Peter Atwater, adjunct professor of economics at the College of William and Mary and president of Financial Insyghts, knows a thing or two about the K-shaped economy. anonymous twitter User “Ivan the K” proposed the idea of a post-pandemic “K recovery,” a pessimistic prospect in which some elements of pre-COVID-19 life will return and others will not. Atwater popularized it.
Atwater credits Ivan the K with coining the term, but says he was the first to use it and published an article series of works In 2020, the gap between rich and poor has widened: white-collar workers can work remotely, while blue-collar workers cannot work from home. While the tech industry is recovering faster, the pandemic Low-wage workers hit hardsuch as being laid off or deemed essential service workers, putting them on the job.
today, K-shaped economic terminology “The word” has been on the lips of many economists as more and more data show that the gap between the spending and wages of high- and low-income Americans is growing wider, like the two dividing lines in the letter K. But Atwater, a self-described democratizer of the term, said experts are overlooking a key factor when talking about the distribution of wealth that could lead to the aftermath of these earthquakes.
“They miss the emotional aspect of it,” Atwater told wealth. “They ignore that it’s not the economy that motivates us to act, it’s how we feel about the economy.
“What we have today is a small group of people who feel a strong sense of certainty and a ruthless grip of power, and on the other hand, it’s a sea of despair,” he continued. “And that’s the part that never gets talked about.”
Quantitative economic indicators paint a clear picture of the widening gap between rich and poor: Atlanta Fed data shows wage growth for Americans in the bottom quartile hit rock bottom For about a decade, wages for the highest-earning Americans have grown the fastest of any income group. at the same time Subprime loans are on the riseAccording to a recent report from Transunion, this points to growing financial stress for many Americans, and so are the super-prime loans that Americans with good credit scores are applying for. Not even The stock market is K-shapedTorsten Slok, chief economist at Apollo, said he has believed since the beginning of the year that earnings estimates for the Big Seven have been soaring, while those for the rest of the S&P 493 index have been falling.
Atwater, who studies how confidence affects decision-making, says it’s equally important to focus on how consumers interpret these data points because these feelings are also K-shaped. Consumer confidence in the economy split last month, with lower-income Americans feeling much less confident than higher-income earners. data From the University of Michigan Consumer Survey. This is a departure from 2022, when stock market declines depressed sentiment among those in the top and bottom third of income levels. Even in April, after the Liberation Day tariffs were announced, Americans of all income levels reported less confidence in the health of the economy.
Why are feelings important?
Atwater believes these divisive sentiments could lead to two distinct behaviors, both of which would make the economy more fragile.
“We need to feel like things are predictable so there’s a level of certainty and we need to have a level of control,” he said. “It’s good to know that the road ahead is straight, but if you don’t know how to drive a car, you won’t feel confident behind the wheel.”
Low-income Americans have always had economic vulnerabilities, Atwater said, but when those vulnerabilities begin to pile up, many may feel powerless. These people respond with what economists call the “five F’s”: “Fight, flight, freeze, follow and fuck.”
“At the bottom level, that mentality develops when they realize they may never win, but that doesn’t mean, ‘I can’t help you lose,'” Atwater said.
Not only are blue-collar workers or white-collar workers busy with their pencils likely to start cutting back, Retail CEOs are starting to observebut they can also start damaging the workplace, Atwell said. Korn Ferry Management consultant Stacy DeCesaro tells wealth Earlier this year, this"work hug“In a low-employment, low-fire labor market, workplace dissatisfaction can breed as employees feel trapped. This can lead to disengagement, reduced productivity, and reduced productivity.” great resignation.
Meanwhile, the upper half of K may engage in equally risky behavior, Atwater warns: “When we are overconfident and invulnerable, people become blind to risk.”
not just one wealth effect Pushing wealthy Americans to invest more in the stock market, especially artificial intelligence, even Worries about bubbles intensify— but Atwater says that today, for high-income earners, the idea of having wealth is timeless. According to calculations by New York University economics professor Edward Nathan Wolff, Top 20% of America’s Richest Families Owns nearly 93% of stocks. Since ChatGPT’s debut in November 2022, shares of AI-related companies have risen by about Three-quarters of the return of the S&P 500.
“Economists like to say the stock market is not the economy,” Atwater said. “But I think it’s safe to say right now that the economy is the stock market.”
Although Claudia Sahm, chief economist at New Century Consultants and a former Federal Reserve economist and others, have warned that the K-shaped economy create more vulnerability In situations like bubble bursts, Atwater also sees the impact as political. Tensions between the haves and the have-nots will continue to rise, especially if lower-income Americans feel betrayed by the wealthy who keep getting richer. Atwater cited in 2011 study Research from the New England Complex Systems Institute, which links social unrest in North Africa and the Middle East during the Arab Spring to rising global food prices, suggests lower-income Americans will continue to subject those at the top to greater scrutiny.
“This is a crisis of confidence,” Atwater said. “Sadly, those best positioned to address this issue appear to be indifferent at best, and those at the bottom are not oblivious.”