Economists have long described business cycles using letters like L, U, V, and W. Recently, concerns about the 'K-shaped economy' have emerged, where the super-rich are propping up the economy while others struggle. However, a closer look at the data reveals that the K-shaped economy may be a myth.
Moody's Analytics has reported that the top 10% of earners account for half of America's spending, but this figure is based on questionable assumptions. By using historical shares of income and wealth to impute subsequent shares, Moody's estimates may be more than doubly dubious.
A more reliable way to determine how much Americans of various sorts are spending is to ask them. The Bureau of Labor Statistics (BLS) conducts annual surveys, which have been crunched by economists at Barclays. They conclude that the highest-earning 20% of Americans account for just over a third of the spending, a share that has remained stable for decades.
Other sources, such as Consumer Edge and the Federal Reserve's New York branch, also do not show a significant gap in spending growth between the rich and the rest. In fact, the wages of low-earners are growing at a similar rate to those of richer ones, and consumer confidence surveys show no wider gap between the mood of the poor and that of the rich.
Assets, too, do not point to a shift towards the wealthy. The New York Fed shows that since the pandemic, the net worth of rich households has not outpaced that of the less well-off. While the fortunes of the wealthy have soared recently, the wealth of poorer Americans has grown more slowly but also more steadily.
In conclusion, while America's economy is certainly unequal, the plutocrats alone are not powering today's expansion. You might worry about inequality in America, but don't fret for macroeconomic reasons.
