Believe it or not, it has already been six months since the U.S. economy was forced into lockdown, and millions of Americans were placed under house arrest. Now that the country is reopening, the government has been spending and printing trillions of dollars to cushion the blows. But some are wondering if there is a wealth divide unfolding before our eyes in the post-Coronavirus recovery. Former Vice President Joe Biden and his campaign are grieving that President Donald Trump is presiding over an economic recovery that is best described as the 11th letter in the alphabet.
What Is a K-Shaped Recovery?
U, V, or W? What about a Nike swoosh? More alphabet-obsessed economists think K may be the letter to spell out in this market.
A K-shaped recovery is when the economy experiences continued growth, but the expansion is split between industries and people. For example, in the upper part of the K are Wall Street banks and tech titans that have been popping since the financial crisis earlier this year, but the lower K represents the real economy comprising mom-and-pop shops and service workers who have been falling behind. Despite the world’s largest economy attempting to escape the recession, not everyone is experiencing the same benefits. Should this be part of the new norm, at least for the next couple of years, it might lead to long-term consequences for the health of the United States.
Biden Bros vs. Trumplicans
Speaking in an interview on Fox News Sunday, Biden campaign senior adviser Symone Sanders encouraged Americans to ask themselves: “Is this recovery working for you?”
She added: “It is going well, going up for folks at the top, but for folks who are middle class or below, it is going down.”
Sanders further noted that working families and small businesses are struggling, while millions of Americans are still out of work.
Tim Murtaugh, the communications director for Trump’s re-election campaign, defended the White House’s record and warned that a Biden administration would “kill the recovery” by hiking taxes and implementing policies from the Green New Deal. He also dismissed analyses pointing to a K-shaped recovery, stating, “that’s not the way 10.5 million Americans view it who have returned to work.”
Indeed, it is a tad disingenuous for the Biden camp to feign concern over working families and entrepreneurs, mainly because the former vice president has said he would shut down the economy again if that is what the experts recommended. The COVID-19 lockdown decimated the lives of millions of Americans, and many of them have spent everything they had to survive.
Although the leading stock indexes have reversed a small amount of their meteoric ascent, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index have either reclaimed their losses or touched record highs. Apple and Tesla have surged to all-time records, while corporate earnings have been coming in better than what the experts had initially anticipated. With an accommodative Federal Reserve – quantitative easing and historically low interest rates – asset inflation will continue to be the theme dominating this current market.
But what about the real Main Street economy? Things are not looking too good, thanks to the government. Many small businesses are either on the brink of closing their doors or have already shut down operations. Millions are still jobless. Households have raided their savings and investment accounts. A lot of retirees and soon-to-be retirees have lost a lot of their nest eggs. Low- and middle-income Americans will soon suffer from the Fed adopting a new inflation approach that will allow for more inflation and low rates for longer.
Put simply, if you were close to the money spigot, bought Tesla shares, and utilized ZIRP to your advantage, you may be better off than most of your fellow Americans. On the other hand, if you are leveraged to the max to support your restaurant, then your recovery story could be a tragic one.
Leftists will say that income and wealth inequality will be more perverse during the next economic expansion than in the previous 11-year bull run. Is it as simple as society being separated into the haves and have-nots? Not quite. Contrary to popular belief, America’s middle class had been booming before the virus outbreak. As Liberty Nation reported in 2018:
“Here is the reality: During the same period [1967 to 2006], the number of households earning $100,000 or more per year surged from 8% to 28%. Moreover, the percentage of households earning less than $35,000 dropped from 39% to 30%.”
That said, life is far from perfect because it is Washington that picks the winners and losers. In this case, Corporate America was determined to be the winner, and the rest of the country was considered collateral damage with a nationwide lockdown. Plus, the monetary policy instruments generally benefit the cronyists in Silicon Valley and on Wall Street, so a beloved institution by statists also has contributed to the wealth divide in recent months.
Thou Shalt Not COVID-19 the Economy
The future of the U.S. economy hinges on what happens over the next several months. If there is no second wave and the bureaucrats refrain from placing a lock on the country, the economy will continue its upward trajectory, albeit with a lot more debt and inflation than before. However, if the nation becomes once again paralyzed by COVID-19, it could lead to a W-shaped world. That would make it easier for Washington lifers and the top echelons of America to weather the storm, but low- and middle-income households would find it hard to endure another multi-month shutdown only to please Dr. Anthony Fauci, Dr. Deborah Birx, and doomers on Reddit and Twitter.
Read more from Andrew Moran.