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Economic Forecasts

D.C.'s Economy Is Out of Touch

Flattening federal spending will give the region a taste of what the country has been going through.

Federal spending has risen for decades—in good times and bad, in GOP and Democratic administrations—and the greatest beneficiaries have been the people and businesses in and around Washington, D.C., my hometown.

Expanding government has made the Washington region the most affluent in all of America—and that is not good. It has widened the financial and psychological gulf between government and the governed, who (let us not forget) fund our capital’s prosperity with their taxes and loans. This gap has fanned a justifiable resentment that Washington is out of touch with the daily struggles of ordinary people.

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Now Washington’s civic leaders are worried that the long party is winding down. They fear that spending restraints will be forced on the U.S. by its foreign creditors and that a federal budget deficit of more than 8% of gross domestic product is unsustainable.

This flattening of federal spending is essential for America’s long-term health. As a bonus, it will give the Washington region a taste of what the rest of the country has been going through for a long time: slower growth in employment and personal income, a challenging real estate market, and a need to find more ways to make do with less.

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In the previous decade, Washington was by far the strongest economically of America’s large metropolitan areas. The region benefited from surging spending on homeland security and the funding of two wars. Direct federal employment grew by 50,000, and employment at federal contractors (highly profitable private firms) grew by much more, fueled by a 166% jump in government purchasing nationwide—one-fifth of which was spent in the D.C. metro area. When military bases were closed and trimmed all over America—hurting some struggling regional economies—many of their functions were moved to the prosperous Washington area.

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During the Great Recession, funds earmarked for economic stimulus were lavished on this region at almost three times the per-capita national rate. That’s despite metro Washington’s low jobless rate of just 6% at the time, compared with a 10% unemployment rate overall.

How different has Washington become from the rest of America? The three U.S. counties with the highest median household incomes in 2009 ($114,000 to $102,000) were all in this area, along with four of the next seven. The median household income for the entire metropolis of nearly six million people is now in the high $80,000s, compared with the national median of about $50,000.

Part of the reason for the disparity is education. Metro Washington attracts the best-educated workforce in the nation: 47% of adult residents have a bachelor’s degree, and 22% hold a postgraduate degree—well ahead of Boston, San Francisco, San Jose, Cal., and suburban Connecticut.

Because of the region’s concentration of high-earning lawyers, doctors, association executives and executives at government contractors, it takes more income to crack the infamous top 1% here than in any other of the ten largest metro areas in America—a staggering $527,000, compared with the national average of $387,000. No wonder some members of Congress—who live most of the year in this rarefied air rather than in their constituent districts—have been heard to define “middle income” as $100,000 or $150,000 a year.

The region I’m describing is the place where I was born and where I’ve lived my whole adult life. Like most Americans, I take pride in the beauty and grandeur of our nation’s capital—and in its growing sophistication as a cultural center. But it’s high time that Washington, public and private, reined in the excessive consumption of recent years—an opulence funded largely by borrowed federal money—and learned to live within its means.

Columnist Knight Kiplinger is editor in chief of Kiplinger's Personal Finance and of The Kiplinger Letter and Kiplinger.com.

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