2025 Was the Year of the K-Shaped Economy
The Pitch: Economic Update for January 1st, 2026
Friends,
As I sat down to compose the Pitch’s annual year-in-review issue, I was struck by how one economic story dominated all the others. Typically, when I read back over the year that was, I encounter two or three different trends that rose and fell in importance over the course of the year. But 2025 was different.
The economic uncertainty caused by the Trump Administration’s campaign of forced deportations and high tariffs on imported goods dominated headlines over the course of the year. But simply ending those programs would immediately begin to lower those economic pressures and alleviate the uncertainty.
These cruel and harmful economic policies aren’t part of a greater economic trend. They are owned entirely by Trump, and there’s not much to say about them on an economic level beyond the fact that they are unequivocally driving up prices, damaging the economy, and harming the labor market for working Americans. It’s about as cut-and-dried as it comes.
But in the background, a more complex economic problem has been growing to the point where it’s now impossible to ignore. It’s a trend that started decades ago, and it’s a central economic problem that will continue long past President Trump’s time in office. I’m talking, of course, about the K-shaped economy.
Back in 2021, I warned about this phenomenon for the first time: “We saw during the pandemic that the economy was splitting into a ‘K’-shape, with wealthy people quickly recovering their economic losses and then going on to gain more wealth at an even more rapid clip, and poor people losing wealth at almost the same rate,” I wrote, adding, “Now, our K-shaped economy is in danger of entering a K-shaped recovery that only benefits the wealthy while everyone else continues losing ground.”
The danger has become a reality. Virtually every economic chart I share in The Pitch these days reflects that K-shape, which denotes massive inequality benefitting a small handful of people at the expense of everyone else. You can measure that in wage growth:
And the growth of personal wealth:
And that gap between the haves and the have-nots showed up in consumer spending this year.
Everyone from fast food chains to airlines are catering to a tiny class of wealthy consumers as working Americans are cutting back, relying on Buy-Now-Pay-Later services, or simply going without.
Lots of economists have theorized that the outsized spending of the wealthiest Americans has actually helped our economy avoid a recession this year. But their spending can’t stave off the inevitable forever, and their spending isn’t circulating through the communities where working Americans live.
As a result, the vast majority of Americans are reporting widespread dissatisfaction with the economy, even as the stock market continues to hit record highs and many corporations report high consumer demand. But as New York Times economics writer Talmon Joseph Smith pointed out in last week’s episode of Pitchfork Economics, the problem is that there are only 68 million Americans in that top 20 percent. For the remaining 280 million or so Americans in the bottom 80 percent, prices are rising while wages are stagnant. The top of the economy is booming while Americans on the lower end of the income spectrum are facing recession-like conditions.
We simply can’t rely on the spending of the wealthiest few Americans to hold the economy aloft. Civic Ventures founder Nick Hanauer has pointed out that even though he’s very wealthy, he can only buy so many pairs of pants. That’s another way of saying that the spending of the super-rich is largely concentrated in specific geographic areas and goods categories, not universal necessities like affordable housing, food, and clothing.
And as I wrote earlier this year, a surge in the sale of yachts might be good for one or two yacht manufacturers, but those economic benefits are unlikely to stretch to many working-class communities. This K-shaped spending pattern has pushed prices up even further as corporations continue to chase wealthy customers at the expense of everyone else.
Put another way, when consumers at the bottom of the wealth scale don’t have money to spend in their communities, businesses will lay off workers as consumer demand drops off. Those workers won’t all be able to find work in wealthy enclaves at businesses that serve the whims of the wealthiest 10 percent. You can see the problem—it’s a negative feedback loop that harms the vast majority of American consumers.
In fact, we’re starting to see the K-shaped wealth gap that inspired that K-shaped spending gap finally cascade down into a K-shaped job gap.
The American Staffing Association’s chief economist, Noah Yosif, explained the problem to CNN earlier this month: “The labor market is becoming a much more exclusive club,” he explained. “Those on the inside, they’re doing pretty well; but for those on the outside, it’s getting harder and harder to break in. And if that is to continue in the long term, the inability for those folks on the outside to hold down a steady paycheck could cause more severe ramifications for the economy.”
The richest Americans are growing their wealth and economic stability, while everyone else has to worry about keeping their jobs in an increasingly hostile labor market and struggle to make ends meet as prices continue to climb.
Let’s be clear: While the pandemic worsened this K-shaped economy, this is not really a new development. American inequality has been steadily increasing for nearly 50 years, thanks to trickle-down economic policies promoted by neoliberal leaders on both sides of the aisle at virtually every level of government.
Like a snowball rushing down a mountainside, that inequality has been accelerating as time has gone on and more trickle-down policies have been adopted that prioritize the wealth of the super-rich over working Americans. And the pandemic was the final push that caused inequality to basically fracture the economy into two distinct parts—the wealthy economy, where spending, employment, and income are rising, and the economy where working Americans live, where prices have skyrocketed out of reach, wages are flat, and employment opportunities are dwindling for everyone.
But economics doesn’t have universal and inevitable laws, like physics. None of this is irreversible. We’re not consigned to an ever-growing gap between rich and poor in America. In fact, we’ve been down this road before in the Gilded Age, and the American people responded by electing leaders who reformed the system.
Those reforms eventually grew the biggest and most prosperous middle class in the history of the world—and that middle class powered America to the most prosperous few decades in the history of the world.
This year, in the midterm elections, candidates must recommit to growing the paychecks and the wealth of the 80% of working Americans who haven’t benefited from the trickle-down era that has dominated most of their lives.
Polling shows again and again that middle-out policies, which raise minimum wages, invest in affordable and free child care, and bring down prices for working Americans, are all tremendously popular. At the same time, policies that cut taxes for rich people, slash regulations on the powerful, and extract wealth from working communities are growing more unpopular by the day.
Some economists and leaders have been warning about income inequality for a very long time. This year, that inequality became impossible to ignore, in the form of our K-shaped economy. The electorate has never in my life been more poised to embrace middle-out economic policies and reject the trickle-down policies of the past. With your help to spread the word about the economic cause and effect we see all around us, I believe that we can create a better economy that works for all Americans—not just those who are lucky enough to be at the very top.
Happy New Year,
Zach