Boom town

If you drive north on I-395 into Washington, D.C., the last hill before you descend to the Potomac River presents an inspiring vista. The Air Force Memorial rises to the left, and profiles of the U.S. Capitol dome and the Washington Monument rise toward the sky. Even jaded Washingtonians admit the magnificence sometimes makes it hard to keep their eyes on the road.

Today, though, construction cranes interrupt the iconic skyline, adding a melancholy subtext to the national story. Coming in the midst of a recession and a sputtering recovery, the cranes are graphic reminders that Washington’s economic fortunes run counter to the nation’s prospects. The debt that’s such a drag on the economy is directly funding a construction boom in the nation’s capital.

Out of the $787 billion 2008 stimulus package, about $14 billion went to construction and renovation of federal buildings, with more than $1.2 billion allocated for Washington alone.

Those dollars don’t begin to tell the whole story. In total, about 40 percent of the area’s economy depends on federal spending. Of the nation’s 2 million federal employees, 380,000 of them live and work in the Washington area. About 15 cents of every dollar spent on procurement—everything from missiles to toilet paper—ends up in the Washington economy.

All this means that as the deficit exploded and extended the nation’s recession, the nation’s capital has boomed. Annual economic growth in the city has exceeded 8 percent for most of the past decade, while the nation’s economy actually contracted during some of those years. The region’s unemployment is around 5 percent. Northern Virginia has an unemployment rate of 3.9 percent, half the national average.

All this growth is a people magnet. During the decade of the 2000s, the region grew more than 16 percent. The Washington metro area now has 5.6 million people and is the seventh largest in the nation. This population boom attracts yet more government funding—since programs ranging from school funding to road-building depend on per capita allocations. The bottom line: Since 2007, the region’s economy has grown at nearly three times the national average. It now has the three highest income counties in the United States, and seven of the top 10.

But you can’t blame all this growth on Obama-era spending. During the 1990s, the Clinton administration’s “reinventing government” initiatives cut the number of federal employees by 250,000, but the vast majority of those workers just changed employers as outsourcing and contracting exploded. The trend continued during the Bush years. According to Stephen Fuller of George Mason University, contractor dollars in the D.C. area nearly tripled between 2000 and 2010, topping out at $82 billion.

Simple math tells us the situation is unsustainable: You can’t spend more than you have indefinitely. But all this prosperity may help explain why policy makers have failed to see the obvious. “If I live in Miami, I have a hard time imagining a snowstorm in Boston,” Fuller said. He thinks the Washington boom has created a “distortion of perspective” among decision makers.

Does this mean Washington’s boom will soon bust? Defense spending is under pressure. The Pentagon plans to cut $500 billion over the next 10 years. But Obamacare will likely increase federally controlled healthcare spending. The National Institutes of Health in suburban Maryland, as well as the federal bureaucracy managing the program, will undoubtedly grow.

Fuller believes the growth in the Washington area will continue, though likely not at the blistering rate of the past decade. “We may not be as fat as we are now in the years ahead,” he said, “but it will be a while before we look thin.”