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Big changes on the margin in the jobs market


Although first-time claims for unemployment have been basically flat so far this year, the big change that is visible in the labor market is that the number of people receiving unemployment insurance has dropped by almost one third so far this year (green line in the chart above). This may reflect the fact that more people are finding jobs, but it also may reflect the fact that more people are getting desperate to find a job since they no longer are receiving jobless benefits. In any event, this is a significant change on the margin that deserves to be highlighted. It may lose some potency, however, since Congress has once again decided to extend eligibility for unemployment benefits. Whatever the case, the incentive to find a job has definitely increased year to date, and this is probably a good thing for the economy as a whole.

Victoria Falls Hotel loses its bearings


The Victoria Falls Hotel in Zimbabwe is world famous, and that's where we are staying. It's also a magnificent hotel, and I can't imagine staying anywhere else if you are in this neighborhood. If you walk from the hotel entrance through its courtyard and then out to the grounds that look toward the famous Victoria Falls (which are the source of the water vapor you see in the upper left hand corner of the photo), you see a big flagpole—the bottom of which is shown in this photo—and in the distance the famous bridge that spans the gorge coming out of the falls.

After taking the photo, however, I started to wonder. First, I thought it was amazing that the hotel was situated over 5,000 miles south of Cairo, and 1,600 miles north of Cape Town. Africa is certainly a huge continent. Then I started trying to make sense of directions.

So I pulled out my trusty iPhone, and discovered that the falls were East-North-East of the hotel, and that looking from the flagpole to the bridge (in the photo above) was almost directly East. I turned on the Compass app on my iPhone and confirmed that from the position this photo was taken, North was to the left, and South was to the right, just exactly the opposite of what this famous plaque shows. To make sure, I called up the Maps app on my iPhone and looked at satellite imagery of the hotel and falls, and confirmed again that the plaque was wrong. Cairo lies 5,165 miles to the left, and Cape Town 1,647 miles to the right of the flagpole.

After an enjoyable dinner and show tonight, we went to see the assistant manager of the hotel, and I showed him my iPhone and how I had discovered that the plaque was exactly wrong. He was speechless. As an added bonus, we then began to hear the sound of vuvuzuelas coming from the front entrance to the hotel. Apparently, a large elephant had entered the grounds of the hotel, and hotel staff were trying to persuade him to leave by blowing on vuvuzuelas (which of course have become famous for ruining the hearing of all those attending the World Cup FIFA games in So. Africa). Turns out elephants don't like the sound either, and this one was indeed persuaded to leave.

Here are some shots taken while touring the falls this morning. The tremendous volume of water that falls into a relatively narrow gorge blows incredible amounts of water up into the air, creating what in some places is a virtual thunderstorm of rain and wind. It's very impressive.


Idyllic Imbabala


Before arriving in Victoria Falls, we spent two nights at the Imbabala Zambezi Safari Lodge, located just after you cross the border from Kasane, Botswana, to Zimbabwe. We had a very charming and beautifully decorated chalet, the porch of which you can see in the photo above, and the bed which you can see below.


Each unit had a spectacular view of the broad and lazy Zambezi river, shown below. The couple in the photo are Lowell and Linda Rice, good friends of ours who have done a fantastic job of organizing the trip. There is no way on earth we could have done and seen all that we have without their years of experience with Africa. 


Shown below is the main table which is set for breakfast. Karen Poole, the proprietor, had almost a dozen people on staff to attend to our party of 22. I had the best bacon and eggs ever, and later learned that the bacon, which looked like Canadian bacon, was actually Wart Hog bacon! That little animal may be the runt of Africa, but it is very tasty. Karen's blog is a running commentary on life at Imbabala, transporting you instantly to another world.



How Zimbabwe defeated hyperinflation


I'm now in possession of trillions of dollars of Zimbabwean currency, thanks to Karen Poole, the gracious proprietor of the Imbabala Zambezi Safari Lodge, where we spent a few days before moving on to Victoria Falls. (More on the charming Imbabala to come.) Unfortunately it's worthless, the victim of world-record-setting inflation.

Last year Zimbabwe finally gave up on its efforts to maintain its own currency, and the people are still cheering. It's now legal to use any hard currency to settle bills and debts, and most places are simply pricing things in dollars. As a result, inflation collapsed from a high of over 20,000% to essentially zero, virtually overnight. Confidence and economic activity are picking up as economic turmoil has almost vanished. It's one more example of how economic growth thrives when inflation is low and uncertainty is eliminated.

Put another way, if printing lots of money could contribute to growth, Zimbabwe would be the strongest economy in the world, but of course it's not. That's another reminder for those who want the Fed to ease even further: economic growth cannot be created by the printing press. On the contrary, the U.S. economy would be doing better today if the Fed addressed the looming inflation threat represented by the $1.3 trillion dollars of bank reserves it has injected in the past two years.

The world hasn't changed much


I'm now in Victoria Falls (Zimbabwe) and finally have some access to the internet (though quite slow). I picked up a cold somewhere out in the bush last week, so I stayed in the hotel this afternoon to catch up on the market rather than go out shopping with my wife. I'm still sorting through photos, and hope to post some interesting shots soon.

As I review the data of today and the past week or so, not much seems to have changed. (Indeed real changes only occur infrequently.) The economy is growing, but it is growing slowly and it is still about 10% below where it should be if it were to continue it's long-term trend growth of 3.1%, as shown in the chart above. It is this shortfall (aka the output gap) that is the source of the economy's still-high unemployment rate and the general sense of dissatisfaction and even anguish in some sectors of the economy.

The problem with this recovery is that it has been weak, much weaker than other recoveries following deep recessions such as the one we have just had. The Obama administration and Paul Krugman would have you believe that this weakness is due to a lack of fiscal stimulus (i.e., the trillion dollars of stimulus pumped into the economy so far has not been enough), but as I and most other supply-siders have argued for a long time, the economy's slow growth is most likely due to the fact that the fiscal stimulus that has been applied has been the wrong kind of stimulus. Instead of increased transfer payments and make-work projects we should have cut taxes; the way to help get the economy growing again is to make lasting changes to the incentive structure, in order to encourage people to work harder and corporations to invest in new plant and equipment and new ventures.

The Keynesian prescription for a stronger economy has once again failed, with the result that we have dug ourselves deeper into a debt pit and have very little to show for it. This should be the rallying cry for politicians to support efforts to keep the Bush tax cuts from expiring at the end of this year. Indeed, instead of allowing taxes to rise, we ought to at the very least cut corporate income taxes in order to encourage companies to invest the mountain of profits they have accumulated over the years. (Recall my oft-cited statistic that corporate profits have more than doubled since 1998, yet the S&P 500 hasn't risen at all over the intervening period.) Corporate profits after tax are now running at a $1.2 trillion annual rate, but they are effectively being used not to create new jobs but to fund the federal government's ineffective and wasteful spending. The way to speed up growth is simple: cut spending and cut taxes.


One thing that grabbed my attention in today's GDP numbers was the increase in the broadest measure of inflation, the GDP deflator. From a quarterly annualized low of -1.2% at the end of 2008, it has jumped up to 1.8%. This is a very important development because it directly contradicts established wisdom which holds that with a large output gap such as we have today, the economy should be experiencing deflationary pressures. On the contrary, inflation is now rising. I've been talking about this issue for almost two years now, warning that it is easy money, not a weak economy, that will drive inflation: easy money is now showing up as rising inflation (albeit still quite low from an historical perspective, but nevertheless definitely rising at a time when most Keynesian models would be forecasting deflation), even though the economy remains significantly below its long-term potential and there are plenty of idle resources out there. Thus, I see evidence in today's data that supports my rising inflation thesis.

In other news, I see that the Chicago and Milwaukee purchasing managers' indices were both stronger than expected in July, and both remain at levels that strongly suggest continued economic growth. I also note that non-energy commodity prices (e.g. the JOC and the CRB Spot) have moved up in the past two weeks, and that bolsters my belief that the global economy continues to be healthy, and a healthy global economy in turn will help support the U.S. economy going forward. Importantly, I still no sign at all of the economy slipping into another recession or slowing down meaningfully.