Treasury Secretary Declares K-Shaped Economy Over, Experts Skeptical

Treasury Secretary Scott Bessent has declared an end to the "K-shaped economy," a term used to describe the growing financial disparity between high- and low-income households. Bessent asserted in a recent CNBC interview that the trend, where high earners saw significantly more growth than low earners, is definitively over. He characterized the current economic state as "C-shaped," indicating faster wage increases among lower-income Americans compared to their higher-income counterparts.

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I got sick of hearing about this K-shaped economy. I can say here definitively, the K-shaped economy is over.

This assertion challenges the widely held view that economic inequality has been steadily increasing. For years, experts have observed the diverging economic fortunes, with former Federal Reserve Chair Jerome Powell acknowledging the reality of the K-shaped trend. Reports from consumer-facing companies indicated that lower-income individuals were tightening their belts and altering spending habits due to economic pressures.

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If you listen to the earnings reports for consumer-facing companies that tend to deal with low- and moderate-income people, they'll all say that we're seeing people tightening their belts, changing products that they buy, buying less.

However, many economists remain unconvinced by Bessent's declaration. While some acknowledge a potential narrowing of the gap, they argue that the K-shaped trend has not concluded. Experts like Peter Orszag, CEO of Lazard, believe it is premature to announce the end of this economic pattern. They point to ongoing economic challenges, including the war in Iran, fluctuating gas prices, and persistent inflation, as factors that continue to influence the economic outlook and potentially sustain or exacerbate inequality.

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I think that declaring the death of a K-shaped economy is a little bit premature.

Economists like Deon Strickland from Wake Forest University suggest the probability favors the continuation of a K-shaped economy over the rise of a C-shaped one. The concept of a K-shaped economy, coined in 2020, describes divergent trends in wealth, wages, and spending for different income groups, resembling the letter K. Breyon Williams of the Groundwork Collaborative explained it as two distinct economic experiences based on income, with top earners pulling away while lower earners face slower growth. This trend has underscored decades of widening inequality, according to a U.S. Bank report.

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I would say the probability is higher for the continuation of a K than the ascent of a C.