Washington Post on the big economic questions of 2012

This is another in a short series of posts looking at credible economic predictions for 2012.

There’s a great piece in the Washington Post today, 2011 was a bust — could 2012 be better? Of course, 2011 was not a bust. Despite some daunting obstacles, the U.S. economy continued to grow over the past year.

2011 was only a “bust” in comparison to the unrealistically high goals that many analysts had for the year.

Today’s piece in the WashPo, written by Neil Irwin, is quite lengthy, but closes with five key questions for 2012:

Will the U.S. political system behave itself?

The debate over the role of government and tax law needs to unfold without the threat of default or downgrade.

Can China amp up consumption?

It needs to shift to greater reliance on domestic demand for consumer goods and services, and away from exports and housing investment.

Will we be lucky enough to avoid an X-Factor?

When the economy is strong, even seemingly big blows are manageable. It’s the nation’s underlying weakness that makes random events seem so consequential. That said, a bit of good luck — meaning no new surprise disruptions — would be helpful in not undermining the economy.

Will the housing market bottom out?

A cause for optimism is that the United States has been under-building houses — constructing and renovating too few homes to keep up with a growing population — for half a decade. With 1.2 million new houses built each year in normal times, the 600,000 or fewer homes started in each of the past three years won’t fulfill that demand.

Can European leaders balance every country’s demands?

They will collectively decide whether their continent fixes its financial troubles or lets them spiral out of control. If instead of muddling through they usher in a consistent, credible era of European unity, and the European recession turns out to be mild or nonexistent, it could boost the stock market and business confidence — and hence, hiring — worldwide.

The housing analysis here is more than a little thin. It’s not about homebuilding to meet population growth; the issue is household creation, not population. Also, we may have been “underbuilding” for a few years now, but that doesn’t mean we’ve eaten up a sufficient amount of the excess supply yet. Also, there’s the shadow inventory to worry about.

But Irwin seems to me to be asking the right questions here.