Are The Days Of The "K-Shaped" Con Finally Over?
Are The Days Of The "K-Shaped" Con Finally Over?
The pandemic has been a financial and political boon to the 1%. Will they really change up the pattern in the coming pandemic relief program?
Current and former Treasury Secretaries Janet Yellen and Lawrence Summers have been engaging in Internet flame war. It’s odd and cringe-worthy, like watching a rap battle break out between Romneys.
Summers started it. Waving salamandrine arms in alarm, the ex-Harvard president went on a media tour to insist that the Joe Biden/Yellen pandemic relief proposal would end in inflationary disaster. He wrote in the Washington Posta few weeks back:
There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation…
Yellen went on her own morning talk show tour in response, insisting that there’s no risk that we’re anywhere near what Summers described as the best-case scenario, an “overheated economy in which employers are desperate to find workers and push up wages and benefits.” In fact, she said: “We’re in a deep hole with respect to the job market,” adding that minus a robust recovery plan, full employment would not return until 2025:
Until now, the Covid-19 relief programs most resembled the bailout policies of George Bush and Barack Obama in 2008-2009, which stressed recapitalization of the financial sector. The CARES Act initially appeared as more of the same: a Fed-fueled Wall Street romp pitched as a trickle-down rescue, that didn’t do much trickling down.
The result of such policies is sometimes euphemistically described as a “K-Shaped Recovery” (see TK Finance Dictionary, above). In this “recovery,” the happy upward prong of the letter K represents banks, real estate, the telecom sector, as well as anyone who owns any kind of financial asset, from a home to a stock portfolio. The down-pointing prong usually represents wages or the “real” economy, which humorously has often had to be described in press treatments in clinical terms, as a separate, alien thing.
In fact, the “K” is just camouflaging jargon for a faux recovery, in which massive upward gains for a few, that in the aggregate offset greater losses for everyone else, are pitched as a net positive for society overall. Joe Biden mocked this concept as a candidate. Is he serious about abandoning it as president?
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Matt, a couple of issues. First and foremost the Gini Coefficient increased every year under Obama. It decreased for the first time in half of forever under Trump. not sustainably, of course. K-shaped stimuli are designed to keep forcing the Gini Coefficient higher.
One reason the large firms benefited was the war on small business successfully undertaken by Obama. The most reliable and successful route to upward socioeconomic mobility has always been entrepreneurial pursuit. Immigrants start new businesses at a much higher rate than the native-born, a reason we want more immigrants. New business formations dropped under Obama, and the five-year survival rate plunged. Dodd-Frank created CFPB, which crippled small business.
Second, your citation about 401(k) accounts is from 2017. From 2020, https://medalerthelp.org/blog/retirement-statistics/ reports that 59% of American workers had access to these accounts, but only 32% took advantage of them. That's a failure in life-skills learning, including basic financial education. This is best done in the nuclear family - which the authoritarian left is trying to destroy.
Third is back to the entrepreneurial pursuit issue: It's hard to open a new business when all the existing small businesses are closed. I am a scientist, and can find no information supporting an assertion that the size of a business is relevant to its ability to spread disease, let alone holding a BLM sign or illegally crossing our southern border. I want more opportunities for black Americans and more immigration; I don't want them built on a foundation of lies, any more than I want public health built on that same foundation.
Each of these is a liberal's view of events, not an alt-right bigot's. The fight is between authoritarians and libertarians.
There's a saying that generals always fight the last war. I can see the same idiom applied to economists.
I have to side with Summers. If anything, most people I've talked to agree that significant inflation is likely coming. It's happened before and why shouldn't it happen again? Record low interest rates + massive stimulus spending all point to one thing = massive inflation in the value of assets (which for most people would be housing and funds).
And who gets screwed when the cost of assets soars? Not the asset owners, who get richer on paper are are protected against inflation by owning assets. But the working people who don't own but must rent, and don't have 401ks or investments. In other words, the working classes are going to get screwed. Again.