8/16/2012

NY Times' David Leonhardt confuses the parts for the whole

David Leonhardt at the New York Times has this ringing defense of Keynesianism.  The problem is that just because moving a lot of money from the rest of the country to Washington DC doesn't mean that the country as a whole is being helped.  The states that are losing money are hurt.  DC is helped.  But that doesn't mean that all this movement of money makes the economy as a whole better.
Some of the local prosperity [in DC], of course, is not worth celebrating. It stems from what economists call rent-seeking — tapping into the economic value created by someone else, rather than creating new value. 
In Washington’s case, the rent-seeking takes the form of capturing even a small portion of the financial gusher flowing to and from the federal government. The lobbyists, consultants and defense contractors building some of those mansions in McLean and Potomac are doing so, in effect, with government dollars from military or Medicare or other budgets. As most of the country continues to struggle through an agonizingly slow recovery, Washington uncomfortably calls to mind the rapacious Capitol in Suzanne Collins’s “Hunger Games” series. 
Still, Washington’s good times are not all — or even mostly — about rent-seeking. The region has two legitimate economic lessons to offer the rest of the country. 
The narrower of the two 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, according to an analysis by ProPublica. 
In the worldwide experiment on fiscal policy that’s been run during the past few years, Washington has joined China firmly in the stimulus camp. Much of the rest of the United States, where almost two million state and local government jobs have disappeared, looks more like austerity-hobbled Europe. 
Washington’s second lesson is arguably even more important. If you wanted to imagine what the economy might look like if the country were much better educated, you can look at Washington. . . .
Leonhardt points to DC having the lowest June unemployment rate of the 20 largest metro areas (here is the BLS data for July).  On housing prices, the DC area went from falling more than the national average to improving relative to it (see here for graphics from NY Times).


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