Sequestration Shock: Smart D.C. Metro Will Figure It Out

Washington Post economic correspondent Jim Tankersley had a smart piece last week that brought home the potential economic implications of the sequester’s across-the-board federal spending cuts for the Washington, D.C. region.

Employing numbers crunched by my group at the Metropolitan Policy Program, Tankersley noted that of the 3.1 million people employed in the Washington area, nearly 450,000 work for the federal government or the military.

That means that fully 14 percent of the region’s workers work directly for the federal government—at a time when no other large U.S. metro area has more than 3 percent federal employment. The thrust being that the region’s economy is grossly over-reliant on the federal government, especially since these numbers leave out the additional hundreds of thousands of federal contract workers.

The implication of Tankersley’s piece: A decade of expanding federal largesse that protected the region from the worst effects of the financial crisis has now left the region vulnerable. The scary part: With sequestration, a deflation of the federal spending bubble could have implications for the greater Washington economy not unlike those of the mid-decade auto-industry crisis for Detroit or the housing crash for Las Vegas.

And yet, while all of that sounds distressing, we are not so worried. For one thing, while the region will be hit inordinately, the federal pullback likely will not be abrupt. It appears to be more of a slowdown than a crackup.

But beyond that, Washington possesses the ultimate counter to adversity: It is loaded with smart people—and smart people tend to figure things out.

In this regard, D.C. boosters are right that the region boasts one of the greatest concentrations of technical and knowledge workers in the country. Almost 47 percent of workers in the D.C. metro possess a bachelor’s degree or higher, while roughly 32 percent of adults in the United States do. This is important because people with higher levels of education tend to be more adaptable to the vagaries of the labor market, more able to translate their existing skills to new pursuits, and more entrepreneurial.

True, too much of this talent is now tied up in the government sector, as the Post’s Steven Pearlstein complains, where the staid ethos of agency life and government contracting is “almost antithetical” to the entrepreneurial culture of the private sector. And yet, the region has changed a lot in the last decade, with the emergence of a new urban character comprising a huge part of that change. As Pearlstein notes, Washington has gradually become a cool place for smart, well-educated young people to live. As it happens, that turns out to be a vital ingredient for spawning successful new companies, particularly in tech-heavy fields such as “big data,” social media, cloud technology, and app design. That’s why it’s a big deal that new energy and people are beginning to flow through the nascent innovation districts that are emerging on U Street NW, H Street NE, and along the Rosslyn-Ballston corridor. These relatively affordable yet hip neighborhoods are where the future is being figured out.

And so, while sequestration portends dislocation, and while it would have been best if the region’s leaders had sought to “diversify” the economy before now, diversification may well already be happening organically.

Times may get tougher, but the greater the stress, the more likely it is that the many smart people in this region will sort things out and invent a new Washington.