‘K-shaped economy’ blunts pear-shaped inequality
BREAKINGVIEWS-‘K-shaped economy’ blunts pear-shaped inequality The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jeffrey Goldfarb
NEW YORK, June 26 (Reuters Breakingviews) - Describing the economy as K-shaped is letter-imperfect. Popularized during the pandemic to shorthand bifurcated recovery trajectories, the buzzword spread from the Ivory Tower to Wall Street and corporate boardrooms in between. It now helps CEOs justify targeting richer shoppers and discounting poorer ones, while glossing over deepening wealth divides and their increasingly harmful effects.
The upward-sloping K line often refers to the top 20% of U.S. earners who make at least $175,000 a year. Their “outlays,” a broad measure of spending, have surged to a multi-decade high, Moody’s Analytics estimated earlier this year. It’s a trend becoming more entrenched, “structural” in the vernacular, rather than just a passing fad, or “cyclical.”
Many industries are keeping King K in power, putting more velvet ropes between haves and have-nots. United Airlines UAL.O is among the carriers adding more expensive premium seating on planes, eating into economy cabins. Credit card issuers from JPMorgan JPM.N to Capital One COF.N are battling to sell prestige plastic loaded with perks and $800 annual fees even as the rate of low-income customers falling behind on their payments grows. VIP packages with backstage meetings and other goodies are available for concerts that already cost a fortune to attend.
K-shaped events also include an F-shaped chasm. Profit at U.S. companies roared back after Covid-19, surging 126% over the past decade, according to Department of Commerce data. The average hourly wage, by contrast, gained less than 50% over the same span. Higher prices are a big reason for the lingering problem. Americans, for example, have spent an estimated $60 billion extra at the pump, including for diesel, since attacks in Iran began in February.
The K is also a societal killjoy, with the ultra-rich getting richer quicker as the poor suffer worse. Nearly 23 millionaires worldwide increased their combined affluence by almost 8% last year, to $98 trillion, but the 250,000 or so of them with at least $30 million apiece grew their wealth by 10%, according to findings released earlier in June by consultancy Capgemini.
Conditions are more dire at the other end of the spectrum. Even before the Gulf clashes, there were “meaningful increases” in the number of U.S. households saying they dipped into savings and emergency funds to cover expenses or struggled to afford meals, the Federal Reserve Bank of New York found. The letter K may accurately abbreviate divergent spending trends, but it also euphemizes the underlying inequality. Catering to upper-crust tastes only increases the chances that the lower class will be stuck in worse shape.
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CONTEXT NEWS
U.S. consumer sentiment rebounded from a record low measure in May, but still indicates worries about the cost of living, according to the University of Michigan's Consumer Sentiment Index released on June 26.
The final June reading was 49.5, up from 44.8 in May. Economists polled by Reuters expected a final reading of 50.
"For the third straight month, over half of consumers spontaneously mentioned that high prices are weighing down their personal finances," Joanne Hsu, the director of the consumer surveys said.
(Editing by Jennifer Saba; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))