We hear a lot from critics and media pundits about the “K-shaped recovery.” This refers to two divergent paths of “recovery” — one for struggling sectors (the descending leg of the K) and another for sectors on a growth trajectory (the ascending leg of the K). The term is a misnomer. The declining leg of the” K” is not recovery at all. It’s economic decline. A more accurate term would be the “K-shaped economy,” with the ascending leg of the “K” indicating recovery as the descending leg indicates economic trouble for much of the nation.
Semantics aside, the COVID-19 pandemic has exacerbated a troubling weakness of this economy, increasing inequality of income and wealth that has existed since the 1970s. This dangerous, destabilizing condition has been steadily getting worse under both Democratic and Republican administrations, but arguably worse under the administrations, of Reagan, Bush ‘43, and Donald Trump. Ironically, it was largely increasing income inequality that contributed to the popularity of Bernie Sanders, and Trump’s election in 2016.
While the pandemic is ushering in new structural changes, it is also unmasking and exacerbating this rising inequality of income and wealth that has been with us for decades. If not corrected, these disparities could put our system of capitalism, and even democracy itself, at grave risk. That should be an important lesson from the political chaos of the past four years.
The ascending leg of that “K” represents the ever-increasing income and wealth of our wealthiest citizens who hold roughly eighty percent of corporate securities. President Trump had forecast that if a Democrat were elected, financial markets would tank. That sentiment was echoed by conservatives of all stripes, as well as by media pundits who habitually think no deeper than the Platte River in dry season — all under the myth that Democrats are “anti-business.”
These doomsday predictions are typical of hollow Republican scare tactics. Instead of financial markets tanking, they climbed to record highs following Biden’s election.
One reason was the prospect of continued federal support for hard-hit consumers, enabling them to pay their bills and recirculate that money through the economy. In addition, many voters, including big stock holders, saw the election of Biden as relief from uncertainty and political chaos under the previous administration. That’s important because markets hate uncertainty. But as always, the stock market is not the real economy, cannot be predicted, and obeys neither Trump nor Biden.
While the nation’s economic elites have done exceedingly well during the pandemic, many middle and upper-middle-income Americans have also prospered. Their main problem has been the inconvenience of working at home, and a decline in lifestyle flexibility such as restrictions on travel, eating out, and normal social interactions. Those with school aged children have been under particular strain. Nonetheless, the white-collar workforce has fared relatively well.
By contrast, Americans without the luxury of working from home have borne the brunt of the pandemic. These include middle-class blue-collar workers, as well as working poor who even under “normal” circumstances struggle to pay their bills and now face the increased risk of exposure to the virus.
Small business owners and their employees have also suffered, including family owned retailers and restaurants that operate on thin profit margins and recirculate much of their income locally, but are now victims of the pandemic.
Many low income workers, who had the pride of gainful employment and self-sufficiency, have for the first time had to depend on public assistance for food. Long lines of people waiting for food assistance are testimony to human costs of the pandemic.
Fortunately, federal economic assistance has thus far staved off what could have been a far worse financial disaster. While these expenditures are often characterized as “stimulus,” a more accurate term is “survival” expenditures. The election of a new president does not end the need for continuing such assistance. As this is written, a bill for additional assistance is still being debated and is held up in the Senate.
Predictably, with a Democrat now in the White House, Republicans are now warning of danger over the magnitude of federal expenditures on the annual federal deficit. This same concern was not expressed during the ill-advised Trump/Republican tax bill of 2017 that exploded the federal budget deficit. Most economists insist that, for both humanitarian reasons and benefit of the broader economy, deficits should take second place to immediate economic assistance to help people pay their bills.
Fortunately, a usual concern over deficit spending, a tendency toward inflation, does not currently pose an immediate threat. The economy is functioning at less than full capacity, and the inflation rate remains below the Fed target of two percent.
Economic distress and an underutilized workforce both point to the need to get this pandemic under control. The pandemic and the economy are intricately linked. It is now up to the Biden administration, in cooperation with states, to expand the distribution of vaccines which could jump start the economy, get students back to classrooms, and enable normal travel and social interaction.
But economic disparities remain. As the pandemic comes under control, longer term action is needed to deal with this dangerous increasing inequality of wealth and income.
Even if we all agree that increasing economic inequality must be modified, the specific measures with which to do this will be controversial. Conservatives can be expected to denounce government policies to address income inequality as “socialism.” A more accurate and pragmatic view is that reducing dangerous economic inequality is necessary to preserve the advantages of a basically capitalistic system.
Preserving our system of democratic capitalism will require bold, pragmatic, and humane federal government policies. The goal is to make capitalism work. A “K-shaped economy” will not suffice.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.
