Government Spending

Washington's Wealth Boom

The D.C. metro area is getting richer every year. That's a problem for the rest of America.

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Take a look at this map. The areas shaded in red are the 100 wealthiest counties in America according to per capita income. At first glance, it's a little misleading, because in the American West, counties tend to be larger in geographic area. But look closely, and you'll see that after the New York City metropolitan area, the largest cluster of wealth in the U.S. is huddled around Washington, D.C.

If we look at household income, the picture grows starker. After the 2000 Census, the richest county in America was Douglas County, Colorado. By 2007, Douglas County had fallen to sixth. The new top three are now Loudon County, Virginia; Fairfax County, Virginia; and Howard County, Maryland. All three are suburbs or exurbs of Washington, D.C. In 2000, 14 of the 100 richest counties were in the Washington, D.C., area. In 2007, it was nine of the richest 20.

All of this is fine if you happen to live in the D.C. area. It's not so great for the country as a whole.

While the D.C. metro area hasn't completely escaped the recession, it's doing much better than most everywhere else. Real estate advisers Grub & Ellis Company recently ranked the D.C. metro area the top market in the country for commercial real estate investment. Investment advisers are high on D.C. area real estate even in down times, because they know the federal government's only going to get bigger. That means more federal employees, more grantees and contractors, and more wealthy lawyers and lobbyists setting up shop inside the Beltway—both to get a piece of the federal budget (or, more recently, the $7 trillion-and-growing pot of federal bailout honey), and, as the federal regulatory state expands, to lobby for regulations most favorable (or, least unfavorable) for their clients.

The problem is that, save for the tech corridor in D.C.'s Virginia exurbs, the Washington Metro area doesn't actually produce anything. Washington doesn't create wealth, it just moves it around—redistributes it. As government grows and takes control of more and more of the private economy—either through spending, regulation, or taxes—more and more wealth that's created elsewhere comes to Washington to be devoured.

The Washington wealth boom is the result of the massive expansion in government over the last 10 years, which has populated the region with an increase in well-paid federal employees, and wealthy federal contractors and lobbyists.

As for federal employees, according to the Bureau of Labors Statistics, as of January 2007, there were 284,000 federal employees living in the Washington, D.C. area, up from 268,000 in 2000. The Cato Institute's Chris Edwards estimates that in 2005, the average federal employee made $106,579 per year including benefits, about twice as much as the average person makes in the private sector. Federal wages are also rising at about twice the rate that wages are rising in the private sector.

What about contractors? New York University's Paul C. Light estimates about 7.6 million people earned their paycheck through federal government contracts in 2005, a 50 percent increase since 2002. That increase in contractors doesn't seem to be trimming the number of full-time government jobs, either. The civil service workforce increased over that period, too, though not nearly as dramatically. Taxpayers paid $400 billion to federal contractors in 2007, double what they paid in 2000. Less than half those contracts were won with competitive bidding.

And lobbyists? The Washington Post reports that the number of registered lobbyists in Washington doubled between 2000 and 2005, to nearly 35,000. Not coincidentally, federal outlays increased over that period from $1.79 to $2.29 trillion. The government put more money on the table, so firms were willing to pay more lobbyists higher salaries to go snatch a piece of it.

"People in industry are willing to invest money because they see opportunities here," one lobbyist told the Post. "They see that they can win things, that there's something to be gained. Washington has become a profit center." Well, not exactly. "Profit" usually means providing products or services their customers want, which leads to voluntary, mutually beneficial transactions that leave both parties better off. In Washington, companies pay lawyers to procure money the government has forcibly taken from taxpayers. The only ones better off there are the companies and the politicians-which is worth keeping in mind the next time you hear how public service is an endeavor filled with honor, while the private sector is a playground for the greedy.

National Journal reported in April that D.C. firms spent $2.79 billion lobbying the federal government in 2007, up 7.7 percent from 2006—in a down economy. Companies spend money only when they're relatively certain they'll get a good return on their investment. I can only speculate what that $2.79 billion bought, but rest assured, its worth a lot more than $2.79 billion.

The outlook from here is grim. As bad as the Bush administration has been about expanding the size and scope of government, President-elect Barack Obama and the Democrats in Congress aren't exactly promising cutbacks. They've promised to expand the federal budget, the federal payroll, and the federal government's influence over the private sector. Obama's stimulus package calls for 600,000 new government employees.

And then there's all of that bailout money. At its core, the concept of a bailout is for the government to take money from people and businesses that didn't make mistakes, and give it to businesses that made lots of them. The waste comes not just from the initial cost to taxpayers, but also in all the money companies will then pay high-dollar lobbyists in Washington to procure a part of it.

America's wealthiest counties ring a city where the chief industry is government—and the entire region's only getting richer. That doesn't seem like a trend that bodes well for the health of a market-based economy.

Radley Balko is a senior editor at Reason magazine. This article originally appeared at FoxNews.com.

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79 responses to “Washington's Wealth Boom

  1. Deregulation doesn’t pay.

  2. Is anyone truly surprised. The beast feeds itself first, of course. Radley, this is a good article, it is hard evidence of the kind of system libertarian types bitch about constantly. Instead of pointing to the statist boogeyman census data cannot be denied.

  3. As a resident of the DC environs, I can say that while I don’t get to share in the ?ber wealth around there, I do get to take part in the crushing cost of living that services the wealth.

    I’m not house-poor; I’m city-poor.

  4. I was really hoping for a commentary track or a ‘making-of’ documentary in a special edition re-release.

  5. Well, it makes sense that the best and brightest make the most money and control our government. JW, according to your ideas you don’t share in the wealth because the market has decided you are not valuable enough. If the DC area is getting wealthier it just means our government jobs are becoming populated by smarter, wiser, and more educated people.

  6. Okay, you guys, I need help writing a follow-up to my last paper. (Which you guys helped me get an A on, thanks! 🙂 )

    Here’s a rough version of my questions and stuff.

    Anyway, it’s like really immature to think that deregulatory policies weren’t at fault in the current mess. How do you think Obmama’s new stimulus can be combined with better regulation to get us back on the right track?

  7. does this count as a recycled article? recycling is good.

  8. If the DC area is getting wealthier it just means our government jobs are becoming populated by smarter, wiser, and more educated people.

    During the Bush administration? Are you serial?

    I always figured you for a closet Republican, “kleinfan”.

  9. JW, are most of your smarter wealthier neighbors Republicans or Democrats? Are most people in the DC area Republicans or Democrats? I think we all know it is one of the great thinktanks of the nation because it is filled with mostly liberals.

  10. kleinfan92 does have a point. I bet if you take a look at the number of advanced degrees in this area you’d find it far exceeds that of a lot of other areas. Not that an advanced degree necessarily means you’re smart or worthwhile, but we do tend to think in terms of more education = higher income (or at least that’s why I figure most people are willing to shell out the money and time for years and years of school).

  11. Following up on my previous post:

    http://www.statemaster.com/graph/edu_per_of_peo_who_hav_com_an_adv_deg-who-completed-an-advanced-degree

    Comparing a city to entire states may not be the greatest idea.

  12. The brain drain to paper-pushing and money-relocating professions in this country is sickening. When we lose our technological supremacy, we’ll deserve it.

    Of course, I took a technical aptitude and growing up the son of an Apollo-era engineer and blew it all by becoming a lawyer. Why, I’m pushing paper right now!

  13. Didn’t we already comment on this? If Radley’s getting paid twice for this, shouldn’t we get paid once? I mean, there’s no such thing as a free lunch, is there?

  14. They are the true Herrenvolk.

  15. You ain’t seen nothin’ yet!

  16. I live in DC too and for a year all i’ve seen is gloom and economic doom on the tv, but I look around and all i see around here is buildings going up and landscaping being done. It’s as if the economy was in a boom around here.

  17. Counterpoint: when TSHTF, the last place you want to be is DC.

  18. For they shall suck of the abundance of the seas and of the treasures hidden the sand.

  19. Egosumabbas,
    Depends on which “S” you worry about. Nuclear attack – maybe. Riots in the streets? Empires crumble from the periphery in.

  20. Hey now prolib, no need to get preachy.

  21. “Anyway, it’s like really immature to think that deregulatory policies weren’t at fault in the current mess. How do you think Obmama’s new stimulus can be combined with better regulation to get us back on the right track?”

    does kleinfan92 write for Wonkette!? Like, he’s bubbleicious!

  22. “Depends on which “S” you worry about. Nuclear attack – maybe. Riots in the streets? Empires crumble from the periphery in.”

    Not neccessarily domo. Just look at the Roman empire. Rome stopped being the capital for a long time before the empire collapsed (first Milan, then Revenna). By the early middle ages what was once a million+ strong city had merely 20,000 people in it. That’s a lot of “S”.

  23. JW, are most of your smarter wealthier neighbors Republicans or Democrats? Are most people in the DC area Republicans or Democrats? I think we all know it is one of the great thinktanks of the nation because it is filled with mostly liberals.

    From a certain point of view, Bernie Madoff is a genius. I mean, look at how much money he stole!

    I’m not so sure those are the kinds of “brains” we really need in America though.

    And of course it’s even better if you can steal your money with the legislative pen, backed up by the gun.

  24. Egosumabbas,

    Thou son of the perverse rebellious woman!

  25. Well, it’s not really stealing if the money is from taxes. It is a civic duty and a requirement of partcipation in the country to pay taxes. If the best and brightest are compensated through taxation, you should feel honored to pay them!

  26. Sigh. What is this, Spartacus? Will all the real trolls please identify themselves?

    There must be some new NEA grant for performance art in blog comments sections.

  27. Egosumabbas,

    I suppose you could also argue that Rome had been in steady decline for a long time by then – in fact the split itself (which predicated the capitol change) could be seen as the periphery begging off.

  28. The lack of ethical trolling has been appalling of late.

  29. Well, it’s not really stealing if the money is from taxes.

    Please, let the big kids talk, don’t come back til you learn the rules.

    Full disclosure: kleinfan92 is my little sister playing a joke on this site. The writing a paper *palmface* is real, but she is being deliberately provocative, which is not cool. Respond at your own peril.

  30. Well, we COULD study incidents of TSHTF one by one. I think you’ll see that the Capitals of states often get brown the quickest, leaving behind rump states of relative cleanliness.

  31. I AM kleinfan92!!!!!!!!!!!

  32. Well, that’s okay phillip, I won’t bother your nerd friends anymore. Still thanks a bunch for the insightful discussion of libertarianism! I learned a lot : )

    XD

  33. How much for your sister?

  34. Okay, I think we’re all pretty sure that kleinfan92 is a spoof troll.

  35. phalkor,
    Your name is Phillip?

  36. Egosumabbas – either way, I’m glad I sold my NoVa condo.

  37. [sarcasm]
    Yea, when I first came to this town with a Finance degree and a very good Army Reserve and Guard resume things were pretty nice.

    Now we have all of these snotty little know-nothings stinking up the place with their law degrees and BAs in rhino testicular studies pretending they know anything about fiscal management.

    The big change came after that ‘.com boom’ and somebody let all of the .comidiots and .commies escape from Reston and Herndon. It was like a Biblical locust invasion.
    [/sarcasm]

  38. well, yeah, I have, well sometimes posted my real email address. To be sure, kleinfan92, or as I know her, ashley, is a perfectly harmless, and transient troll.

  39. Your women. I want to buy your women. The little sister, your other sisters. . .sell them to me. Sell me your sister.

  40. Not to go all contrarian on Radley, but:

    http://www.whitehouse.gov/omb/budget/fy2009/histint.html

    Interesting reading. I was surprised (shocked really) to find that, as a percentage of GDP, outlays float between 18 and 21% (all the way back to LBJ). The data seems to contradict the notion of profligate governmental growth.

    Of course it’s the government’s data they could be lying.

  41. phalkor,
    How do you know that kleinfan92 is your sister?

    Kleinfan92,
    I am not a nerd. I am a well-adjusted adult who just happens to enjoy blogging and computer games.

  42. I say there’s no way the real federal spending stayed within those parameters last year, if you include all the supplemental appropriations and the Wall Street TARP money bailout.

    If you want to include the TARP funds in this fiscal year instead of last, then we’re certainly going to rocket above it now. Also, there’s going to be a one trillion dollar “stimulus package” soon as well, and the auto bailout will likely be back on the table, and who knows what else.

  43. Am I missing something or does the fact that private industry allocates money to lawyers and lobbyists in the dc area to work for laws and regulations that benefit the industries, thereby helping their bottom line, not mean that a potion of the reason for the wealth influx in dc is tied to improving the success of private industry- industries which DO produce things.

    Furthermore there are large amounts of defense contractors, engineering firms (which produce, among other things, bridges, roads, plans for mitigating future natural disasters, etc) and scientists (due to the NIH, the numeorus academic institutions from Johns Hopkins to Georgetown) all of which can hardly be considered parasites suckling at the teat of big governement.

  44. If industry has to work that closely with government, then what does that say about the “free” in free market?

  45. Who said we were living in a free market? And who said it is uncontroversial that markets should be free? Government restrictions and regulations can serve purposes beneficial to the overall health of a market economy. The fact that a market is not completley free does not mean it is necessarily flawed.

  46. I think it’s less than “not completely free.” Honestly, let’s not pretend that the government is acting out of anything more than its various influence peddlers’ better interests. Why is regulation that serves someone with more influence better than a free[er] market?

  47. Overall, agreed. Although, I can’t help but point out that modern finance is in many ways the same. It doesn’t really produce anything just moves money around.

    Of course there is value in the allocation of capital, but it’s hard to argue that there is more value in the allocation of capital than the goods that are actually created. And yet somehow finance produces more profits than manufactoring. Course I’m in finance, so I supppose it works out for me, still doesn’t seem like something is working right.

  48. Washingtonian in Private Industry,

    Meet Frederic Bastiat.

    Mr Bastiat,

    Meet Washingtonian in Private Industry

  49. It’s not “Loudon”, but “Loudoun”. Sheesh, try to get the spelling right the next time!

  50. Interesting. So come the fall of the Republic, a choice place to loot and wreck havoc would be the former Capitol? Bwahahahahahahahahaha!

  51. Rome Rome has thrived ever since it was founded.

  52. i hope obama starts with the dc area when he nationalizes housing.

  53. lukas,

    Then reason there is still an Istanbul is its strategic location. It has been sacked and its people put to the sword at least half a dozen times. The people there are not the same ones from a thousand years ago. The people who were there a thousand years ago, where not the same people who were there a thousand years before that and so on and so on. It would be more accurate to state the site of a city keeps being resettled. As for Moscow? Don’t know much about it’s history.

  54. naga sadow, moscow really improved after lenin took over but had a setback during stalin.

  55. Thank you my retarded sling-blade type troll friend. Continue keeping me informed.

  56. My point is, Rome didn’t vanish until the Second Rome had overtaken it by far.

  57. Spelling error— It’s LOUDOUN county

    You missed the last “u”– common mistake amongst people who aren’t fortunate enough to live in Loudoun, mwah-hahahaha. Sorry we have to be so RICH! Recession, what recession!?

  58. Kroneborge– You say that the finance industry doesn’t produce anything? I disagree. There is no production without investment capital. The two are inseparable..

  59. So come the fall of the Republic, a choice place to loot and wreck havoc would be the former Capitol?

    See, also, Fallout 3. The pleasures of roaming a wrecked D.C. with a railway gun and a pocket full of grenades are not to be underestimated.

  60. does the fact that private industry allocates money to lawyers and lobbyists in the dc area to work for laws and regulations that benefit the industries, thereby helping their bottom line, not mean that a potion of the reason for the wealth influx in dc is tied to improving the success of private industry- industries which DO produce things.

    As we all know, spending money on lobbying is an infinitely better way to improve productivity than investing on process development.

  61. I’m so glad someone else has finally noticed this. I have never seen so many Ferraris in one place in my entire life, as when I last visited D.C.–not even in L.A.! And it infuriated me for these exact reasons. “The Washington Metro area doesn’t actually produce anything.” So true.

  62. Of course there is value in the allocation of capital, but it’s hard to argue that there is more value in the allocation of capital than the goods that are actually created. And yet somehow finance produces more profits than manufacturing.

    Well, as we’ve discovered in the last few months, it really doesn’t. Leverage merely creates the illusion of massive profits, and the house of cards has finally started to come undone.

  63. Peter, note that I did give finance credit for the allocation of capital. I agree this is a necessary function. My point being to question whether it should be possible to get more value from capital allocation than from the actual production that the capital is allocated to produce.

    IE, if I bring 100 people’s capital together to start a factory making widgets, is there really more value generated from my bringing that capital together, than from the actual production of the widgets?

    I guess another way to look at it, is does the administration function of a company generate the value, or does the production function? IMO, the adminstration function is a necessary and needed expense, but the real value is generated from the actual production.

  64. And yes Mike, totally agreed

  65. I see what you’re saying Kroneborge. I misinterpreted what you meant by “allocation.” I think you bring up a good point.

  66. However, I suppose the person who risked his/her money in order for something to be produced in fact should have the biggest payout in the end.

    And who are you refering to as responsible for the “actual production” if not the investors and the administrators?

  67. Oh, I agree people should get a return for investing/risking money. Otherwise why do it. I also agree that someone should get a return for putting in all the work to gather all the money, and allocate it to investments (ie capital markets, or banks). My point was whether the banks etc (ie the capital allocaters) should really have a higher return, then the producers.

    I’ll give you an example from my own work. My company mines and processes various industrial chemicals. People at the plant/factory actually produce stuff, over in finance were I’m at, we do perform valuable services, like paying the bills etc, but IMO, the actual value the company generates is from the production of product, NOT from the finance department. We are a cost center. We do have value, but only in relation to the product produced.

    That’s kind of how I feel about Walstreet. It does provide value, in the allocation of capital, and thus people should be able to make a living off of it. But, when the returns for allocating the capital dwarf the actual goods produced, then I think we have a problem.

  68. tarran:

    I’m well aware of Bastiat (and Hayek, etc.). I am also well aware that the fact that a person’s favorite economic, social or political theorist(s) may advocate a free market system- or claim that it is the only type of system philosophically justified- does not make such claims “uncontroversial” (the word, you will note, that I specifically chose to use) or mean that they are correct.

    Which was my point. Bravo for your misguided condescension, though. Good work.

  69. I’m sorry, but I’m both a lifelong resident of the DC area and a gov employee and this article misses a few points:

    1: The wealth of the DC area is not a new phenomenon related to the “recent” expansion of the gov. Montgomery County, home to a huge percentage of gov employees for decades, had been a top-10 wealthy county for decades and was only recently surpassed by Loudoun, Fairfax, and Howard. Fairfax County has also been a top-10 wealthy county for decades. To claim this is recent is nonsense, but does not diminish the overall point that the gov has created a bizarre wealth in DC that isn’t necessarily healthy.

    2: To only note the NoVA tech industry in passing you fail to give proper credit to the impact IT and tech plays in the economy of NoVA, especially Loudoun County. At one point in time Loudoun was home to the 3 biggest ISPs in the nation and a full 75% of all internet traffic flowed through a small area in Loudoun County. NoVA is still home to one of the internet’s root name servers (VeriSign’s) and MD is home to 2, at UMD and at the Aberdeen Proving Grounds. NoVA, and to a lesser extent MD, is the IT capital of the East Coast and the most important IT center outside of Silicon Valley in the entire world.

    3: As others have mentioned, the DC Metro area has the highest percentage of residents with advanced degrees in the entire nation. Salary and wealth are commensurate with education, so it would stand to reason that an area with a high percentage of well-educated residents would also have disproportionate salaries.

  70. In addition to the first post, here is my input.

    I grew up in Loudoun County in the 1950s and 1960s. Population might have been 20,000, and the commute to DC was an abomination then as it is now. There were 47 dairy farms in the county. CBS, I think, ran a special TV broadcast in 1968 that contrasted the wealth of Loudoun, concentrated in the estates of the ultra-rich DuPonts and Mellons around Middleburg, with the family of a girl in my school who had no running water, heat, and little food. NONE of the people who lived there then, other than the ultra-rich, could even be called wealthy, not even the bank president of my home town, Round Hill.

    Dulles Airport opened in Loudoun and Fairfax in 1962. Ten years later, some were calling for it to be closed, as it was too far from DC to be useful (35 miles). Local business leaders prevailed upon United Airlines to use it as a wide-open hub, which they do to this day. Then, Va. state leaders saw something in the Research Triangle Park idea in North Carolina, and they created a similar situation near Dulles.

    The city of Reston, Va., a planned city, started in the late 60s in Fairfax. You should see the skyscrapers there now.

    Tyson’s Corner Mall also opened in Fairfax in the late ’60s, and at the time was one of the largest in the US. It occupied a former wasteland of junkyards, body shops, and such. It is an economic juggernaut now.

    Then the PC revolution came, and the Internet, started by the military, found a home near Dulles in the form of AOL and all the supporting superstars of the beginning of that era.

    That airport and the research initiatives, combined with the synergies of the Internet, US government, the military, a large number of private and public colleges and universities in DC, Md, and Va., and PRIVATE enterprise, took off.

    Dulles, in 1968 before all this, had a 15-mile radius, or more, of completely undeveloped land. That area is now a carpet of high-techology industry and commerce from the Potomac River south past Manassas (Prince William County), and west to Leesburg (Loudoun County).

    The DC population is ridiculously low for an area of this economic power. For you to put all this wealth at the foot of the federal government misses the point. If anything, the government has more than benefited from the private sector than the other way round.

    If you want to do business with the US, where else do you go? Do you go to Dubuque to do business with the movie industry? Do you go to Tampa to do business with the miners? Do you go to Phoenix to do business with banks and brokers? Do you go to Atlanta to buy snow plows?

    This article, though interesting, is a classic case of “Lies, Damned Lies, and Statistics.”

    Quite frankly, I’m quite proud of Loudoun’s ascent to the economic stratosphere. Though I left there decades ago, it’s a huge change from what used to be, and not be so well.

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