Latest Price Data Show US on Brink of Deflation as World Economy Slows

The most widely watched U.S. inflation indicator, the seasonally adjusted all-items CPI for urban consumers, fell in November at an annual rate of 0.23 percent. The decrease was small enough that it will hit the headlines as no change, based on the rounded monthly data reported in the press release from the Bureau of Labor Statistics. (All inflation data in this post are month-to-month changes stated as annual rates, based on the three-decimal version of the data released by the Cleveland Fed.) November marked the second consecutive month of negative inflation, following a decrease of 0.96 percent in October. >>>Read more

Follow this link to view or download the latest inflation charts and data in slideshow format

Huger Rises in American Cities and Other Links for Your Econ Classroom

• The US Conference of Mayors has released a new report that shows increased hunger and homelessness in U.S. cities. Unemployment is the leading cause of both, but many hungry and some homeless are employed. (For more on the relationship between poverty and labor market conditions, type "poverty" in the search box on this blog)
• It's hard to keep up with the fast-changing situation in Europe, so now and then I like to give a link to a piece that summarizes the situation well for those who can't read everything. Tim Duy's post in today's Economonitor fits that pattern. Duy explains why the euro has deep-rooted structural problems that are not addressed by the latest Franco-German plan. "I don't see where this ends well," concludes Duy. (BTW, Duy also spikes the rumor that the Fed is about to rescue European banks.)
• While the crisis in Europe has attracted the most attention, China is having its problems, too. Here are two good posts to keep up to date on the China scene. In the first, Michael Pettis explains just how we know that China is overinvesting. In this next one, Patrick Chovanec provides the latest data on the collapse of China's housing bubble.

What do the Russian Protesters Want? One Observer’s View of Problems and Needed Reforms

Commentators have compared the recent Russian protests to those of Tahrir Square and Occupy Wall Street. There are differences, of course, but certain similarities stand out. For one thing, these recent movements differ from, say, Ukraine’s Orange Revolution, in that none of them has a clear leader. Instead, they have coalesced around negatives: Egypt without Mubarek, Russian without Putin, America without Wall Street. They all see the existing political system as corrupt, but they are much less specific about what should replace it.

Although these movements may lack leaders, they do not lack thinkers and opinion makers whose writings provide useful insights into what the protesters want. This post looks at the views of one Russian opposition figure, the journalist and writer Yulia Latynina, as expressed in a recent essay titled “Russian Baker, or Ownerocracy.” READ MORE>>>

Can New Fiscal Rules Save the Euro? Three Details to Watch For

Yesterday  Angela Merkel and Nicolas Sarkozy announced a new set of fiscal rules, their latest idea to save the euro.  The new rules would replace the unworkable Stability and Growth Pact (SGP), which mandates a deficit of no more than 3 percent of GDP and debt of no more than 60 percent of GDP. Yesterday’s announcement was short on specifics, but here are three crucial things to watch for that will determine whether the new rules will have any chance of working. READ MORE>>>

China is Overinvesting in Electric Cars and Other Links to Eliven Your Econ Course

• The US government has been roundly criticized for its investment in Solyndra's failed solar panel venture, yet many people think the Chinese government is oh-so-clever when it pours money into "economy of the future" investments of its own. Think again. Governments everywhere are prone to pouring money into the sand. This excellent long post by Michael Pettis explains how the Chinese government has overinvested in the electric car industry and in other sectors as well.
• Defender's of Wall Street often defend princely salaries by arguing that a highly efficient U.S. financial sector is adding hugely to the strength of the economy. This nice piece of research by NYU's Thomas Phillippon blows that argument out of the water. It argues that financial sector costs are rising faster than its output, and that the resulting loss of productivity is a drag on the economy at large, not a boost. The comparison of productivity-enhancing IT investment in retail trade with productivity-sapping IT investment in the financial sector is especially interesting.
• Last week the stock market got a boost when the Fed announced it would lower the interest rate charged to loan dollars to European banks. Every wonder why European banks need dollars? This report by Binyamin Appelbaum of the New York Times explains some of the reasons.

US Employment Data: Stronger November Report Shows Economy Struggling to Resist Global Weakness

The latest employment report from the Bureau of Labor Statistics shows stronger, but still moderate, job growth for November. The unemployment rate fell to 8.6 percent, its lowest since March 2009. On the whole, the report shows a U.S. economy struggling to resist being dragged down by even weaker economies in Europe and Japan, and by a still strong but slowing China.

Afghanistan's Economic Future, Aid, and the Curse of Riches

We hear a lot about the future of Afghanistan after NATO withdrawal in 2014. Most of the speculation focuses on security and politics. Too little of it concerns economics. A pair of new reports, one from the World Bank and the other from the IMF, help fill the gap. If you thought the security and political prognosis was problematic, wait until you read what lies ahead for the country’s economy. READ MORE>>>