Is Washington a ‘city that produces almost nothing of actual economic value'?
“There is a reason that six of the 10 wealthiest counties in the United States are suburbs of Washington, D.C.--a city that produces almost nothing of actual economic value.”
--Sen. Mike Lee (R-Utah), remarks on the Senate floor, May 23, 2013
Sen. Mike Lee made this comment as he tangled with a fellow Republican, Sen. John McCain of Arizona, about whether to appoint members of a conference committee to negotiate a nonbinding budget blueprint with the House. Lee blocked the move because he feared it might lead to a deal on lifting the debt ceiling.
“In case no one’s noticed, the way Washington works stinks,” Lee argued, warning of a “back-room deal.”
As a long-time denizen of the Washington area, the Fact Checker was struck by the assertion that Washington “produces almost nothing of actual economic value.” What does that mean? What does the data show?
First of all, Lee is correct that six of the 10 wealthiest counties are suburbs of Washington, D.C. As Forbes magazine put it, “The nation’s capital is a great place to be these days. The economy may still be struggling to break out in much of the country, but not in Washington, where local federal spending has doubled over the past decade, boosting federal agency employment and contract spending. Lawyers and lobbyists have rolled in from anywhere and everywhere.”
Still, “almost nothing of actual economic value” is produced in Washington?
It’s kind of hard to separate out the city from the surrounding region, given that most people who work in the District live in the suburbs. There’s not really an economic concept that equates to “tangible economic value,” at least as Lee seems to be suggesting. Thus it is hard to disaggregate activity ultimately benefiting from the federal government and that which isn’t, such a construction workers working on a federal building as opposed to an office building.
Brian Phillips, a spokesman for Lee, suggested he was speaking of “Washington” as a metaphoric stand-in for the federal government. “It is a subjective assertion that by and large the federal government is not productive and does not produce something of tangible economic value,” he said. The federal government involves “the extraction of $3.7 trillion from outside the Beltway to pay for its own services,” he said, though he conceded Lee is “not saying that every tax dollar is unproductive.”
As evidence, Phillips submitted what he called a “timely article” that appeared in The Wall Street Journal on Friday, titled “Washington, D.C.: The New Boomtown.” The article noted:
“As other American cities have been buffeted by an uneven economy, Washington’s property market has been buoyed two forces specific to the capital city: a surge of federal contractors and a rising tide of government spending. The result: what real-estate agents and developers are calling an unprecedented real-estate surge.”
Still, the article also discussed how companies such Northrup Grumman, Volkswagen and Hilton have moved to the D.C. area, while the “tech scene has also exploded,” citing LivingSocial as an example.
“The local housing market is exploding, and the local schools are the best in the nation, because D.C. has a recession-proof involuntary source of ever expanding income that has nothing to do with producing anything or adding value to the economy,” Phillips scoffed. “The fact that high end services and retail stores and such move here has nothing to do with innovative productivity or wealth creation. There’s money to burn in D.C. – it’s just money other people created.”
Stephen Fuller, director of the center for regional analysis at George Mason University, said that Lee’s comment was simplistic in the extreme—and rather out of date. He said that the region’s job growth increasingly is not based on the federal government.
“Federal employment has declined from its peak level in mid-2010, losing about 9,000 jobs in two years; this year we are averaging a decline of roughly 4,000... and federal contractor jobs are no longer growing. Federal contracting dollars are down $6.9 billion or 8.4 percent from their 2010 peak,” he said. “Yet, in April 2013 the region had 41,500 more full-time payroll jobs than it had in April 2012. None of these jobs are funded by the federal government.”
Fuller said Washington is increasingly becoming a global business center, much like other national capitals such as London and Tokyo, in which thousands of the area’s businesses are international in nature. “The tangible economic value generated in the Washington area is what is driving its job growth today,” he said.
Looking at just at the numbers, the region’s gross product was $425 billion in 2010—and 40 percent came from federal spending, such as for federal contractors. That’s a big chunk, but it’s not the whole picture.
Moreover, if Lee really wants to claim that the federal government produces almost nothing of value, important biotech research and the creation of the Internet, among other innovations, have spawned from federal dollars. The air traffic control system, managed by the Federal Aviation Administration, also adds value to commercial flights by making them safer. And so forth.
Phillips dismissed those examples, insisting the federal government does not produce anything of economic value. He included Congress as part of that picture. “We don’t create something here,” he said. “We write legislation.”
The Pinocchio Test
To some extent, this is a philosophical dispute, which are always hard to fact check. Lee clearly believes the federal government mostly takes from the economy, and gives very little back. Perhaps he meant to refer “Washington, D.C” as a stand-in for the government, though he described it as “a city that produces almost nothing of actual economic value.”
There must be some accountability for tossing around such phrases. The Washington region benefits from its proximity to the seat of government, but the fact remains that the economy does not only depend on federal largess. Moreover, most economists would agree that the federal government, by promoting research and public safety, does add to economic growth, both in Washington and around the country.
Lee was correct that some of the wealthiest countries surround the District. But then he went off the rails after that. Even if you hate the government, that doesn’t give you an excuse to spout economic nonsense.
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