On November 17, George Mason University economist, Stephen Fuller, outlined his assessment of the shape of the economic recovery in the United States. The news was mixed. Recovery is underway, but it is slow, the 3.5 per cent increase in gross domestic product over the third quarter of 2009 nothwithstanding. However, it will be gradual; there is no sign yet of a double dip; no indication of a return to negative growth in gross domestic product. Nevertheless, the nation continues to lose jobs, albeit at a slower rate than in recent months. During the three months, August to October 2009, job losses nationally averaged 188,000 per month, compared to a monthly average of 357,000 per month during the three months, May to July 2009. Fuller expects unemployment to rise from its current rate of 10 per cent, nationally, to peak at between 10.5 and 11.00 per cent, and to remain there until the next election cycle in November 2010.
According to Fuller’s assessment, and he is the expert on this issue, the Washington-area economy does better than most of the rest of the country. Following a usual post-WWII pattern, the area does not experience recessions, only slowdowns. While the nation’s gross domestic product will have shrunk by 2 per cent over 2009 as a whole, the Washington-area’s gross regional product will remain positive over the year as a whole. Whereas the nation as a whole lost jobs through all of 2008 and 2009, the Washington-area continued to add jobs throughout 2008. True, it has lost 37,000 jobs in the 12 months ending in September 2009. But this is the smallest job loss of the 15 largest markets in the country. Phoenix, with an economy about the size of Northern Virginia, lost 150,000 jobs over the same twelve month period. The unemployment rate for the Washington-area was 6.2 per cent in September 2009, once again the lowest among the 15 largest regional markets.
A major reason for this relatively good economic performance is that the Washington-area is significantly dependent on the Federal Government, both directly and indirectly. Because government output, for the most part, is measured in inputs, not in outputs, as federal expenditures increase, so areas where clusters of federal employees are located inevitably benefit from this inflow of resources.
What Stephen Fuller does not say, however, is that such a good performance within the Washington-area is not a free lunch. It comes at a price that may well turn out to be high for the nation as a whole. As the national debt increases, and/or as federal taxes increase, so private investment will be crowded out, especially as the economy moves out of recession. As resources pour into activities funded by government, so they are pulled away from potentially highly productive activities in the private sector. That which does not happen remains unseen, and does not figure into the calculations of the national and regional accounts. If jobs lost in Phoenix over the period 2008-9 do not return over the period 2011-12, those living in Arizona should cast an envious eye on their compatriots who work in those marble palaces in Washington DC. For those workers may have stolen Arizona’s regional wealth through the largely invisible machinations of the federal budget. Economists call this cost, opportunity cost. It is a choice-influencing cost that occurs at the moment when decisions are made to increase the federal budget. But the choice-influenced costs that follow typically are imposed on individuals far removed from those budget decisions. Choice-influenced costs are much harder to shift onto the shoulders of others. They fall where they chance to fall.