Maryland gets richer on federal spending

March 14, 2007|By Jay Hancock | Jay Hancock,Sun Columnist

Maryland has become the second-richest state in the country, Gov. Martin O'Malley said in a speech a few weeks ago. But he never said why.

Why is our unemployment rate only 3.8 percent? How, in only two years, did income for a typical household shoot up 16 percent to $60,512? Why did we blow the doors off Connecticut, the former No. 2? And why, while we're thinking about it, haven't housing prices collapsed?

Economist James Galbraith, son of the late John Kenneth Galbraith, has answers. They have to do with government spending, huge federal deficits and the technology-stock crash. He summed them up this way: "Never in history has a Republican administration done more for the real estate values of a nest of Democrats."

Of the billions Washington is blowing on the global war on terrorism, Galbraith says, a disproportionate amount is floating into Maryland and other Democratic strongholds near Washington.

The results are extraordinary.

Every Maryland locality in the Baltimore-Washington corridor was in the top 3 percent of the nation's income gainers from 2000 to 2004, as measured by Galbraith and colleague Travis Hale, both at the University of Texas. (Numbers for 2005 and 2006 aren't available yet, but the pattern almost certainly continued.)

Out of 3,100 U.S. counties and independent cities, Montgomery County was No. 7. Baltimore County was No. 10. Anne Arundel was No. 16. Harford County was 55th, and Baltimore City, of all places, was No. 27. Frederick County was 86th.

We knew federal dollars light up the Maryland economy. Maryland always ranks high on the list of states pocketing more federal revenue than they contribute. Census bean counters report billions in new congressional spending flowing into the state.

But Galbraith's study suggests that Maryland is richer than ever from federal largesse. It shows the boodle is trickling down into personal incomes, although certainly not everybody is prospering. And most importantly, it shows that we have been doing better than just about every other place in the country.

Of course, the Nasdaq collapse helped.

Places such as New York and Silicon Valley, which might ordinarily have competed for the top income-growth spots, flopped as trillions in stock wealth disappeared after 2000. The top 10 losers in Galbraith's list include New York City; Fairfield County, Conn.; San Mateo County, Calif.; and Palm Beach County, Fla.

(The rankings are based on gains in per-capita income - but don't try them at home. The economists finessed the figures to give less importance to low-population counties whose results can be influenced by a few fat cats having good or bad years.)

Other top gainers included the District of Columbia and Fairfax County and Alexandria in Virginia. Economically, the nation's capital and its surroundings are "the one big winner" of the Bush presidency, Galbraith wrote a few months ago in a paper based on the research.

Besides demonstrating the Baltimore-Washington boom, the figures show that a quarter-century of rising U.S. inequality ended a few years ago, at least temporarily. County-to-county income inequality rose from 1974 to 2000. That is, rich counties got richer and poor counties didn't keep up. But the Nasdaq crash brought the poorest and richest counties a little closer together.

Except here!

Maryland was already one of the richest states. Now its most important counties aren't just getting wealthier; they're getting wealthier at a much faster rate than that of the nation.

For now, anyway. Booms by definition don't last. This bonanza will fizzle like the 1980s defense blowout, although the timing is uncertain. The shift of thousands of military jobs to Maryland will prop up incomes and home prices even if Congress starts writing fewer checks. But only for a while.

Which raises another question, one O'Malley should ponder. What will support Maryland's economy after the government gold rush?

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