The Shape of the Economy

Hello, I hope that the summer is ending on a high for you and yours.

The economy has been showing signs of slowing recently. How is it going? It depends on where you’re situated.

Heather Long, an economics reporter, recently posted this graph of consumption patterns in the U.S.:

As you can see, spending among the bottom 80% of the U.S. by income has pulled back; most Americans are now increasing spending at more or less the same rate as inflation. The top 20% though, has been largely resilient up until now and continues to spend. This is forming “The K-Shaped Economy” as you have different groups behaving differently, forming a visible ‘K’ in the graph above as one group goes up and the other goes down.

What can you say about the top 20% of Americans by income? They’re older. They tend to hold stock and investments. They likely own a home and maybe other real estate. They rely less upon their job for income, or their job might be resistant to shocks (e.g., an orthodontist or eye doctor). Meanwhile, their stock holdings and home value have appreciated meaningfully, so they may feel pretty flush.

The bottom 80% of course describes the vast majority of Americans. Most are struggling and essentially live paycheck-to-paycheck. Job security is getting tougher and tougher, and losing their job is an enormous blow if it does happen. I recently heard of a major company pushing over a thousand employees into early retirement - a friend was among those laid off. Meanwhile, most Americans’ costs have been creeping up relentlessly, and will go up again as the Trump tariffs are fully implemented. Young people are faced with a job market that is already being transformed by AI. A recent stat said that 70-year olds are now more likely to be buying a house than 35-year olds. That’s not what you want to see.

Signs are mounting that the water is getting rough. Loan delinquency levels are rising and consumer confidence is weakening. Visitors to Las Vegas dropped 11.3% in June, among both domestic and foreign travelers. Foreign tourists, particularly Canadians, are visiting the U.S. less, which will result in $12.5 billion less spending in New York City, California, Vegas and other destinations this year, another result of Trump’s trade war.

Where will it go from here? I’m pessimistic about the real economy as experienced by most people, as I think the pressures are set to increase, including AI-fueled layoffs and workers quietly not being replaced, as well as companies passing along tariffs in the form of higher prices.

The stock market has been frothy for a while now, but corporate efficiencies are set to spike so it’s hard to say what’s to come. I’ve spoken to numerous insiders who say their profitability will go up as their headcount goes down. We’re witnessing a trillion dollar investment in AI and data centers by various tech companies whose valuations are being rewarded by investors the more they spend. What’s bad for workers may be good for shareholders, and the economy and the stock market may walk different paths.

This is fundamentally the theme of the K-Shaped economy - the economy is diverging along various lines depending on where you’re sitting. The winner-take-all economy is becoming all the more extreme as AI supercharges the power and importance of having the most capital, data and processing power. The scale of some of these changes is beyond the ability of most people to comprehend. I was recently at an AI conference and the computer scientist Geoffrey Hinton suggested that AI is certain to dominate our lives, so the goal should be to give it maternal instincts so that it wants to look after us. Yikes. At the same conference, I argued that we may be nearing a point where there is more than enough to go around – a point of abundance - as AI ratchets up productivity and innovation and grows the economy. GDP per capita is at $85k per head and set to rise. We could do big things for people as we leave scarcity behind.

One thing I used to point out to the wealthy among us when I was running for President is that satisfaction levels are higher in a more equal society regardless of where you are on the curve. It’s no fun being in a vastly unequal society. What good is abundance if most people are experiencing the opposite?

Can the upcoming abundance be shared? We are a very long way away from that right now.

To see what Forward is doing in your area, click here. For my interview with David Jolly who is running for Governor of Florida, click here. The next Offline Party is in New York on September 18^th. I’m working on something that will hopefully get more buying power into people’s hands. Look up.