The U.S. Congress is a masterpiece of dysfunction, but it's surrounded by perhaps the highest-functioning metro area in the nation. Washington, D.C., is the richest city in the country. It's the best-educated, too. The district is growing faster than any other U.S. state and at three times the national average. Post-recession home prices are faring better than practically any other metropolitan area, and the city leads the nation in economic confidence. Here are a few pieces of graphical evidence to get us started, on home prices, education, and population growth:
(S&P/Case-Shiller Home Price Index, sample of cities: Jan 2009 - Sept 2011)
Most Educated Cities
Fastest Growing States
What's happening in D.C.? Let's begin with the obvious. The federal government is a $3.6 trillion beast in the district's backyard that keeps the lights burning and the paychecks printing from government office buildings on Capitol Hill down along the Dulles Toll Road to the tech consulting firms in Virginia. Uncle Sam directly employs one-sixth of the district's workforce and indirectly pays for much more. In January of 2009, the economy lost more than 700,000 jobs, but the government passed a $800 billion stimulus and began to debate the transformation of health care and finance. Not only did counter-cyclical spending lead to a shallower recession in D.C., but also the reformist spirit on Capitol Hill reportedly ushered in more lobbyists and lawyers. All of this has raised incomes, kept metropolitan employment steady, and encouraged new businesses to open and serve all these new people making all this new money.
The flip side of the it's-all-about-government argument is that Washington has the most important ingredient to a successful city: smarts. Nearly half the adults in the D.C. area have at least a bachelor's degree. Across the country, the cities with the highest share of college degrees correlate highly with the richest cities in the country. San Jose, the third most-educated city (see chart above), is the second richest. Raleigh-Durham, the sixth most-educated metro area, has the highest ratio of wages-to-income in the country, according to analysis from Richard Florida. And I don't need to tell you that San Francisco, Bridgeport, and Boston have plenty of rich people to spare.
To be fair, this introduces a bit of a chicken-egg dilemma. A group of smart people attract more smart people, but where does it start? In D.C., much of it starts with the federal government. Many highly educated people come to D.C. and Arlington and Bethesda precisely because the government was there first. The NIH needs Washington's health care investment budget. Communications law firms need the FCC. Politico needs politicos. Lobbyists need electeds to lobby. You get the point.
The under-reported aspect of Washington, D.C.'s economic dominance is that we are catching up to the recession a little late. Between April and October, the number of employed people in the District dropped by 9,000, according to the Federal Reserve Bank of Richmond, the worst five-month span in D.C. since before the recession. This period of moderate decline comes, not coincidentally, during a season of budget-cutting (or stimulus-pausing) on Capitol Hill. Does the entire District economy rise and fall on the momentum of government spending? Probably not. And yet, what happens on Capitol Hill has a habit of winding up on not just K Street, but every street, from A through W and into the suburbs.
Update: The push-back against the "fastest-growing" superlative is well taken. The comparison is to states, not cities, and states are not made up entirely of metropolitan areas, so the idea that D.C. is growing faster than, say, Georgia, loses some salience.