Hi everyone, it's Drew. Thank you to those who donated during our May Fund Razor and to those who give year round. But support is still needed for us to end our budget year on target. You can help power Make Me Smart and all the important resources Marketplace provides by making a budget year end gift at Marketplace.org-giv-smart. There's also a link in our show notes. Everybody I'm Kyle Rizal, welcome back to Make Me Smart. Where none of us is as smart as all of us.
And I'm Kimberly Adams. Thanks for joining us on this Tuesday. As many of you will recall following the recession that was caused by the COVID-19 pandemic, we talked a lot on this show about the K-shaped recovery. Basically this idea that high-income Americans bounced back a lot quicker than folks at the lower end of the income scales, hence the K in K-shaped.
And what we've been wondering is whether that phenomenon is still with us today. Have we gone from a K-shaped recovery to just basically living in a K-shaped economy? Here to make a smart, I paused because the answer to that I think is yes, but we'll talk about that. Here to make a smart on this is the person who coined the phrase K-shaped recovery back in 2020.
Peter Atwater is the president of the Market Research firm Financial Insights. All of a sudden adjunct professor of economics at the College of William and Marype. You're welcome to the podcast. Good to have you on. Thank you very much. So did this come to you in the middle of the night one night? The K-shaped of what's going on? No, actually it came because I was watching all these other economists choose letters. Some were some were choosing L or U or V.
And I kept looking at the confidence data thinking no, there are two experiences here. And so I latched on to the letter K. And that was a win. So then tell us what have you seen since then? Have we been able to move beyond the K-shaped that you saw back then? No, I think we've just gotten worse. I think that the division between those at the top of the economic pyramid and those at the bottom have become even more divided.
You know, I did a thing. Doug and Pony is unkind to show and tell perhaps at my mother-in-law's retirement home the other day. And these are men and women, mostly women actually, of 80-ish plus years and above. And to a person, when I asked them what they thought the biggest problem with this economy is right now, they thought the unevenness of income and wealth. And I guess my question to you is what does it mean that income and wealth are so poorly structured in this economy?
I think it means a couple of things. One, it means that those at the bottom have feel significantly more vulnerability than those at the top. And therefore, they're far more stressed, they're focused on today and not tomorrow. There's all sorts of symptoms that come along with extreme feelings of vulnerability. And those at the bottom are feeling it not just financially, but they're feeling it socially, they're feeling it on the job.
And at the other end of the spectrum, there is this sense of invulnerability that those at the top have an abundance that is unimaginable. They're living like there's no tomorrow financially. And in terms of their feelings of abundance, in terms of social power, these are two very different worlds today. You know, it's wild because one of the big stories in this economy since the pandemic has, is that the wage growth?
Most of it has been, you know, pretty strong at lower ends of the income skills. A lot of the wage growth was benefiting low wage workers. How does that fit into the story? So we like to compare wages and wage growth, but we need to consider for those at the top, wages are a small percentage of their total income.
So what we need to do is to compare total income growth. And what you'll see is that those at the top have had wealth gains that are generating dividends and earnings that are available to them that are not available to those at the bottom. And in fact, those at the bottom are paying substantially higher rates of interest than they were. And so to look at it solely in terms of wages is to ignore the reality of the disparity in both wealth and total income from the top and the bottom.
So along with that though, while acknowledging the disparity, it is true, isn't it, that we've always had a K-shaped economy. It's always been the case that the people at the top do better than the people at the bottom. We do, but if you look at our economic solutions to crises over the past 50 years, they've all been focused on top down problem solving.
And so you can go back to the Reagan world of trickle down economics. You can look at the policy response after the dot com boom, after the housing boom. And it was all oriented around assets stability and promoting the valuation of assets as a priority in the recovery. And so what that does is that that creates a preference that benefits those with assets and those at the top, that assumes that the benefits ultimately trickle down to those at the bottom.
And I guess we're seeing a bit of that even now with mortgage rates, you know, interest rates being kept high are, you know, kind of preserving people who already own homes are doing okay, because they are locked into lower interest rates and their assets are appreciating, but people trying to get into homes and with debt on credit cards and things are just screwed. Yeah, and this is, this is where our economic data doesn't take into consideration the distinction between price and cost.
If I'm a borrower, I care about the cost, not the price, and all of that cost is reflected in my monthly interest payments. And those, whether it's credit cards, auto loans, home loans, they've gone up dramatically in the last couple of years. All right, wait, sorry, so back up for a minute. Let's talk about the trickle down and top down thing. Biden talks about it's either middle up and bottom up or bottom up and middle out, whichever order he brings it into.
And the root of the question is, if we know the top down doesn't work and the trickle down is, okay, fantasy is a little strong, but you know what I mean. What is the economic policy answer? I think it's a two pronged answer. I do think policy makers were respectful of the full burden of COVID when they put into place the stimulus checks for those at the bottom. They were slow, but they made the mistake in terms of thinking about all of the benefits to those of the bottom as being temporary.
And so what you've seen is all of these programs cut back, whether it's child support or the stimulus programs themselves. We're naive when we think about putting into place programs that are temporary because a lot of those benefits flow through the recipients to their lenders, to health insurance, to life costs that way heavily to them. So I'm not opposed to the top down solutions, but I think we need to be much more realistic about the time frames in which it takes for those benefits to flow.
What's a realistic timeframe? The data suggests it's years, and there we become impatient, and there we think we're providing unwarranted entitlements to those at the bottom. I wish to be clear that this recovery, the shape of it, is actually driven by policy choices we make, right? I mean, we have tax policy that favors the rich. We have a social safety net that doesn't really work as well as it should. And we could fix it if we wanted to.
Yeah, and I think those at the top need to be aware that when it comes to voting populations, those at the bottom exceed them. And that one of the likely outcomes of what we're witnessing today is those at the bottom decide that higher tax rates and that you have a populist response to this divergence and wealth that really comes back to bite those at the top. Yeah, it's the voting against your own economic self-interesting, right?
Yes. So basically, if we continue with the K-shaped economy, it's going to be either itch. Yeah, and you can see that developing in other locations around the globe today. I mean, it is no surprise to see populism on the rise where wealth disparity is equally divergent. It's not more divergent. Look at the political mentions to the K-shaped recovery in the recent elections in India.
So one quick thing before we let you go, if a K-shaped economy is bad and going to apparently lead to the downfall of many societies, what letter works? What's a healthier economy shaped like? It is more like a rising L, if I can, that the problem with the K, particularly over time, is that those at the bottom do not believe that the gap can be crossed. And what we need is a system where those at the bottom believe that the arm of the K is within reach.
Because that's what creates and sustains the middle class and upper middle class, the letters, the rungs of the letter that enable economic migration, which historically has been something that, here in the United States, we talk about as part of that American dream. Wow. That's a lot to think about. Thank you so much, Peter Atwater, president of the market research firm Financial Insights and teaching at the College of William and Mary. Thank you so much.
Peter, thanks a lot. Thank you very much. I think that's a really good point that we, and I'm thinking about this from a journalistic perspective, should be focused a lot more on income growth than wage growth. And that's something I think I'm going to be paying more attention to moving forward because yeah, we look at wage growth numbers all the time, but much less, I think overall income growth as a measure. That's really good point.
Yeah. We want to hear from you all. What is a K shaped economy? Does it reflect what you're seeing in the United States right now? What part of the K do you think that you are on? We want to know. We're at 508-827-6278, also known as 508-UB Smart. We will be right back. ��고elaStone House 분위icos Duars take us to summers away or Winter adventures and after-noons getaways. potential because doors were meant to be opened.
Visit fidelity.com slash wealth, investment minimum supply, fidelity brokerage services LLC, member NYSESIPC. Strong communication skills are critical for success in business and in life. Hi, I'm Maddie Brahms and I host Stanford Graduate School of Businesses Think Fast, Talk Smart, the podcast. Each week I sit down with experts to discuss the best tips to help you with your community communication skills, from conflict management to mastering small talk to tackling communication anxiety.
Join us and start to develop and hone your communication skills. Listen every Tuesday wherever you get your podcasts or on YouTube. Hey everyone, it's Rima Chrase, host of This is Uncomfortable. Here to let you all know about our Summer Book Club. Every other week we're going to recommend a book that our team loves that gets at some uncomfortable topic around money, class, our relationship to work.
We'll feature a wide range of rucks including classics like EM4sters, a passage to India, page turning novels like Naomi Alderman's The Future, and Personal Finance Books, like Paco D'Lion's Finance for the People. Join This is Uncomfortable's Book Club by signing up for our newsletter. Be sure to sign up today at Marketplace.org slash book club. We are going to do some news as we do at this point on the Tuesday in the pod. Kimberly Adams, what do you got?
I have an interesting story that I saw in the hill. I've been sort of tangentially following efforts across the country to direct public school funding to religious institutions, whether that be private schools, via vouchers, or via in some cases, they are trying to take public school funding to set up religious charter schools.
The first place to do this was in Oklahoma, and lots of people were watching this because they were, of course, immediately sued and saying, like, that's not right, you can't do that. And Oklahoma was like, bet we can. So far, the Oklahoma Supreme Court says no. So this is from the hill. The approval of the nation's first publicly funded religious charter school was struck down as unconstitutional by the Oklahoma Supreme Court on Tuesday.
The St. Isador contract violates state and federal law and is unconstitutional. The court ruled. What's interesting, the National Alliance for Public Charter Schools was against this being set up in the first place. So they were celebrating this decisions and versus a lot of other parts of the charter school movement, which did want this case to succeed because lots of them want to set up their own religious schools using public funds.
I imagine there will probably be more legal battles around this, but I just wanted to note this moment. Oklahoma Supreme Court was just like, nah, not at all. Not different. Yeah. Interesting. As we know, it's a debate playing out in many other places as well, this whole religion and school. Lots of other states and groups were watching this to see if they could try the same. What you got? All right. So I'm doing a little one plus one equals inflation today.
Item number one, a story in Bloomberg, a speech by Anna set of remarks by Michelle Bowman. She's a member of the Board of Governors of the Federal Reserve in which she said, there are upside risks to inflation and it is not the time to cut interest rates. She does not see an interest rate cut coming this year. So upside risk to inflation point number one.
Point number two is an article in the New York Times from yesterday talking about global shipping rates going up because supply chains are getting more congested because who these in the Red Sea and the Panama Canal is out of water because there's a drought, although they did just sort of up their throughput and a bunch of other shipping concerns that are making some of the same stories that we saw early in the pandemic seem eerily familiar.
This is what Powell and everybody else at the Federal Reserve are talking about when they say we are going to make sure inflation is well and truly dead before we start cutting interest rates. And you saw this last week with a bank of England, inflation there is at 2%, which is that mythological target and yet the bank of England is not going to cut rates. So hang on to your horses. We're not done yet. We're not done yet.
Yeah, I mean, just to sort of emphasize what you're saying about shipping, it doesn't take that much of a shock to the system. Well, yes, yes. Get things, prices back up again. It will be, especially since we have so much consolidation. Like, if remember the baby formula crisis, we're just a couple of factories having problems can have giant effects. Thing that we are not generally aware of, which comes back to the bite us in the Tukas every now and then, is how fragile global supply chains are.
Baby formula is one of them. The other one was the ever grand getting stuck in the sideways in the suites can out for like nine days. Remember what that did? I mean, it's, yeah, we're lucky to get the stuff we get. Period. That's it. I understand why the feds being cautious. Okay, that is it for the news. Let us move on to the mailbag. Hi, Kai and Kimberly. This is Godfrey from San Francisco. Jesse from Charleston, South Carolina. And I have a follow up question.
It helps me thinking and feeling a lot of things. All right. We talked last week about the economics of building a life around friendship and friends and how it can be tricky to find the right housing situation if that is your choice. And we got this from Joy in Buffalo, who's navigating this in their own life. My dad bought the house. I own about 10 years ago from a five X program from Kenesha College located in Buffalo, New York.
As you can imagine, a house that was one student housing has to be fairly large. In 2020, my dad and I began to live together in the house last year, exactly a year ago, my house caught on fire. Everyone was okay, including pets. And we are all figuring this out. Unfortunately, my dad did pass in February. And now I'm having to learn how to reimagine the space as a single person.
I did have the opportunity to change the layout of a house, which is going to make it easier to have a multi-dalt shared space. I really appreciate this episode while I'm actively working and building a life with my friends. I want so much to know how this goes. Joy, please keep us updated. Where is this? I may need to go up there. And that was Joy. Buffalo. Buffalo. I hope you like snow if you're going to Buffalo. I know I just think that's so fascinating.
And it would be really interesting to see how they navigate that process. Keep us updated, Joy. I want to know. For sure. All right. Before we go, we're going to leave you with this week's answer to the Make Me Smart question, which is what is something you thought you knew but later found out you were wrong about? Hi, this is Sisi Zona from Cathedral City, California.
When I was younger through my early 20s, I thought no one would be crazy enough to marry me and that I would never actually get married because that would take a miracle. As I celebrate my 19th wedding anniversary on Tuesday, June 25th, happy to say that I was wrong. Happy anniversary, cute boy. There you go. How about that? I love that. And happy anniversary, Zona and cute boy. I love that. We want to hear your answer, your anniversary celebrations.
You could propose if you want to on this podcast. No, I'm kidding. I'm not in charge of that. The producers are in charge of that. Anyway, or you could send us your answer to the Make Me Smart question. Our number is 508-827-627-8508-UBSMA-RT. Make Me Smart is produced by Courtney Bergseeker. Ellen Walphus writes our newsletter. Today's program was engineered by Javrue Jostad with Mixing by Jessenduer. Ben Tallin and Daniel Ramirez composed our theme music.
Our senior producer is Marissa Cabrera. Bridget Baudner is the director of podcast. Francesca Levy is the executive director of Digital and Since This Is Tuesday. Marketplaces vice president and general manager is Neil Scarba. I still haven't gotten more of it. The planet is heating up, sea levels are rising, and if you're feeling overwhelmed by it all, you're not alone. There are things we can do to make a difference.
That's why we're answering your burning questions on this season of How We Survive, a podcast for marketplace. Whether you want to reduce your homes, carbon footprint, eat a climate-friendly diet, or you just want to ease your dread about climate change, How We Survive can help you navigate our changing planet. Listen to How We Survive, wherever you get your podcasts.