The U.S. Economy Produces Winners and Losers
A K-shaped economy emerges when the economy as a whole grows but different segments of the population experience the growth with vastly different outcomes.
It depicts a point in time when economic inequality grows. Those with high incomes and savings make more money while those who have limited savings and have moderate to low incomes face economic hardship, such as high debt and higher costs of health care, housing, and groceries. Meanwhile, those who are not invested in the stock market—somewhere between 37 percent (Gallop) or 57.2 percent (Philadelphia Federal Reserve)—do not benefit from gains in the market.
Economic Growth as Both a Reality and an Illusion
The reason for noticing the K-shape in the economy is because it reflects distortions in the system. No matter where one falls along the K-shape—the upper right side of accumulating wealth or the downward line indicating hard economic circumstances, it is in everyone’s interest to have a healthy system. Healthy economic systems are sustainable.
What is noteworthy about a K-shaped economy is that it emerges at a time of growth. If we were to focus solely on news about gross domestic product (GDP), we might miss the realities on the ground experienced by millions of people.
Many political leaders, including the current U.S. president, do just that. At times, President Donald Trump dismisses the notion of an affordability crisis as “a hoax,” a “con job,” and a “fake narrative” orchestrated by Democrats for political purposes. At other times, Trump seems to acknowledge it and opts for government interventions, such as one-time payouts to farmers, to appease those facing hardships.
Political Impact and Response
The public is taking notice, perhaps not of politics but certainly of the bills they are paying. While some costs, like gas prices at the pump, remained even, other expenses like utilities soared to 11 percent.
A November survey by the Trump-friendly Fox News show that 60 percent of Americans questioned by pollsters said their personal finances were “not so good/poor,” and 76 percent suggested the same about the national economic conditions. According to Fox, “respondents, including Republicans, said their costs for groceries, utilities, healthcare and housing have gone up this year.”
The latest economic reports indicate that the U.S. economy is growing. In the third quarter of 2025, GDP expanded at an annualized rate of 4.3 percent—the strongest pace in two years.
Meanwhile, inflation figures and jobless rates aren’t bad, considering. The unemployment rate rose 4.6 percent in December—still low by historical standards. But, for young adults, aged 20-24, the jobless rate was 8.3 percent. Meanwhile, the U.S. inflation rate showed only a moderate increase to 2.7 percent. However, many economists viewed the government data with skepticism, given the 43-day government shutdown included during the period when data was meant to be collected. Chief among the concerns raised by private-sector economists was the information on housing costs. In many cases, it simply wasn’t there. (See links at the bottom of the article for the BLS unemployment rate, the BLS CPI, and an article by CNBC.)
Other observers, like the Center on Budget and Policy Priorities, a liberal, progressive think tank, predict that costs will rise in 2026, especially after the 2026 midterm elections when the impacts from the Republican mega bill take effect. The most notable impact from policy changes include: student loans, government subsidies for food and housing, home construction costs, utility bills, and health care expenses.
Why Does a K-Shape Emerge?
For policymakers, it is not enough to address the symptoms of growing inequality. That would just lead to more government intervention in private markets and payouts to appease voters. What is needed is a clear understanding of the conditions that make economic outcomes go awry. Specifically, it’s necessary to examine whether government policies themselves might lead to higher inequality, which undoubtedly results in political turmoil. Furthermore, the role of the largest investors, such as asset managers, also carries significant influence on outcomes. Afterall, the economic system is not one that simply functions as free-market capitalism, it is notably dominated by a set of financial, tech platforms, central banks, multinational corporations, and—yes—governments.
Enter the AI Revolution
In 2025, we began to get hints about the ways artificial intelligence (AI) might reshape every facet of our lives. Of course, the economic impacts are among the largest. Now that AI is taking on a larger role in economic systems, it is even more important to examine the causal relationships among policies, investments, and trends.
Writing for the Associated Press, Christopher Rugaber describes how a mixed economy might look on the ground:
“Growth appears solid, yet hiring is sluggish and the unemployment rate has ticked up. Overall consumer spending is still rising, but Americans are less confident. AI-related data center construction is soaring while factories are laying off workers and home sales are weak. And the stock market still hovers near record highs even as wage growth is slowing.”
Economists popularized the term ‘K-shaped’ during the 2020-2021 COVID pandemic and recession. Then, the trend ended, but only briefly. When businesses reopened, they competed with federal subsidies by offering larger salaries for blue-collar and service workers. But now the K-shape is reemerging. It affects everything from wages and the types of goods consumers buy to policy responses. Investors and corporate managers are taking notice, and so should policymakers.
The role of AI is significant. Moreover, its ability to reshape economic outcomes is just beginning. As the AP’s Rugaber notes, in 2025, we witnessed massive investment in AI and spikes in share prices of certain tech companies—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. That benefits executives, such as Tesla’s Elon Musk, with large compensation packages. The trouble—and the K-shape—is that change has not created jobs or lifted incomes. Furthermore, it won’t help those who do not have a stake in those companies.
Rugaber notes economic concerns, such as a potential for backlash if workers who lose jobs to AI stop spending. But we should also be mindful of the political impacts—potential for a rise in nationalism, increased political polarity and extremism, a misdiagnosis of the problems, and government overreach.
Sources and Links:
Fox News survey on the economy: https://www.foxnews.com/politics/survey-says-issue-helped-trump-republicans-2024-hurt-them-now
U.S. BLS unemployment rate: https://www.bls.gov/opub/ted/2025/unemployment-rate-4-6-percent-in-november-2025.htm#:~:text=In%20November%202025%2C%20the%20unemployment%20rate%2C%20at,when%20the%20jobless%20rate%20was%204.2%20percent.
BLS CPI news release Dec. 18, 2025: https://www.bls.gov/news.release/cpi.nr0.htm and chart https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category.htm
CNBC: https://cnb.cx/3KHJk0O
CBPP analysis published Dec. 18, 2025: https://www.cbpp.org/blog/an-overview-of-trump-administration-and-congressional-republicans-anti-affordability-measures
Associated Press, Here’s why everyone’s talking about a ‘K-shaped’ economy, https://apnews.com/article/kshaped-economy-spending-income-inequality-dfa59144ecb2e1b674242666e28ff556
Philadelphia Fed, Sept. 2025, “Why Some Americans Don’t Invest in the Stock Market,” https://www.philadelphiafed.org/-/media/FRBP/Assets/Consumer-Finance/Briefs/Why-Some-Americans-Dont-Invest-in-the-Stock-Market.pdf
