September 2, 2016

US Auto Sales Decline Substantially in August

Auto sales data for August was released yesterday, and it proved to be a big disappointment. Every major manufacturer sold less than what was expected, and all but one showed outright declines in sales compared to August 2015. The chart below sums up the negative results fairly well.

Obviously, this is a bad sign for the individual companies involved. But it's also a pessimistic sign for the shape of the US economy in general. Auto sales are often viewed as a gauge of consumer confidence--since people tend to buy new cars when they are optimistic about their financial situation. Thus, weak growth and outright declines among most manufacturers appear to be one more data point that suggests an economic contraction may be on the horizon.

Speaking about these lackluster results, Ford executives indicated that they believed auto sales have reached a plateau. They clearly intended that to be a positive spin, but Zero Hedge points out that there might still be cause for concern:

That's the crazy thing about "plateaus" there's a cliff on both sides.

Read more on these numbers in Zero Hedge's write-up.

EU Attacks Apple and Ireland on Taxes
As part of an ongoing effort to stamp out whatever life remains in the European economy, the European Union recently declared that Apple owes billions of euros in back taxes to the government of Ireland. Ironically, said government of Ireland is apparently joining Apple in an effort to fight the ruling.

The dispute stems from the fact that Ireland, an EU member, has made the conscious decision to establish a very friendly tax environment, featuring a mere 12.5% corporate tax rate (as compared to 35% in the US at the federal level). In fact, various incentives and other carve-outs in the tax code meant that Apple had to pay an effective tax rate of just 0.005% to Ireland.  As a result of such policies, it's no surprise that many large corporations including Apple have chosen to move parts of their organization to Ireland in order to take advantage.

Understandably, the EU claims that corporations in other EU countries can't compete against companies that face such a low tax burden. This is likely true, but it is actually an argument in favor of Ireland's system. If companies with significant Irish operations are more successful and competitive, this is clearly a good thing for the Irish economy in general. But instead of encouraging other EU members to become more like Ireland, it is trying to coerce Ireland to drag itself down.

It's an open question whether the EU's coercion will prove successful, however. And over at the Foundation for Economic Education, Dan Sanchez makes a hopeful case that this dispute might pave the way for an "Irexit" out of the EU. Read his take here.


Israel Approves New Settlements in the West Bank
Continuing a long trend, Israel announced approvals of more settlements in the West Bank this week. As usual, it drew moderate criticism from the US State Department, though even the government sources that spoke to Reuters acknowledged that the underlying policy will remain the same.

And that US policy is an odd mixture of annoyed tolerance on the one hand and unconditional financial support on the other.

Settlement building is really just a euphemism for slow-motion colonization. Or, if one prefers a more modern term, the policy amounts to large scale eminent domain, implemented primarily on ethnic grounds. If that sounds awful, it should. Settlement expansion involves the government of Israel expropriating land from Palestinians in the West Bank and transferring it to Jewish citizens for development. The government of Israel then provides extensive security for these settlements.

The West Bank was conquered by Israel militarily in 1967 and has been occupied militarily ever since. Of course, not even the radical Israeli government would claim that superior firepower is a legitimate basis for claiming property rights. Instead, the ostensible reason settlements are legal is based on religion and collective historical property rights. As Reuters puts it (emphasis added):

Israel, which captured the West Bank in a 1967 war, rejected the criticism by Nickolay Mladenov, the U.N.'s special coordinator for the Middle East peace process. It said Jews had lived in Judea, the biblical term for the West Bank, for thousands of years.

So in this vein, the Israeli government isn't stealing land from Palestinians; rather, they are restoring the property rights of long lost heirs. You know, just like John Locke would have wanted them to.

If we take for granted that Jewish peoples of some sort did live in the West Bank decades and centuries ago, this point is still irrelevant for determining property rights today. To believe otherwise leads quickly to absurdity.

For instance, my last name is German, and presumably, at some point before my ancestors saw fit to drop the umlauts, some of them lived in or around Germany. That said, it is clearly not reasonable for me to show up in Germany today at an immigrant's house and demand their keys. While some of the specifics differ, Israel's justification for settlement expansion and eminent domain in the West Bank is not fundamentally different from this.

That's why this policy of the Israeli government should be criticized. And if the US criticism were sincere, it would also involve cutting off the billions of dollars provided in foreign aid to Israel each year. But with Hillary or Trump in the White House, we should probably shouldn't get our hopes up.