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The Washington region managed to avoid the worst effects of the Great Recession, thanks in part to the relative stability of government employment and contracting. But a new era of federal belt-tightening could have a profound impact on the economies of Northern Virginia, Maryland and the District. We ask whether local economies are facing a reckoning.
- Annie Lowrey Reporter, New York Times
- Marc Fisher Senior Editor, The Washington Post
MR. KOJO NNAMDIThe Great Recession left a painful mark on the nation's economy, but sometimes in Washington, you'd hardly know it. Since 2007, the region's economy grew at rate three times greater than the rest of the nation, and you can see cranes dotting our landscape, the developments sprouting up in neighborhoods and the expensive new restaurants that seem to open every month.
MR. KOJO NNAMDIThis past weekend, the feature story in The New York Times magazine connected the region's prosperity to great federal spending and concluding -- and concluded that a looming $1.2 trillion cut in the federal budget might mark the end of Washington's boom days. But others claim the region's economies are far more complex.
MR. KOJO NNAMDIWe'll explore how an era of greater austerity will shape the region's economy in the years to come with Annie Lowrey. She reports on economic policy for The New York Times. She is the author of the aforementioned recent article, "Washington's Economic Boom, Financed by You". Annie Lowrey, thank you for joining us.
MS. ANNIE LOWREYThanks for having me.
NNAMDIAlso with us is Marc Fisher, senior editor at The Washington Post who sits in this chair quite often. Good to see you on the other side of the microphone, Mark.
MR. MARC FISHERIt's a different prospective from over here.
NNAMDIWell, the audience is soon -- will soon find out. If you'd like to join the conversation, call us at 800-433-8850. You can send email to email@example.com. How have you seen D.C. change through the last decade? 800-433-8850. Annie, economic forecast for 2013 are largely positive. The U.S. economy is set to reach normal levels of growth. But in the piece you wrote for the magazine, you say that here in Washington, the boom days might be over. Why?
LOWREYSo we've had this huge profusion of federal spending, which has been a no small part driven by increased contracting to pay for the war on terror, to manage the war on terror. A lot of it has been security and defense-related, and a lot of that money has stayed in the D.C. metro region. It's been about 15 cents on every contracting dollar. And that's really helped the region. I think that maybe it's most visible in Northern Virginia, but D.C. itself has had an economic boom.
LOWREYEven Maryland has also had some pretty good economic times when the rest of the country has struggled. So the question that the piece asks is since we're going to see a defense drawdown, since we're not going to see the expansion like we've seen, what happens to D.C.? And I don't think we know the answer to the question yet. But it remains to be seen because D.C. has grown much faster than the rest of the economy has. So a lot people think that maybe that growth will slow down.
NNAMDII came to this city at the end of the 1960s. I've been working in broadcasting here for the last 40 years. And during the course of that time, I've seen the city transform from what people used to call a little kind of rural town into an affluent urban center. Marc, how has the landscape of the city change in the last two decades or so?
FISHERWell, it's changed a lot more in the last two decades than in did in the previous three or four. The period of decline that began in the '50s with suburbanization and was accelerated by the riots really turned around in large part because of the change in the governance of the city. When Tony Williams came aboard, changed the dynamic, changed the tone of the government, the efficiency of the government and the willingness, most importantly, of investors to come into the city.
FISHERBoth domestic and foreign investors, particularly the role of foreign investment in the last decade has been enormous. And I would argue that contrary to what was in the Times magazine piece that was driven not by government spending, but by an astonishing resurgence in investor confidence in the District. The role of government contracting in Northern Virginia is enormous and dominant. But in the city itself, the growth has come primarily during a period in which government employment has shrunk, not grown.
NNAMDI800-433-8850. Do you think there's an economic reckoning coming? 800-433-8850, or you can send us a tweet, @kojoshow. Annie, you say this economic revival that we're seeing can be traced to increased federal spending during recent administrations, and I guess I'm going to have to make a distinction between the Washington region and the District of Columbia. When you say the economic rival, I get the impression that you're talking about the Washington region.
LOWREYYeah. So this is complicated. And weirdly enough, I think that what I'm saying and what Marc is saying, actually, those two things co-exist really happily. So it was really important for D.C., just D.C., that the city government kind of get its act together, put Washington on a sounder fiscal path, take care some of the problems with crime.
LOWREYAnd they went on this really pro-urbanist development agenda and that's mattered. I would never argue that it hasn't. But I do think that people underrate how the changes that have stemmed mostly in Northern Virginia have changed D.C. itself and -- if you look broader and more regionally. For instance, we've had this tech boom, sort of like the one that we had in the '90s, but even a little bit bigger now.
LOWREYAnd I think that that has been allowed to happen in part because the whole region education levels have gone up. Average wages have gone up. All of these things, in my mind, are interlinked. And so I think that some of what you've seen in D.C. has been driven by not the growth in federal employment but the growth in federal spending. So I think that you can kind of look at Maryland, Virginia and D.C. in isolation.
LOWREYBut I do think that the regional economy is knitted together in a way that these contracting dollars, even if they haven't been located in D.C., have really mattered for D.C. because they've help businesses come and want to locate here, especially those tech and medical businesses that have provided a lot of job growth in the District as well as, you know, in Maryland and Virginia.
NNAMDIOK, let's accept that assumption for a second. Marc, do you think decreased federal spending, particularly in the defense sector, will affect the regional economies differently?
FISHERWell, certainly. I mean, Virginia's in for really hard times, and both, you know, congressmen of both parties agree on that. The economic forecasters will look at Northern Virginia and say that despite the movement of military jobs down to Southern Fairfax, Northern Prince William Counties, there's going to be a real reckoning. And as defense spending draws down with the end of the wars and with some, you know, fiscal deal if, whenever happens, you're going to see an impact there.
FISHERBut it's hard to see how that would have much of an impact on the District given that most of that contracting money, the outsourcing that has become the dominant form of excessive government spending in recent years goes to Virginia and not to the District. Clearly, there are some spillover. A lot of the fancier restaurants in downtown Washington certainly have customers coming from Virginia.
FISHERBut if you look at the demographic studies of who goes to sports events in the city, who goes to the restaurants downtown, it is not primarily people from Virginia. And so there -- the river really does keep those parts of the region apart in very strong ways. And, you know, the District is not immune to economic downturns and change, but it is protected, in part, by government spending and in part by the other aspects, the diversification of the D.C. economy.
FISHERYes, defense contracting has benefited enormously from the wars and spending, you know, for the last couple of decades. But that does not begin to explain why we've become the corporate headquarters for the hotel industry in the country, that has nothing to do with government spending.
NNAMDIWell, Annie Lowrey, exactly how enmeshed do you think the economies of Washington, Maryland and, in this case, Washington and Northern Virginia are? Do you think it's possible that Marc and others are understating exactly how enmeshed these economies are, that, in fact, when he says if you look at sports figures, that there a whole lot of people who are coming here to Capital games and Wizards games and hanging out downtown who are, in fact, from Northern Virginia?
LOWREYWell, it's really complicated. Nothing is monocausal here. And I definitely would agree with Marc that federal spending isn't the only story. And the way I kind of describe it in the article is that there's been these kind of concentric circles, right? So federal tap gets turned on that raises human capital, it helps raise wages, it helps encourage people to invest, but then you have all these other businesses that want to come here.
LOWREYAnd, yeah, you know, the movement of corporate headquarters and corporate offices to D.C. has been a very interesting trend as well. And I think that the question is, what happens when that federal tap turns off to the rest of the economy? And a lot of people think that it can kind stand on its own two feet at this point, that D.C. has diversified enough.
LOWREYAnd the D.C. region, I should point out, has diversified enough that what will happen is that the rapid growth we've seen have slowed down. But that doesn't necessarily mean that we're going to see anything like a regional recession, or maybe we'll have a regional recession in Northern Virginia, but it's not going to happen in D.C. and Maryland.
LOWREYBut I do think that there are some people who think that the growth in federal spending has been so important that you could see much bigger spillover effects to other parts of the economy especially if there's been some overinvestment with this kind of idea that the boom years are going to keep on going. And, in fact, they're going to slow down. So I think that it's really complicated, and it's kind of hard to foretell these trends.
NNAMDIWe're talking with Annie Lowrey. She reports on economic policy for The New York Times. She's the author of the recent article in The New York Times magazine titled "Washington's Economic Boom Financed by You." Also joining us in studio is Marc Fisher, senior editor at The Washington Post. If you have questions or comments, call us at 800-433-8850.
NNAMDIHow do you think federal spending cuts will affect the Washington area in general and maybe your job or industry in particular? 800-433-8850. You can also send email to firstname.lastname@example.org. Annie, how, in your view, did Washington's economy managed to avoid most of the pain of the economic downturn?
LOWREYSo I think that if you look at the federal government, there were -- I think that basically the federal government helped, right? D.C. in the past has been sort of protected from these downturns because the federal government doesn't shed that many jobs, and spending doesn't necessarily go down. You know, we saw this big surge of stimulus spending, for instance, and we didn't see big cuts in defense contracts, and I think that helped shelter the region.
LOWREYI also think that when you look at the D.C. broader region, again, it's a bunch of really well-educated, white collar workers who just generally did better through the recession than some blue collar, lower income, lower educated workers did. They really took the brunt of it. And I think that that's part of what happened as well.
NNAMDIWell, Marc Fisher, this might continue for a while because there are a large number of federal contractors and consultants who live here who have what may be a kind of time buffer because they're on contracts that were signed years ago. Is there necessarily a looming shakeup coming from -- for young professionals in terms of hyping jobs in this area?
FISHERWell, it's interesting that you bring up young professionals because that, I think, is a structural change that we've seen in this region in the last 10, 20 years. And, you know, if you listen to the likes of Richard Florida who, like your earlier guest in the hour, left town, but before he did, when he was here talking about this concept of the creative class and those cities that become magnets for young affluent professionals coming out of college, Washington has gained that stature.
FISHERNow, part of that is, indeed, government depended or government influenced. And so, you know, the lawyers, the lobbyists, obviously, that is government-related. But then there's a whole another sector of economy in retail, in real estate, where the growth is -- seems to now be somewhat independent of public spending.
FISHERAnd if you look at, say, the government of Qatar, when they decided to invest in this enormous city center development at the heart of downtown, they did it knowing that big cuts were coming in government and saying, Washington's going to be growing anyway, that it'll become such a magnet for young people. And there are all these jobs that are perhaps by degree, tangentially, government related but are not really subject to the vicissitudes of the federal budget.
NNAMDIOf course, Richard Florida, editor for Atlantic City, says on this creative class: It's a socioeconomic class of workers that can be identified by their ability to find creative solutions to problems and fully engage in the creation process. Their jobs span a wide range of subjects, including science, technology, art, education, includes professionals who use knowledge-based creativity to solve problems by drawing on complex bodies of knowledge. Annie Lowrey, you think that group of people is likely to be seeing some pink slips?
LOWREYI'm not sure. I think that they might actually be isolated from it a little bit. But one part that I think was very interesting that Marc said is I think that part of what's been going on -- and, again, why this stuff is really, really complicated, and you have to be kind of careful not to boil it down too much -- is that I think, actually, for a while, D.C. and some of those Northern Virginia and Maryland communities were underserved by places like bars and restaurants.
LOWREYThere's just tremendous demand for it, and part of that is the, you know, the profusion of well-paying jobs and the population growth more generally, but it didn't actually make it into the piece. But I talked to a couple of people who came to D.C. from places like New York and San Francisco, and they said it's really competitive there. But in D.C., you open it up like a nice pizza place or something. There's people at the door.
LOWREYAnd so I think that's also part of it. And, yeah, I think that, in general, that kind of creative class of people that you're talking about is probably going to be somewhat insulated, but I do think it's this question: If about 40 percent of the regional economy is directly tied to federal spending, and a large portion of the rest of the economy is indirectly tied to it, what happens?
LOWREYI think that we're not really sure how that's all going to play out and whether governments are going to keep on wanting to invest, whether companies are going to keep on wanting to build headquarters here, how it's going to influence things like consulting and legal profession. That, I think, is just this huge question that I think is going to be very interesting to watch going forward.
NNAMDIWell, thanks for revealing that Marc Fisher came from New York to Washington for pizza. Here's Al in Annapolis, Md. Al, you're on the air. Go ahead, please.
ALHi there, Kojo. Thanks for taking my call. Great show, always. Always a great show. You're the man. I just wanted to point out that people haven't given credit due to the state of Maryland because since before the Klondike gold rush, people already knew that the greatest natural resource in the state of Maryland was the federal government.
NNAMDIAnd so you are saying, Al?
ALYou move in around the Beltway somewhere, buy a house and exploit the riches of the federal government.
NNAMDISo you feel that development in Maryland is also centered around the federal government. Marc Fisher, so many people seem to understand that Washington's economic existence and maybe its economic future is invariably somehow tied to the federal government. The discussion we seem to be having here is just how much and what industry could lead D.C.'s future economy if federal funding, for instance, shrinks.
FISHERWell, that's, you know, politicians for decades now have been saying that we need to diversify the economy, and that has happened to some extent. Certainly the biotech industries up 270 in Maryland, as well as the tech industries out in the Dulles Corridor, have taken a large step in that direction. But they are -- those industries are, you know, sort of third-degree government-dependent.
FISHERAnd then, on top of that, you have some industries that -- such as the hospitality industry -- that is largely independent of government spending, and both Marriott and Hilton deciding to be headquartered here, for example. But, you know, yes, of course Maryland and the whole region have a large government presence, but it's not that different from other major cities.
FISHERGovernment employment in the Washington area is about 23 percent of the workforce, and that compares to 18 percent in South Florida and 16 percent in the New York-New Jersey area. So it's different. It's more, but it's not huge.
NNAMDIAnnie, our region's economic dependency on federal spending has also made it the target of criticism from a lot of parts of the rest of the nation. Why is it that there's a popular belief that a prosperous capital is not necessarily in the best interest of the country?
LOWREYWell, I think it gets to this kind of profound question, which is a matter of judgment more than a matter of economics, of if the money that we've been spending, especially on defense, is the best way to spend that money, right? Government money is fungible. So you take a dollar and you give it to the Department of Defense or the contractor. That's a dollar that doesn't go elsewhere.
LOWREYAnd so maybe it could have been spent on early childhood education. Maybe it could have been spent on some other priority. And so I don't think that we can necessarily -- I think it's up to every person to answer that question themselves. But because in no small part the regional economy has done so well because of that spending, it kind of raises this question of whether that's the best priority for the government. And, again, I don't know. I would never claim to know the answer to that, but there's certainly divergent opinions.
LOWREYI think there's a secondary point. Because there is such a deep recession and such a big financial crisis, and because the recovery has been so sluggish, because Washington, as it has in past recessions, has been sheltered from that, I think that's part of the story, too, that people basically think that D.C. didn't get hit in the way that a lot of other cities got hit. And I think that that is just -- it's a feature of its economy. It was never going to be hit that badly, and I think that that's also part of this too.
FISHERAnd I think what Annie's story really tapped into well is that sense of resentment and jealousy that you see throughout the country.
FISHERRecovery envy and the fact that, you know, we never hit the depths that much that the rest of the country did. And similarly, the reason that there's such defensiveness or even anger about the piece here in Washington is that there was a lot of pain here as well, and there are plenty of neighborhoods in Prince George's and Prince William Counties that you can go to and see the same ravaged neighborhoods and collapsing houses and unkempt neighborhoods that resulted from the foreclosure crisis.
FISHERAnd that is, in those ways, we are very similar to the rest of the country and think a lot of people who live here really resent the way politicians and journalists use the city as a whipping boy and as a way to insult the government and to distance Washington from the rest of the country and that, you know, people who live here who don't have anything to do with the government as well as government workers resent that.
NNAMDIGot to take a short break. When we come back, if you have called, stay on the line. We'll try to get to your call, but you can also shoot us an email to email@example.com, or you can send us a tweet @kojoshow. How do you think federal spending cuts will affect the Washington area? 800-433-8850. I'm Kojo Nnamdi.
NNAMDIWelcome back. We're talking with Annie Lowrey. She reports on economic policy for The New York Times. She's the author of the recent article in the Times Magazine called "Washington's Economic Boom, Financed By You," which has led to a great deal of conversation and controversy in Washington and other places. She's joined in studio by Marc Fisher. He's a senior editor at The Washington Post. Allow me to go directly to the phones. Here is Dan in Prince William County, Va. Dan, you're on the air. Go ahead, please.
DANHi, Kojo. How are you?
DANGood. Yeah. You know what, I've been doing federal contracting work as a technical program manager for 10 years, lived in Northern Virginia for probably about eight now. And, you know, I can't think of a single person in my neighborhood who isn't in some way making a living from either directly as an employee of the federal government or as a contractor to the federal government or a supplier to the federal government.
DANAnd I know that most of the work that, you know, what we're hearing in the agencies is we're seeing contracts come back out asking for 20 percent pay cuts. We're seeing contracts canceled or not issued. We're seeing plans to layoff or furlough large numbers of GS employees. And we're, you know, my wife works at DHS, and she's involved with some of the stuff having to do with savings plans. And, you know, 2014 is going to be worse than 2013. So, you know, I mean, personally, I just took a job with a hedge fund. I'm heading for Connecticut.
DANSo, you know, my house is for sale, if anyone's interested. But, yeah, I just don't -- I think the cuts are going to be really dramatic, and I think they're going to have a long-term effect. And I think what you're going to see is and what I'm seeing is a lot of the best people, the people who know they can get work are leaving. They're already heading out for other places, and a lot of them are going to places oddly be enough where the feds are moving work to, like Nebraska, Huntsville, Ala.
NNAMDIWhile that may be true, Dan, the question that we're trying to look at here is, what effect do you think that is likely to have in the development that's been taking place in the region period? Do you think that the fact that there are likely to be jobs lost means that we're going to see an end to the building springing up and the restaurants and the theaters that have been thriving here in Washington? Dan, what say you?
DANWell, you know, most of these guys that I know that are thinking about leaving, you know, they and their wives work -- they probably have a combined income well over $160-, $180,000 a year. So, you know, this guy -- these are the folks who go out and drop three or $400 on a dinner. These are the folks who go out and buy the new Audis. There are the folks that, you know, the brand new plasma screen TV.
NNAMDII get where you're going with this. Annie, you write that D.C. has proved it's not just an unstylish land of think tanks and tepid salmon lunches and boxy women suits. It's a place that Dan is describing with upscale people going to upscale restaurants and doing things. Do you feel the image of Washington has changed over the course of the past decade or two?
LOWREYAbsolutely. I think absolutely. And I think that, you know, when I think about living in D.C., part of the reason I love here -- love it here and never want to leave here is that it's just a wonderful city to live in. It's wonderful to walk around in Northern Virginia. It's great to walk in Bethesda. And, you know, so much of D.C., we've had this tremendous cultural flourishing, and it's great. And the quality of life here is really amazing. And so, you know, how does that get tied back to a defense contractor in Northern Virginia?
LOWREYYou know, this is the question that we've been going over. And I was talking to some folks who work at tech businesses in D.C. that aren't related to the government at all. And they said that part of the reason they located here is that, you know, you put out a call for resumes, and you get all this people who did worked for the federal government, right? And so the question is, you know, if people are going to be leaving their region, that that's going to be really bad.
LOWREYBut we have this other businesses growing and kind of absorbing some of that loss, I think that the region could be just fine. And I still think that there's pretty tremendous demand for these bars, these restaurants, these cultural events. And so I don't see that changing quickly even if it does changed. And I'm not sure how the knock-on effects are going to go.
NNAMDIWell, Marc, circling back to the District of Columbia, in particular, you say that education is what has attracted an increasing number of people to this city. And because they are now raising children here and because they value the education their children are getting, they're not likely to just uproot and leave because of the loss of a job. They probably will try to look for another one, do something different.
FISHERThat's probably true. And, you know, going back to the original question about what enabled this boom to occur, certainly the efforts to reform the schools in the District played a role in that. And, you know, we can argue another time about the impact of Michelle Rhee's time here in the District. But at the very least, there was a rehabilitation of the physical plans of the schools and a very public show of attempting to improve the quality in the classroom as well as in the charter school system.
FISHERAnd so there is more of a reason for young people having kids who, in the past, would have left the city and gone to the suburbs. There's more reason for them to stay, and there's some evidence that they are staying. But that really is more about what's happening within the region. As far as people actually leaving the region -- this is an old canard about the Washington area.
FISHERThe Washington area has always been far less transient than most Sun Belt cities. It is more mobile than most northeastern old schools Rust Belt cities. So we're somewhere in between, but we are not the foster child for transients. And Dan may move to Connecticut, but most people who live here have always live here and will always live here.
NNAMDIThank you for your call, Dan. We got a tweet from Catoctin Creek, a Virginia whisky distiller, that said, "They say they're afraid that the region is heading for a reckoning, but with two wars ending, it's do." I guess, he means the cuts in defense spending. But Patrick in Arlington, Va., seems to think that that's not going to necessarily affect Northern Virginia adversely. But, Patrick, speak for yourself.
PATRICKHi, Kojo and the panel. I thank you for your enlightened conversation and your informed words. My girlfriend, the lovely beautiful Gabriella Parkin, (sp?) works for SI, and I have friend who works for MSI.
PATRICKAnd they deal a lot with defense contracting and the spreading of that. And don't you -- I would like to ask the panel, don't you believe that the information in the infrastructure that's concentrated in Washington, D.C., and the Metro area -- don't you believe that they will be somewhat more insulated from the defense cuts from places like Norfolk or other places around the United States due to the avenues of lobbying and their closeness with the federal government?
NNAMDIApart from scoring points with Gabriella, Patrick does have a legitimate question.
FISHERWell, yes. And he's absolutely right. There is now an information infrastructure, whether it's, you know, Al Gore's Internet out from the Dulles Corridor or the, you know, the enormous media employment sector in the city and especially the lobbyists and the lawyers. And they're not going anywhere. And so you can have a tremendous cut back in military spending, but you are like -- extremely unlikely to see a dramatic decrease in the percentage of GNP that is devoted to the government.
FISHERAnd so that you may see the shifting of resources to -- in other areas that Annie talked about earlier, but Washington -- most professionals in Washington will say, that's fine. That's just more work for us. So to the extent -- to some extent, the kind of wrap against Washington that's current throughout the country, this notion that there are all these bottom feeders in Washington who were living off the taxpayers, there's some truth to that.
FISHERObviously, those are some of our largest industries. But there's also truth to the fact that the infrastructure that's been created by that now serves a number of other purposes that are not government related.
NNAMDICare to comment on that, Annie?
LOWREYYeah. I -- actually, I talked to an economist who theorized that if federal spending is going down but the federal regulatory code is not getting cleaned up, that more businesses could come here to lobby. And you actually see this weird thing where even as they're trying to slash trillions of dollars of spending, D.C. benefits even more because everybody is like, well, if I'm going to get my little tiny piece of the pie, I better be in D.C. So...
FISHERThat's why you see all the, you know, the Google and Microsoft, you know, the companies that swore they would never be in Washington and never wear suits and all that, they're all setting up offices, you know, in a big way.
LOWREYYeah. Lo and behold.
NNAMDIPatrick, thank you very much for your call. Annie Lowrey reports on economic policy for The New York Times. She is the author of the recent article "Washington's Economic Boom, Financed by You," that appeared in The New York Times magazine. And Ali -- Annie, you're obviously going to have to stay in the city for a while longer to see if any of these predictions actually come true.
LOWREYIt's pretty nice here now.
NNAMDIMarc Fisher, senior editor at The Washington Post. Marc, always a pleasure.
FISHERGreat to be with you.
NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.
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