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The Economist: A look back at 2011

Dec. 31, 2011 at 6:31 a.m.


By Ray Perryman

As we go to press, 2011 is rapidly waning.

The past year saw economic recovery, though at a snail's pace.

However, the economy did survive some significant shocks without sliding back into recession.

A few of the major events and trends of this most historic year are highlighted below.

There was a touch of good news in terms of hiring across the United States, with business leaders and data releases indicating more profits, more spending, more optimism, and (finally) more hiring.

Notably, the good news was driven by perceptions that the economy was truly improving in fundamental ways as opposed to some points in the past when temporary stimulus funds, Census efforts, or tax advantages led to some transitory gains.

However, mismatches between the skills sets of those looking for work and job requirements are further compounding the problem of slow hiring, and I'm afraid we're stuck with significant unemployment for a while.

Both rounds of our economic forecasting process this year indicated that, despite a slowdown in public employment, Texas is set to remain one of the top-performing areas of the United States.

This decades-old pattern stems from a number of characteristics including a friendly attitude toward business, favorable tax structure, lower cost structure, location, natural resources, relatively strong incentive programs, and economic and regulatory policies.

These factors enhance opportunities for relocating businesses, expanding operations, and creating jobs - particularly in the growth industries of the future.

While business cycles are inevitable, we have the groundwork in place for future economic growth.

Texas legislators dealt with a number of difficult matters this year, one of them being a significant gap between projected revenue and what would need to be spent to maintain the status quo. Virtually every program and agency was subject to a hard look, with cuts falling on many.

While a balanced budget was reached (partially by kicking the can down the road and leaving a shortfall as the next session begins), I have grave concerns about some of the decisions (particularly in the areas of education and certain aspects of health and human services) in that they may cause bigger problems (and costs) down the road.

The Lone Star State suffered through the worst drought in half a century, with some regions seeing the worst conditions on record. While parts of the United States dealt with devastating floods, Texas crops withered and reservoirs shrank. Agriculture losses were in the billions and many cities were near crisis points.

While the fall has brought some relief, we still have a long way to go to recover (and there are indications that this summer could be another dry one).

Oil prices were high through the year, sparking a flurry of drilling activity in Texas, but also leading to inflationary fears.

While oil is certainly essential to the U.S. economy, and higher prices are undesirable from the perspective of national economic growth, I also don't think high oil prices will be an insurmountable threat to the recovery.

Much of the run-up was fueled by political unrest in the Middle East, as many nations went through notable regime changes, the end result of which will not be known for some time.

Gold prices also hit historic levels and maintained the longest bull market in history.

In April, Standard & Poor's Ratings Services for the first time began to discuss a potential downgrade of U.S. sovereign debt. In August, S&P downgraded U.S. sovereign debt to AA+ status, shaking confidence and rocking already jittery financial markets.

While in reality the threat of default is zero and demand for U.S. debt is the highest since 1995, U.S. debt levels are problematic and must be dealt with.

Inflamed rhetoric, demagoguery, and incessant posturing was rampant as Congress and the White House bumbled and stumbled toward a debt ceiling increase, thus avoiding a major disaster of astronomical proportions that was totally of their own making.

While the best way to solve the United States' fiscal problem is a tough question (with many answers of varying merit), one thing is clear - we have chosen to tax about 65 cents for every dollar we spend in the federal government, and that's simply not a situation we can maintain.

The United States was certainly not alone in dealing with debt. Problems in Greece, Italy, and other southern European nations are far worse and drew much attention throughout the year.

The euro's stability was threatened and, given the interconnected nature of the business complex, the global recovery was also called into question. While progress has been made toward workable solutions, we are not out of the woods on this one.

Another event of 2011 which we will never forget was the earthquake of historic proportions and associated tsunami which devastated Japan. The loss of life and tragic scenes were difficult to comprehend, and returning to normalcy was a mammoth task.

While most companies are back up and running and the global supply chain issues stemming from the tragedy are largely resolved, the infrastructure losses were massive and the potential for nuclear energy around the world was given a notable setback.

A milestone was passed when the global population topped 7 billion, setting off reactions ranging from celebrations to doomsday predictions related to our planet's ability to support so many humans. Whether you see the population reaching 7 billion as wonderful or terrible, one thing is certain: we are reaching these billion-level changes with rapidly increasing speed and some nations will be hard pressed to deal with their burgeoning numbers of citizens.

The space shuttle Discovery flew its final mission before retiring to a museum, ending an era which began way back in 1984.

The contributions of NASA and the shuttle program to the economy are much larger than most people realize, and it was bittersweet to watch the last shuttle mission come to a safe conclusion.

Another instance of closure was when the informal but powerful reign of Osama bin Laden, the mastermind behind the unprecedented terrorist attacks on American soil of Sept. 11, 2001, was finally ended by a team of U.S. soldiers.

Several of 2011's challenges have only been temporarily dealt with such as the debt ceiling and future payroll taxes, and of course next year will bring its own situations.

However, as I've said in this column in recent weeks, I expect moderate growth for the U.S. and Texas economies, though I don't think the path will always be a smooth one.

Dr. M. Ray Perryman is president and chief executive officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

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