Life in the Imperial City

Over the weekend, the Wall Street Journal ran a piece on life in Washington, DC, (“What Sequester? Washington Booms as a New Gilded Age Takes Root”).[1]  The article includes pictures of some breathtaking palatial estates, including one owned by IT investor Frank Islam.  His 40,000 square-foot mansion includes gardens “modeled, in part, after those of Henry VIII's Hampton Court palace” and featuring “a self-cleaning, 2,000-square-foot koi pond.”

Not surprisingly, Mr. Islam’s former company, QSS Group, specializes in providing IT consulting to the Federal government.  Mr. Islam donated $189,750 to candidates last year, one guess as to the party who received the bulk of his money.  As the Journal puts it,

[Mr. Islam’s] sprawling compound is a product of Washington's Gilded Age—a time of lush business profits initially fueled by government outsourcing and war.

According to Forbes, six of the ten richest counties in America are located near the nation’s capital.  America’s richest (by annual household income) is Loudoun County, Virginia—the home of Washington’s Dulles International Airport—which boasts a median household income of $119,525.  The county’s population totaled a mere 57,000 in 1980.  In 2012, it boasts more than 336,000 people.  The population doubled between 1990 and 2000, and then doubled again from 2000 to 2010.

The third-highest income county in America is Los Alamos, New Mexico, home to the famous National Laboratory.  Thus, seven of the ten highest income counties in America owe their status to the Federal government and, in turn, to Federal taxpayers. 

Yes, the New Gilded Age in our imperial capital is entirely at your expense.  In a healthier society, the highest-income counties would be found in, say, a remote corner of North Dakota’s oil boom, in the nation’s financial center, or in Silicon Valley’s high-tech manufacturing hub.  Instead, the high-income counties are not found where wealth is being created, but where wealth is being extracted from the private economy (and Chinese bondholders). 

After graduating from college, I spent four years inside the Beltway, working for the Federal government.  Even back then, it was a wealthy and very expensive area.  My old home, Arlington County, Virginia, is now the 7^th highest-income county in America, with a median household income of $98,000 per year.  In the early 1990s, the city already exhibited the characteristics of an imperial city, complete with Presidential motorcades grid locking traffic.

The Journal’s thesis is that the DC area has become so large and wealthy that its economic power has broadened beyond what is received from the Federal government.  Call it The Hunger Games economy, after the dystopian novel and hit movie.  The capital region thrives, while the hinterlands starve.  The DC region now has the nation’s fourth-largest economy, behind the three biggest cities of New York, Los Angeles, and Chicago.  It enjoys a growth rate faster than the rest of the country, with rock-bottom unemployment rates. 

DC escaped the Great Recession altogether.  While parts of America may now resemble the Dust-Bowl 1930s, life in our nation’s capital resembles more the Great Gatsby’s roaring 1920s.

We have something of the same phenomenon going on in Minnesota, on a smaller scale.  We divert state taxpayer money to build world-class sports palaces, museums, libraries, and performing arts centers in the core cities and pretend they are “statewide” assets—as if a resident of Warroad, Minnesota, would drive 13 hours, round trip, to check out a book from a César Pelli-designed building.

Clearly, these trends are not sustainable.  When the crash finally comes, it will be devastating.

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[1] Williamson, Elizabeth, “What Sequester?  Washington Booms as a New Gilded Age Takes Root,” the Wall Street Journal, June 1, 2013.