THIS was the year that was. It opened with the world angry at America because of its willingness to use the strength of its military, and closes with the world angry at America for its willingness to tolerate the weakness of its currency. Thar’s just no pleasin’ these folks, as they say in Crawford, Texas.

This has been a year of reality checks. The Bush administration has been brought face-to-face with its huge deficits by financial markets that are scrambling to unload dollars, and by a Congress reluctant to tackle social-security (pension) and tax reform until the federal deficit is brought under control.

Bush has promised to do just that, but he is also intent on spending what it takes to win the war on terror, and on adding between $2,000 billion and $5,000 billion to the deficit over the next few years to cover the transition to his proposed scheme for partial privatisation of social security.

Several industries have also had annoying realities thrust upon them. The airlines now realise, or should, that the problems of the high-cost carriers, with their legacy of pension obligations and staggeringly generous union contracts, cannot be solved by selling more and more seats for less and less, or by bankruptcies that leave the industry with enormous excess capacity. A major restructuring, leaving the dinosaurs in its wake, is now in the works.

The media industry in America is equally unhappy with the reality that has hit it in 2004. The liberal television networks have seen their market share dwindle as more balanced and more conservative voices attract audiences, and as bloggers provide instant corrections to the slanted stories that have long come from the likes of Dan Rather and CBS news.

Like all fallen monopolists, the liberal networks are blaming everyone but themselves, saying that audiences are too dumb to appreciate their pundits and that conservative cable channels pander to audiences. But the fault lies with themselves; like the airlines, they will linger, but in a shrunken and transformed state.

So will America’s car makers. Their reality, circa 2004, is that they simply cannot sell cars unless they discount prices so heavily that profits vary from wafer-thin to non-existent. Whenever the car companies tried to end discounting, showrooms and lots overflowed with unsold stock. Like the airlines, car makers will have to crawl from under the legacy costs of pensions and union contracts that require them to pay their workers whether they have useful work for them or not.

Add to the list big pharma. The pharmaceutical companies now confront the reality that their problem is not solely the making of avaricious and unscrupulous trial lawyers, but of their own emphasis on short-term profits, an emphasis that has led them to continue marketing products in the face of increasing signs that they might be dangerous to users’ health.

In confronting that new reality, pharmaceutical companies are not alone. New York State attorney-general Eliot Spitzer has dusted off some old state statutes, and added a bit of scary muscle to change the way executives in the financial-services and insurance industries view their long-standing practices.

Spitzer’s extra-legal tactics, including insisting on changes in corporate management before proving that any law has been violated, may worry those wedded to the rule of law. But they are prob- ably popular enough to propel him to the New York governor’s chair, the seat of such early reformers of corporate America as trust-buster Teddy and regulator FranklinD Roosevelt — and you know where they ended up.

The sports industry has not escaped the changing reality of 2004, either. In baseball, America’s national pastime, the records of the stars of the most recent decades seem to have benefited from banned performance-enhancing drugs. This makes the players’ union’s refusal to allow testing an untenable relic of the day when the heroes of America’s young relied on their natural endowments.

Congress, which has the power to repeal the law that exempts baseball from anti-trust measures and thereby allows the teams’ owners to reap monopoly profits, has told the sport to clean up its act or face punitive legislation.

Finally, stores recognised that their reality had changed in 2004. Thanks to Wal-Mart, price has come to matter, driving retailers that compete in that bracket to ever-greater efficiencies if they are to survive to see another Christmas. Some, like K-Mart and Sears, have merged in search of efficiencies, although how two misses can equal one hit is something of a mystery. Others, like Toys ‘R’ Us, will have to quit the game unless they can bring their costs more in line with Wal-Mart’s.

Other merchants are sharpening up their buying practices and improving inventory control. And many have finally found the formula for parlaying their success in bricks into success with clicks — traditional retailers learnt in 2004 to use the internet to their advantage.

Perhaps the most amazing reality of the year now ending is the resilience of the American economy. Despite a recent history that includes a recession that started in the latter days of the Clinton administration, a lethal assault on the country and the attempted destruction of its financial centre, a dotcom collapse and rocketing oil prices, 2004 was a year in which the economy grew and more than 2m jobs were created.

The American economy remains 10 times the size of its emerging rival, China. And the mere growth in its wealth creation added as much to world GDP as did the entire booming economies of India and of Brazil.

Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute.

NEXT WEEK: the year that will be — America in 2005