Recession Aftermath: The Rise and Fall of the Washington Region

From Inside Sources:

Washington D.C. has fueled resentment as the nation’s capital continued to show economic strength even as much of the country struggled. But what’s often overlooked is it has since dropped from its place at the top.

The Great Recession is one of the most severe economic downturns in American history. Washington D.C. appeared almost unscathed as the rest of the country suffered. The capital city was also one of the first places to start seeing growth when the recovery started.

Washington’s success stirred resentment as the region thrived amidst the downturn. New buildings and a wealthy economy were fueled by the federal government and taxpayers. President Donald Trump was even able to gain a passionate base by positioning himself as an outsider who challenged the elite Washington class.

“During the recession, Washington did much better than almost everyone else,” Joel Kotkin, a fellow in urban studies at Chapman University, told InsideSources. “Let’s face it, it was the only place jobs were being created. So it became a real Mecca. It ranked very high for many years, and then it started to drop, and now it’s in the bottom half. It’s not terrible, but it’s not great.”

The region expanded by 14 percent from the start of the recession through 2012. The rest of the country only grew by three percent during that time. The local unemployment never surpassed seven percent in the aftermath, well below the national average.

“We had the American Recovery Act, so all the billions and billions of dollars of stimulus spending, and D.C. being the center of government, as this money was flowing out, D.C. kept a piece of it,” said Terry Clower, a professor at George Mason University (GMU). “If we go back just three or four years ago, when we had a short federal shutdown, but more importantly you had a reduction in spending from the Budget Control Act, the sequester and all that, and D.C. really struggled after that.”

Clower adds the slowdown in federal expansion caused the local economy to dip. Washington D.C. has improved some in the last few years, but still only managed to reach the middle of the pack of major metropolitan areas. GMU Prof. Stephen Fuller notes the initial rise and eventual decline was very much a result of federal spending.

“I like to remind people that Washington is a company town. It’s always been a federal city. It didn’t exist before 1880,” Fuller said. “It was just Georgetown and Alexandria back then and they were seaports. But the Washington area has always risen and fallen on the federal government’s spending.”

The Great Recession was caused by the subprime mortgage crisis and the financial crisis of 2007. The federal government responded with stimulus programs designed to jump start the economy by boosting employment and spending. The Troubled Asset Relief Program (TARP), for instance, involved the federal government purchasing toxic assets and equity from financial institutions to strengthen the financial sector.

“The federal government had to increase hiring to run the recession programs,” Fuller said. “We used to have programs that were put in place like TARP. They hired extra people to do this that helped counteract the consequences of the recession. Washington also doesn’t have a manufacturing base. It has a very specialized economy.”

Washington D.C. was also helped by a boost in temporary workers who were hired to work on the 2010 census. The U.S. Census Bureau hired roughly 635,000 workers to help, with many working in Washington D.C. The combination of increased federal spending and census hiring helped put the city at the top.

“When job growth started happening after the recession, the Washington area was one of the first metropolitan areas in the country to start growing,” Fuller, who teaches public policy and regional development, said. “But then it was followed quickly by other places in 2010.”

Washington D.C. eventually saw its reign come to an end as the rest of the country began to improve. The federal government also faced new reforms designed to curtail its spending. The Budget Control Act of 2011, the sequester, and the government shutdown all meant less money going to the government and its capital city.

“You may be able to trace some of it to the 2010 congressional elections when the Republicans took control of the Congress,” Kotkin, who also serves as the executive editor of New Geography, said. “President Obama could concentrate power but he couldn’t appropriate. That’s the one thing he couldn’t do. And so the bureaucracy, which has obviously gotten quite huge, wasn’t growing as much.”

Washington D.C. being reliant on federal spending isn’t anything new either. The pattern predates the recession and has been a defining characteristic of the city throughout its history. The city was designed to be the home of the federal government and thus it became its main economic driver from the very beginning.

“At least since 2010 it hasn’t gotten better faster than other places,” Fuller said. “It had a thirty year run from 1980 to 2010 when it was leading the pack and its performance was driven by increased federal spending for contracting done by local businesses.”

Washington D.C. has attracted a lot of negative attention for its ability to do well when the rest of the economy is suffering. Fuller notes the perception may be overstated based on the research. The criticism often overlooks the fact the city is equally at risk of losing ground depending on the actions of the federal government.

“When you compare Washington to the largest 15 metropolitan areas in the country, we are the slowest growing,” Fuller said. “The Detroit metropolitan area has outperformed the Washington area over the last six years. The Washington area looks rich, and looks comfortable, and it is. But it isn’t growing the way it used to.”

Clower notes the perception is always going to be around to some degree or another. It doesn’t even have to be directed at Washington D.C. either. Anywhere there is a concentration of government there is likely going to be taxpayers funding it.

“Those federal workers are getting their salaries based on taxes,” said Clower, director of GMU’s Center for Regional Analysis. “There’s always going to be that perception that political capital regions are living off everyone else’s dime.”

The federal government also helps nonpolitical industries in the region simply by being there and providing customers in the form of federal workers and contractors. Clower points out local politicians have worked to encourage innovative and new industries to help the area become less reliant on federal spending.

“The regional leaders, the economic development leaders, business leaders, in this region, and even the local political leaders, are very much in tune with the need for the region to grow its non-federally dependent industrial sectors,” Clower said. “In other words, the federal government is always going to be an important part of this regional autonomy, but it needs to be a smaller part.”

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