Uncomfortably Underwater: When K-Shaped Economics Breaks

On the ‘K-Shaped Economy’ thing, I would say the same thing, or similar thing [as I just said about layoffs/slowdown in hiring]… If you listen to the earnings calls or the reports of, you know, big, public consumer facing companies, many, many of them are saying there’s a bifurcated economy there, and that consumers at the lower end are struggling and buying less and shifting to lower cost products, but that at the top, people are spending at the higher income and wealth end.  So, [there’s] much, much anecdotal data on that.  So, we think there is something there

Federal Reserve Chairman, Jay Powell, October 29, 2025

I don’t know what the tipping point is when something becomes common knowledge, but I think it is safe to say that when the chairman of the Federal Reserve publicly concedes “there is something there,” we’ve arrived at it.  The K-Shaped Economy is no longer some obscure, clever alphabetical play by some unknown, wannabe academic hack.  It’s real.  We officially live in Dickensian times.

For those who began to follow me during COVID, when I suggested a “K-Shaped Recovery” was ahead, none of this should be a surprise.  And I suspect the same is true for many others.  For the past five years, I have all but held heads uncomfortably underwater, ranting endlessly about not only the growing jaw-dropping economic divide in America, but the accompanying one measured in terms of consumer confidence.  Moreover, on social media, I have shared so many headlines and stories that I would be surprised if some even blink reading the two headlines below.

In the last week of October 2025, this is normal in America.  Here we are.

As much as I suppose I should celebrate the moment, the all-too clear transparency of the K-Shaped Economy cautions that the moment may be short-lived.  While those at the top may be blind to the perils of those at the bottom, those at the bottom are all too aware of the overabundance that exists at the top.  I mean, how can they not be?  It is all but shouted every afternoon as the markets close at yet another new all-time high.  It is evident on the highway, as the number of cars costing more than $100,000 is now more than twice those costing less than $30,000.  It is painfully obvious as economy class ticketholders wade past row after row after row of luxurious seating as they make their way to the back of the plane to a thinly cushioned seat that is neither wide enough nor deep enough for them to rest comfortably.  And don’t get me started on real estate.

And all of that was before the government shutdown and the elimination of SNAP benefits.  Just consider what this Google Trends chart suggests in terms of mounting hopelessness.

Put simply, the problem with the K-Shaped Economy being common knowledge is that everyone knows it.  There are haves and have nots.  Moreover, if you don’t know for sure if you’re a have, you are probably a have not.  The ship has sailed.

If you think for a moment that my laments suggest a leftish, socialist bent, I was recently invited to speak with the conservative radio host Glenn Beck about the AI bubble and its implications.  A few minutes in, he pivoted our discussion to the K-Shaped Economy.  Moreover, he expressed as many concerns about it as I did – maybe more.

And therein lies the inherent fragility of a K-Shaped Economy that is common knowledge.  The more people talk about it, the clearer its shortcomings become, and the clearer its shortcomings become, the more people feel compelled to do something about it.

It would be one thing if the term K-Shaped Economy suggested robust activity at both the top and the bottom – that despite a missing middle class, the two ends of the economic spectrum were thriving.

That is not the case today.   One end is thriving while the other is moving further into despair.  Moreover, and as I have said before, those most able to address the situation – on both sides of the political aisle - now appear to be disinterested or disinclined to do so.

At this point, I think it is safe to say that now that everyone knows about it, the longer the K-Shaped Economy continues on from here, the more explosive its end will be.

Adapted from Peter Atwater’s October 30, 2025 Financial Insyghts Commentary