In early 2010, I wrote about the growing affluence of the metropolitan Washington, DC area:
Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.
Since then, the affluence of the DC area has been growing by leaps and bounds, and is the subject of a recent NYT article: Why DC is doing so well.
What particularly struck me about this article was the following sentence:
If you wanted to imagine what the economy might look like if the country were much better educated, you can look at Washington.
Really? A lot of the people whose salaries are driving DC affluence have Masters degrees in Political Science, PhDs in International Relations, etc etc. Does the article’s author (David Leonhardt) really think the US would be more prosperous if we had more people with degrees of this sort, often working for organizations with vague and unmeasurable missions? Does he really not understand that the wealth these people consume is actually produced with people with very different skill sets and, sometimes, with no degrees at all?…People who know how to raise crops, drive tractor-trailors and trains, fabricate metal, design circuit boards, manage supply chains, and generate electricity?
Another and even more bizarre passage from the article:
The narrower of (the two economic lessons that he says can be drawn from DC’s success) is a reminder that, for all its unpopularity, a Keynesian response to an economic crisis really can make a difference. The Washington area’s households and businesses have cut back in recent years, too, but their frugality has been offset by steady government spending. If anything, government has helped fill the void, with the District of Columbia’s having received more stimulus dollars per capita than any state…
In reality, of course, the affluence of the DC area doesn’t prove anything more about the validity of Keynesian economic-stimulus theory than did the affluence of the Versailles court during the last decades of the French monarchy. Transferring wealth to a favored elite will obviously make that elite, and their immediate dependents, richer, and this is true whether the money is extracted directly from non-favored classes via taxes, or obtained via debt financing for which the non-favored classes will later be on the hook. This doesn’t either prove or disprove anything about the efficacy of deficit spending on an economy-wide basis.
Leonhardt does admit that “some” of DC’s new wealth is the result of economic rent-seeking, which he defines as “tapping into the economic value created by someone else, rather than creating new value,” but goes on to say, “Still, Washington’s good times are not all — or even mostly — about rent-seeking.” In this, I think he is entirely wrong. Most of DC’s increased affluence is indeed the result of rent-seeking, which most definitely a zero-sum game.
True, not EVERYONE of the DC area is in the rent-seeking business. As I noted in the 2010 post linked above, certain Federal activities are directly economically productive: “An air traffic controller is as much a productive part of the air transportation system as is a private-sector airline pilot. A real research scientist at NIH or CDC is as much a part of the productive healthcare research system as is a researcher at Pfizer or Medtronic. (I use the “real research scientist” qualifier because these agencies seem to be devoting an increasing portion of their resources to nanny-state scolding.) And we do indeed have a private sector in the DC area–indeed, very significant portions of the Internet and Cloud Computing industries are based here, especially in suburban Virginia out toward Dulles Airport.
But DC affluence is for the most part not being driven by the incomes of network engineers and marketing executives out in Sterling, or by the salaries of medical researchers in Bethesda or FAA managers of the air traffic control system down on Independence Avenue. It is being driven by the incomes of people who are outside the productive economy and are, in a very real sense, parasitic on it. The DC area imports large amounts of resources from the rest of the country–food, consumer goods, gasoline, computers, even electric power–for which it does not trade countervailing value.
In this summary of articles by David Leonhardt, the author of the NYT article linked above, I notice that he is a strong advocate of higher taxes on “affluent Americans.” What this comes down to in practice is higher taxes directly imposed on some categories of affluent Americans (and indirectly imposed on many categories of not-so-affluent Americans) acting for the benefit of other categories of affluent (and soon-to-be affluent) Americans.
What the Obama administration and its supporting “progressives” are pursuing is indeed class warfare, but to a substantial degree it is class warfare of a horizontal rather than a vertical nature. It’s a war against people who run small businesses and even medium-sized manufacturing companies, against people who work on oil drilling rigs or down in coal mines, against parents who would like their kids to have an alternative to the dysfunctional public school system, for the benefit of people like many of those you can see in expensive DC restaurants every day and evening of the week.