Is the K-shaped economy real?

Katie Martin (0:06)

Pushkin. Markets and the US economy are brought to you today by the letter K. You may have heard people talking about this lately. Even central bankers are saying it's a thing. It's this idea that one group of people, no prizes here for guessing that's rich people, are holding up the economy. That's the pointy up bit of the K. While poorer people are scrimping and saving. That's the downward sloping bit. It cuts across to markets too. We have a small group of stocks in the US., unsurprisingly tech stocks, that are screaming higher and the rest of the market is a bit meh. Now markets love this sort of thing. We have V-shaped recoveries, L-shaped recessions and now all the cool kids are on about the K-shaped economy. Today on the show, we're asking whether that actually makes sense or whether markets people are just really proud of how well they know the alphabet.

This is Unhedged, the Markets and Finance podcast from the Financial Times. I'm Pushkin, I'm Katie Martin, a markets columnist at the FT in London, back from having lots of fun and slightly too much booze at Kilkenomics in Ireland. And I'm joined down the line from New York City by his excellency, the very reverend Robert Armstrong of the Unhedged newsletter.

Robert Armstrong (1:27)

Katie, I thought K-shaped stood for Katie shape to come. I don't know what that would mean exactly.

Katie Martin (1:31)

I'm quite sure with curly hair. Now, Rob, before we get on to K-shaped, our inbox has been bulging this week, has it not?

Robert Armstrong (1:41)

It has.

Katie Martin (1:42)

A lot of correspondence about two things.

Robert Armstrong (1:44)

Yes.

Katie Martin (1:45)

Firstly, contrary to the letter we got last week saying that I was too mean to you, we received lots and lots of emails from people saying, I'm not too mean to you. And if I am mean to you, I should carry on being mean to you.

Robert Armstrong (1:58)

And there were two explanations. One was meanness is how the British express affection, as everyone knows. And the other was that I deserve mean treatment because I'm an interrupter. And I've fact checked both of these claims and I think they are true.

Katie Martin (2:14)

Yes. If it's any consolation, I can tell you from a weekend in Ireland that there's nothing that people in Ireland love doing more than being mean to the Brits. So it's the circle of life.

Robert Armstrong (2:26)

Yeah, it goes around and comes around.

Katie Martin (2:27)

It goes around. The second point I've received a lot of correspondence on was making your own dishwasher tablets.

Robert Armstrong (2:36)

Yes. What does he make them out of?

Katie Martin (2:37)

Well, so I asked him, but first of all, so-

Robert Armstrong (2:40)

We can edit this out later. I just have to hear.

Katie Martin (2:43)

He doesn't listen to this podcast, so I thought I would get away with it. But it turns out his financial advisor does listen to this podcast and texted him saying, why are you making your own dishwasher tablets? So I had to admit that I brought it up here and I got a massive eye roll from Mr. Martin. Anyway, for those asking, the recipe is one of those stupid American cup measurements of bicarbonate of soda, one of citric acid powder, both of which are easy to buy online, and one tablespoon of washing up liquid.

Robert Armstrong (3:19)

Nitroglycerin.

Katie Martin (3:22)

Do not buy nitroglycerin online or anywhere else. Washing up liquid. You mix it up, you put it in an ice cube tray, and then it will set. I hate to admit it, but they do actually work.

Robert Armstrong (3:37)

Should we talk about a serious topic now? Can we get back to the economy of America?

Katie Martin (3:42)

I suppose so. Tell me, Mr. Armstrong, about this K-shaped thing and why everyone is going on about it.

Robert Armstrong (3:50)

I think context is really important here because with these narratives that take on a life of their own, a lot of things tend to get confused in the enthusiasm for a simple and appealing story. Let's start with some context. The main thing is that in terms of wealth, and I'm contrasting wealth to income here, the United States is massively unequal. If you look, the Fed studies this stuff very carefully and has something called the distributional accounts that lay out the facts, but basically 96% of the wealth, let's say, somewhere between 96% and 98% of the wealth, is owned by the people on the top half of the wealth spectrum. So basically, half the people have all the money, and the other half have almost nothing. That is the picture in America. Now, what's important to remember, though, is that that is not new news. That is not something that just happened recently. So we have all these corporate executives right now. I'm thinking of Procter & Gamble, Coca-Cola, Chipotle, all of these companies have come out and said, we're seeing a big divergence in behavior between well-to-do consumers and not so well-to-do consumers. One, spending a lot or continuing to spend at a good pace, while the poor consumer spends less, is contracting. Now, you can't just put that down to vast wealth and equality in America, because that was true all along.