted to ocean in one or two lifetimes. In the world order, the status of the United States has been knocked down a peg in each of the last two weeks, and it could easily fall much farther in the weeks to come.

The White House staff has tried to find ways to make its mercurial leader less of a daily threat. World leaders now seem to realize they must do the same when it comes to the challenges facing the world. Trump’s call to renegotiate has fallen to the ground, barely noticed. One can hardly negotiate with a man who cannot state a position. The White House is still standing, but there is no one home. What do we do now? Of course, the answers are there to be found. I am sure what we will find is that there is a great deal of work for all of us to do.

Tuesday, May 30, 2017

Three Mile Island Closes in 2019

In a symbolic blow to the U.S. nuclear sector, the Three Mile Island nuclear plant announced today that it is preparing to close in 2019. The announcement comes after the plant’s electric-power auction failed for the third year in a row. The plant is unable to pre-sell its electric production because of the high cost of the electricity, compounded by doubts about the future viability of the plant. Three Mile Island has been losing money for the last eight years and for most of its history, and not just because of its 1979 disaster.

The plant’s owner, Exelon, is asking for billions of dollars in state subsidies to keep the plant open. The state, though, is Pennsylvania, and in Pennsylvania, that kind of request is more of a talking point than a serious proposal. The state has chronic money problems, with a budget so tight you can’t ask for an extra $2 billion without saying what university or hospital you want to close to make up the difference. It is a state where the coal industry is on its last legs and could be killed off all at once with such a large subsidy for a competing power source. Many officials and voters remember when the state capital was unofficially evacuated for the partial meltdown the plant suffered in 1979, a nuclear accident that made it, for a few years, the most notorious power plant in the world. In lawmakers’ minds, throwing money at the nuclear plant just downstream might be funding a future disaster. Political costs aside, nuclear subsidies are bad policy too, as they hasten depletion of a starkly limited resource, uranium, while boosting the costs and risks associated with electric power generation.

Almost lost in the details of today’s announcement was the closure of another Exelon nuclear plant, the Quad Cities plant. That closure, though announced today, is probably four years away and is not so certain; there is a slight chance that a government subsidy could keep the Quad Cities plant going through one more fuel cycle.

Closings of aging nuclear plants have more symbolic than practical significance at this point. Three Mile Island, for example, was already set to close in 2034. if it closes 15 years early, well, that happens sometimes. The bigger problem facing the nuclear sector is the Westinghouse Electric Company bankruptcy two months ago. If the world’s leading nuclear power equipment company shuts down, it is hard to be sure that it will be possible to build or repair a nuclear plant in the future.