U. S. TREASURY SECRETARY: WHAT K-SHAPED ECONOMY? - Trends Journal
U. S. treasury secretary Scott Bessent declared an end to the K-shaped economy and the widening gap between America’s wealthy and everyone else in a 4 August CNBC interview. “I got sick of hearing about this. . .
U. S. treasury secretary Scott Bessent declared an end to the K-shaped economy and the widening gap between America’s wealthy and everyone else in a 4 August CNBC interview. “I got sick of hearing about this K-shaped economy,” Bessent said. “I can say here definitively, the K-shaped economy is over. ”Instead, he explained, the economy is forming a “C” shape, in which wages for the lowest-earning 25 percent of Americans are growing faster than pay for top earners. WhenThe Wall Street Journalasked Bessent’s office which data he was citing in describing a C-shaped economy, the newspaper received no response. Still, the idea of a C shape may be catching on in some quarters. In April, Hilton Hotel & Resorts CEO Christopher Nassetta saw occupancy trends in the company’s properties that indicated “improving performance in the low- and mid-[income] scales,” he said in a statement. Although declaring the K-shaped economy to be over is “a bit premature,” there are “encouraging signs” that the economy may be changing its shape, but the picture is “still mixed,” Peter Orszag, CEO of financial advisory firm Lazard, said to CNBC. Last year, economists began describing the U. S. economy as K-shaped, with the K’s rising arm representing income growth among upper earners and the downward arm the loss of purchasing power by middle- and lower-income households. “The U. S. economy has for years confronted historically high levels of wealth inequality that will not easily be reversed with small improvements to wage growth at the bottom of the income scale,” theWSJnoted. On an annual basis, U. S. worker pay grew 3. 2 percent in July, while inflation ran at 3. 7 percent, meaning the typical U. S. household continued to lose purchasing power. Bessent dismissed polls showing consumers’ glum feelings about the economy, saying that Americans are misinformed. Households will soon see economic relief coming from the tax cuts that Donald Trump and the Republican Congress made last year, he added. In June, the K-shaped economy was alive and well, according to Moody’s Analytics, which reminded in a statement that 60 percent of U. S. consumer spending is being done by the 20 percent of top-earning households. The Federal Reserve Bank of New York preceded Moody’s analysis with a May report that any real growth in consumer spending since 2023 has been due to households with incomes of at least $125,000 a year, while consumers with incomes below that number have been tightening their belts. In April, after-tax wages grew 6 percent, year on year, according to a Bank of America Institute analysis of the bank’s customer account data. However, wages among the bottom 25 percent of earnings grew by just 1. 5 percent. That left the gap between the lowest and highest earners at its widest since 2015, the report pointed out. Spending on discretionary items, not just staples, is holding steady so far this year, according to a statement last week by the National Retail Federation. However, “as long as gas prices remain high, softening wage growth coupled with sticky inflation mean that the second half of the year might not be as rosy as the first half,” Mark Mathews, the federation’s chief economist, warned. TREND FORECAST:According to a variety of surveys, most Americans would not describe this year’s economy as “rosy. ”Trying to spin Trump administration economic policies as favoring the poorest and middle-class households ismisinformation. Peopleare not misinformedby gas station signs telling them that gas costs more than $4 a gallon; theyare not misledwhen they hand over almost $7 for a pound of ground beef. The wealth gap will continue to widen until one or both of two things happen: an existential economic crisis on the scale of the Great Depression or tax and spending policiesare reversedby a new and dramatically ideologically different cohort of Congress members. Dramatic, visible wealth gaps have been a key spark to political revolutions in the past. As American society becomespoorer,they will continue to vote for socialist Democrats who promise to turn the government into a welfare state.