Bacon's Rebellion

Democracy Thrives in Sunlight

Has Washington Reached Escape Velocity?

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by

James A. Bacon
in , , , ,

Achieving orbital escape velocity. Orbital Science Corp.'s Antares rocket is just one sign of the Washington region's economic dynamism.
Achieving orbital escape velocity: The Antares rocket, designed by Orbital Sciences Corp., is just one sign of the Washington region’s economic vitality.

by James A. Bacon

It was long the conventional wisdom — which I shared, by the way — that the Washington regional economy was cruising for a bruising when the federal government encountered its inevitable reckoning with fiscal reality. Well, sequestration, a sort of semi-reckoning, has kicked in, and the Washington economy appears to be shrugging it off.

Indeed, the main thesis of a front-page Wall Street Journal this morning is that private-sector growth is replacing government growth as a source of economic dynamism. Federal spending as a proportion of the regional economy has slipped from 40% to 36% since 2010 — yet the regional economy continues to grow faster than the national average.

What’s happened? The region’s deep talent base is part of the story. But Washington has had a deep talent base for decades. What’s different is that the region now has a generation of successful entrepreneurs who have cashed in their chips from the government-contracting businesses they built and now are investing in start-ups that have no government connections at all.

Writes Elizabeth Williamson:

More than a generation of heavy federal spending, it turns out, has provided the seed money for a Washington economy that now operates globally—less tied to the vicissitudes of the capital’s political rhythms.

The new moneyed brain trust is being led by professionals in defense, intelligence and data—many of whom excelled initially due to government ties. They’ve propelled the D.C. region as a leader in the cybersecurity and data sectors, as well as in more-specialized arenas including educational products and health-care data management.

Along those lines, Stephen Fuller, George Mason University’s regional economist, attributes the economic dynamism to the fact that the region has  “become more business-based. … The stuff we learned how to do for the federal government can be sold to other people—a different economy is going to emerge that in the long run may be a better-balanced economy than the one we have now.”

Bacon’s bottom line: If Fuller’s thesis is correct, if the Washington regional economy has reached escape velocity from federal spending, then that is positive news indeed, both for Northern Virginia and for Virginia as a whole. One of my nightmares, frequently articulated on this blog, is that a slowdown in federal spending would have devastating consequences for the economy, tax revenues and the fiscal strength of state and local governments. The WSJ article awakens me to the possibility that those fears may be exaggerated.

There is a second level of re-appraisal that must occur. I have frequently raised the specter of slower economic growth in Northern Virginia as justification for mistrusting the long-range job and population forecasts that underpin infrastructure spending (especially transportation spending) plans for the region. If the region continues to grow like gangbusters, I’ll have to scrap that argument.

Whatever the region’s growth rate, the debate over transportation and land-use policy in Northern Virginia will continue without let-up.

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8 responses to “Has Washington Reached Escape Velocity?”

  1. larryg Avatar
    larryg

    Much of the technology base in NoVa is there because of the military and yes… once the military do R&D and engineering – many technologies then find powerful civilian applications.

    just take one – GPS…. and remember… for instance, all this talk about cell phones used in traffic counting – rely on GPS. If you have a smartphone, go to phone settings and look for “location services”.

    take another – drones – that uses GPS and satellite communications.

    Drones now are used in dozens if not hundreds of civilian applications – like flying power lines or pipelines…. or checking remote comms towers..etc.
    they’re even being used by farmers to check the whereabouts of their herds or to find ocean buoys…etc…

    this is how this country moves ahead and not worry about low skill manual jobs but it also means our own people – our own kids – have to receive a globally-competitive education or else you’re going to see more and more CEOs and workers with foreign surnames ESPECIALLY with the advent of Massive Online courses whatever the acronym is.

    We have tremendous opportunity if we can stop blaming teachers and unions and govt – and take more responsibility for our kids and their educations.

    I’m still a skeptic of population projections because there is no real process other than projecting forward what has happened in the past and even then it does not project where the growth will occur geographically nor where jobs will be – or not.

    the current emphasis on growth west of Tysons is an example. WHERE is that idea coming from?

  2. TMT Avatar
    TMT

    A note of caution for predictions by Dr. Fuller. Much of his non-GMU funding comes from the real estate development industry. He tends to come up with results that support the need for more development and anything related. This doesn’t mean his work is bad or conclusions necessarily incorrect, just that they need to be footnoted.

    1. larryg Avatar
      larryg

      I agree with TMT. He tends to rent himself out to developers seeking comp plan changes and rezones and he argues (quite effectively I might add) that with any development, fiscally, you have to consider ALL the taxes the new residents will pay – beyond just property taxes but then he does mess up when he claims they all go to pay for the schools or roads and that’s not true of the other taxes.

  3. Peter Galuszka Avatar
    Peter Galuszka

    Gee, Jim, are you going through an existential transformation?

    Boomergeddon refers to Washington as an “Imperial City” much like Beijing. Doesn’t matter whose in charge for a while, it reverts back. The imperial residents voted for Obama in 2008, which was bad, you said.

    I keep Boomergeddon on my nightstand and read it constantly.

    More and more, you are straying from it.
    .

  4. reed fawell III Avatar
    reed fawell III

    In the 1950s in Manhattan there was a joke going around – “Why do you live in Washington if you don’t work for the government?” It was valid question.

    Even then, however, there was a thriving local business community in DC. Lawyers and lobbyist industry also thrived, spawned by FDR’s New Deal.

    Ike’s Military Industry Complex was also rising its powerful head by then. McNamara’s military adventures in Viet Nam entrenched that Complex during the late 60s . By the late 70’s the big national law firms and national and international developers and their investors began to arrive in force.

    The launch of Tyson’s Corner in the late 70s marked the grand emergence of the Government Contractor, and supplier. Their Headquarters followed. Local start up government contractors also began to bloom in the 1980s.

    The Dot com bloom arrived in mid 90. This began the first spouts of stand alone business absent the Government crutch, and grew large.

    Surely somewhere along the line there is a tipping point when DC’s business base become self sustaining, independent of every government Hiccup. Standing on one’s own two feet is a very healthy sign in many ways. Vibrant independence is the cornerstone and driver of entrepreneurship.

    Still a substantial downturn in government spending is sure to impact big, even as the national economy, whether growing or not, plays an ever larger roll in Washington’s business success or failure . Meanwhile an altogether different threat grows – MONSTER TRAFFIC congestion and gridlock.

  5. Darrell Avatar
    Darrell

    Sequestration? What’s that? Down here in Tidewater every govvie was sweating bullets over being furloughed. It’s now down to maybe someday taking possibly a couple days off, or maybe not. The only sequestration visible here is the foot long grass on all the bases that signals the newly published officially declared height based instead of time based trigger for the landscaping contractors to cut government grass. Oh, and the air show cancellations and something else that was so equally damaging that I can’t even remember what it was.

    If that’s what is happening in the hinterlands, just how much impact do you think sequestration will make up in ground zero?

  6. larryg Avatar
    larryg

    I do not think the Washington Area is going to hurt much and here’s why.

    No matter what happens, DOD and all the other cabinet agencies are going to be headquartered in the area – high dollar management types.

    Because the HQ of the cabinets are here, it will attract lobby folks and private sector contractors to provide goods and services to the govt

    As Darrell points out, and I can confirm in my conversations locally, the net impact of sequestration is some folks are getting short-term haircuts and things like mowing and other “tidy up” work is cut back.

    the only way that significant cuts will happen IMHO, is with a BRAC-type process where legislators somehow agree as to how much TOTAL we will spend on DOD (and other) and then tell the agencies to prioritize.

    The Washington region is just going to keep on trucking govt-wise and if they do have a private technology sector – it could not have a better place to incubate…

    the govt is ALWAYS interested in new and improved… it’s built into their budgets!

  7. DJRippert Avatar
    DJRippert

    I hope you’re right, Jim. I drove across Fairfax County to get to a golf match yesterday. I have never seen so many construction cranes.Even if government spending is flat, Northern Virginia needs more private sector activity just to keep all the new offices, homes and infrastructure utilized.

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