An expanding economy is very different from a contracting or stagnant one, and it brings its own set of constraints and structural changes. As far as economic issues go, of course, these are the good problems. But they still deserve our attention.
If the combination of regulatory reform and tax restructuring produces the sustained economic growth it promises, it will bounce up against broad constraints in workforce skills and raw material limitations. At the same time, it will change the structure of financial markets, from retail banking to Wall Street.
Remembering that forecasting these changes involves “The Future,” and the pitfalls of predicting it, a look at a few areas where changes seem probable can be helpful.
Air travel is one of those areas. The expression, “The sky’s the limit” may be even more true than we thought. Air transportation may be hitting a limit because of traffic congestion in the sky.
Almost five years ago, the Federal Aviation Administration published a map showing the air traffic over the contiguous 48 states. It showed a density that only a map of Starbucks locations could match. There are planes in the sky everywhere, and stacked up in all the old familiar places.
The industry — if we lump together aircraft manufacturers, airlines, airports, and regulators — has been responding to the air traffic congestion by seeking engineering and technical solutions. The most visible of these solutions, to date, has been what one federal judge called, “The case of the incredible shrinking airline seat.”
Airlines have been re-engineering passenger seats in order to fit more passengers into each plane, a natural reaction to the increased operating costs of, among other things, flight delays due to traffic congestion. Unfortunately, it comes at the price of passenger comfort — and safety as some analysts, and courts, see it — at a time when passengers are getting bigger and heavier. In any case, there is an obvious practical limit to increasing in-flight passenger density.
The limitations on the in-flight passenger side do not mean that we have exhausted the potential for engineering solutions. It is quite possible, for example, that drones could be used to create operating models of airports so that controllers could analyze ways to land passenger jets safely and yet get them off the runway and out of the way more efficiently.
Another avenue to relieve the pressure on air travel traffic was suggested by a recent headline in the Los Angeles Times, “101 Freeway won’t open for at least a week. Amtrak adds extra trains to accommodate more travelers.” If the delays and discomforts of air travel become onerous enough, perhaps it will cause a rebirth of passenger rail service. Really. Seriously.
Our air traffic system was going to bog down eventually, anyway, but a sustained, robust economic growth will make it happen sooner — and perhaps soon enough to become a constraining factor for economic growth itself if we don’t act to change it.
Just like air transport, the housing and construction industry will encounter constraints that are growth-related, but it will also see other changes that are attributable not to growth alone but also to tax reform.
Of the growth-related constraints, probably the most significant will be shortages in the labor force. Our pool of unemployed or under-employed workers has already shrunk, and an extended period of robust economic expansion could find the construction industry in an intense competition for all types of workers — skilled and unskilled. There are solutions to these problems, of course, but anticipating them could reduce their impact before they become a bottleneck for the economy and have to be fixed in a crisis mode.
Houses and condos exist in the real estate market, and tax reform will affect that because of its changes to the deductibility of mortgage interest. It is far from clear how the tax change will affect the nationwide market but it is possible that the highest valuation markets, especially Manhattan, will evolve as enclaves of those who don’t pay U.S. taxes.
The economic sector most likely to receive a boost from the spirited economic growth is the entertainment industry. One of the structural reasons for the film and TV industry’s decline has been the risk-avoidance of its investors. The result has been a self-defeating, disappointing production line of sequels, prequels, and reboots. The new burst of confidence in the investment community may give the industry more creative freedom, and a jolt of much-needed energy.
Economic forecasts are inherently dicey, and economists have neither a special gift for predictions nor an unblemished record in the field. Economic forecasts of “The Future,” then, should be considered as food for thought and, perhaps, strategy development rather than Vegas-like odds, lines, and spreads.
James McCusker is a Bothell economist, educator and consultant.