Youth Amplify

A K-Shaped Economy, or K-Shaped Recovery, was a concept originally coined by William and Mary professor Peter Atwater. It refers to the trajectory of the American people, and the wealth gap between the rich and the poor as it continues to be exacerbated. In our nations recovery from the COVID-19 pandemic, the government distributed a total of $814 billion in financial relief to citizens of the United States. But it was necessary right? Because it helped middle and lower class Americans stay afloat in a time of mass layoffs and frictional unemployment. Yet, with the hindsight we have today, this overwhelming stimulus only served to widen the wealth gap.

But how could that be? Stimulus checks provided millions of struggling citizens with money to spend! And yet, stuck at home, in the middle of the 2021 quarantine, it came down to a matter of consumptive responsibility. Citizens who had never had disposable income before now were receiving installments of $1,400-$2,800 dropped on their heads. How much of it was saved? A study done by the Federal Reserve Bank of Dallas answers that exact question, revealing that after the first round of stimulus, 73% of all recipients had spent all of the money within the first month. While some of this spending went to essentials, the sudden boost in consumer activity also inflated demand for stocks, luxury brands, and speculative goods—often owned by the wealthiest. Though designed to stabilize working-class households, the way they were distributed and consumed—combined with market dynamics—ended up unintentionally funneling wealth to the top. To the executives of LVMH, who’s stock rose over 40% in the first year, to the executives at Tesla, who’s viral stock increased by 90% off the backs of new retail investors, and Starbuck’s, who saw a spike in demand for online orders and drive-through services. Even in my own experience, I remember the prices of shoes on StockX (a popular sneaker reselling platform) surging after the first and second stimulus waves, as recipients with sudden liquidity understandably directed spending toward consumption rather than savings.

And yet at the same time that this was happening, small businesses—especially ones that were brick and mortar—were struggling the hardest. According to the Federal Reserve, more than 700,000 of establishments closed in the second quarter of 2020, accounting for nearly 3 million jobs. This is where we begin to see the K-Shaped Economy take hold. In a time when the working class was losing their jobs, and spending above their means, white collar workers and executives saw the value of their stocks appreciate significantly. To the point where the Economist reported in 2021 that the number of millionaires rose by 5.2 million, the largest annual increase in history.

In our new age, tariffs are the next tool for the accelerated increase in our nations wealth gap. Learning about the kinds of taxes in Macroeconomics, it became clear that the Trump tariffs represent a regressive tax burden. That means the added 10% it costs to buy a European good disproportionately hurts lower-income individuals, as that 10% cost represents a higher portion of their income. In a snap, necessities of the lower class and Americans as a whole—like coffee beans, cheap clothing, and smartphones—grew to be that much more overwhelming for the struggling consumer.

At the same time, the stable, domestic business owning Americans have relished in the market advantage they have received from the increased price level, unburdened by the increased cost of living unlike others. Ironically, these tariffs that were meant to bolster the working class by increasing domestic manufacturing have had this regressive effect—hurting the low-income consumer more than the overseas manufacturer they’re targeting.