What Is A K-Shaped Recovery And How Does It Favor Elites?

Forget the much-hyped V-shaped recovery of magical covid-19 thinking — the one that predicted a steep decline followed by a quick economic recovery.

Economists are worried about a K-shaped economy. That’s one that favors the top 1 percent of earners who are disproportionately vested in stocks and mutual funds while the rest of the population suffers in the “real” economy.

Fifty-two percent of stocks and mutual funds are owned by the top 1 percent of earners — a scenario that exacerbates inequality.

An easy way to imagine a K-shaped recovery pattern is by looking at the surge of the stock market since late March compared to the rest of the economy, CNBC reported. The market rose to record highs while the GDP fell the most ever at an annualized rate. Falling unemployment remains a problem particularly in lower-income groups, and thousands of small businesses have failed during the pandemic.

“The K-shaped recovery … really is about the growing inequality since the early 1980s across the country and the economy,” said Joseph Brusuelas, chief economist at RSM, a network of independent audit, tax, and consulting firms. “When we talk K, the upper path of the K is clearly financial markets, the lower path is the real economy, and the two are separated.”

In a K-shaped economy, growth continues but it’s uneven, split between sectors and income groups.

“It is going well for folks at the top, but for folks who are middle class or below, it’s going down,” said Symone Sanders, a senior campaign adviser to Democratic presidential nominee Joe Biden, during a Fox News interview. “The question really is, is this working for working families, and the answer is no.”

U.S. Treasury Secretary Steven Mnuchin would rather that the public not get hung up on V- and K-shaped economic recoveries.

“Rather than a V-shaped recovery, economists have warned we face an uneven K-shaped recovery, where the wealthy quickly bounce back to pre-pandemic prosperity while lower-income families continue to suffer economic harm,” Rep. James Clyburn (D-S.C.) told Mnuchin last week before a House panel on the coronavirus.

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“Let’s not get lost on different letters of the alphabet,” Mnuchin said, insisting that “we are set for a very strong recovery.” Mnuchin called for unity. “Let’s move forward in a bipartisan basis on areas we can agree on,” he said.

While many white-collar workers have been able to work from home during coronavirus shutdowns, Sanders said she and Biden are thinking about truck drivers, cashiers,  autoworkers and others “who are at higher risk of shortened hours but also higher risk of being exposed” to covid-19, The Hill reported.

“I just think we have to think about the pain that the working families across this country are experiencing right now,” Sanders said.