Is the US Economy Dangerously Dependent on the Rich?

0:00Small businesses are the pulse of every community. They bring people together, create opportunities, and drive growth. Chase for Business helps business owners like you with personalized guidance and convenient digital tools all in one place. With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more at chase.com slash business. Chase for Business. Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JPMorgan Chase Bank, N.A., member FDIC. Copyright 2026, JPMorgan Chase and Company.

0:36When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, that isn't always easy. Risk can touch multiple parts of an organization at the same time, often in ways that aren't immediately obvious. It might involve property, liability, or cyber. It could stem from regulatory requirements or challenges tied to a specific industry or the scale of an operation. At that level, managing risk becomes an ongoing discipline, not a one-time decision. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive.

1:11That means working with companies to identify where they're exposed, decide what matters most, and put practical standards in place so risk is managed as part of day-to-day operations. And when losses do happen, the Hartford can pair that risk-control work with insurance coverage grounded in underwriting, risk engineering, and claims experience developed over time. Learn more at thehartford.com slash risk mitigation. So as a pizza genius, I know pizza shop orders come from, well, everywhere. With Genius by Global Payments, online orders actually sink straight into your kitchen. It's as simple as pie.

1:48And with digital menu boards, your specials, your prices, your brand, always front and center. It's one system, ready for game night crowds. Any night of the week, really. Big league reliability for any business. That's genius.

2:08Bloomberg Audio Studios. Podcasts, radio, news.

2:22Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's shaking up the global economy, and what on earth is going to happen next. And this week, we're finally talking about the K-shaped economy. And I say finally, I mean, it's a phrase that's been with us since at least COVID times, and you find increasingly often in the debates about the US economy. One reason we haven't talked about it until now is I can't decide what I think about it. On the one hand, the basic idea that wealthier people are thriving in today's economy, while the poorer segments are doing worse and worse, seems to capture how many people feel about the US recovery and about the way the world's going.

3:05Stephanie Flanders:more and more. The rich seem to lead different lives from the rest of the population. There was a very striking episode of the New York Times Daily podcast looking at how even going to Disney World was no longer easily in reach for many middle-class families. And when they did go, they felt they had a very different experience from those with much deeper pockets who were jumping all the lines and all of that. And that did seem to capture something about the increasingly stratified nature of US society and of its consumption patterns. But, and this is the key part for Trumponomics, people who talk about the K-shaped economy usually aren't just saying that the US is very unequal, but that it's getting more unequal in its wealth distribution and consumption as the economy grows, and that the recovery itself is increasingly dependent on the richest and therefore more vulnerable or lopsided than usual.

3:57Stephanie Flanders:So it's not just that it's sort of unappealing or maybe unfair that we have all this inequality, but that it's actually sort of risky for the economy. And it maybe also explains why or suggests that the macroeconomic data that we're looking at doesn't tell the whole story of what's going on on the ground. It's all of that that I want to try and get into in a relatively short time, because I think it matters if any or all of that is true. Mark Zandi, I'm very glad, is joining us for this. He's chief economist at Moody's Analytics. I'm one of the economists who's been perhaps more associated with this extremely buzzy phrase.

4:32Stephanie Flanders:And he has written recently in his research notes about how the economy has become steadily more K-shaped. Mark, thank you very much for joining us. I think this is the first time we've had you. Buzzy phrase. I've never heard that before. I love it. I like it. You're a very buzzy economist, I would say. You specialize in buzziness and busyness, I'm sure. There you go. We have another person making his Trumponomics debut who's only recently joined Bloomberg Economics US team, Andrew Sacker. He's previously worked at senior levels at Jordan Park Advisors and the Managed Funds Association, Penn Wharton Budget Model, and a long time ago, also the National Economic Council.

5:10Stephanie Flanders:Andrew, thank you for joining us. Thank you, Stephanie.

5:16Stephanie Flanders:Mark, you heard my sort of spiel there about the K-shaped economy. would you say that sort of stronger claim, not just that the U.S. is very unequal and rich people spend a lot more than poor people, do you think that this K-shaped narrative does tell us something valuable and important about this recovery? I do. You know, I think the income wealth distribution, the consumption distribution is very skewed and has become more skewed, particularly most recently with the run-up in the equity market, the stock market, because the ownership of stocks is very narrowly focused. And that is driving a lot of what's going on with regard to consumer spending in the broader economy.

5:59It's a plus in that we're getting the spending and we need it to drive growth. But it also highlights a vulnerability in the economy, and that is it's very dependent on the well-to-do. And the well-to-do are very dependent on what's going on in the equity market. So if the equity market keeps going north, then all is okay, at least in the near term. But if it goes south, the stock market has a pension for going up and it has a pension for going down. That could be a problem, particularly in the current context with lower and middle-income households under significant financial pressure for lots of different reasons, most recently being the Iran war and the impact that's having on prices for everything that they need.

6:41You know, we're really focused on the here and now in the very near term, but longer run, I think the skewing of the income, wealth, consumption, distribution has other broader implications we need to think about in terms of, you know, our societal ills, our political fracturing. And that's all before AI kicks into any kind of gear here. So, yeah, I think this is an important topic and has lots of implications.

7:04Stephanie Flanders:I want to get into several of those. I guess just to establish some of the facts, and I don't want to get too caught up in sort of, you know, the term... Facts? Terminological... Isn't this Trumponomics? Which facts? Okay. Trumponomics is about a state of the world. We're not endorsing any particular kind of economics. I think there has been a lot of debate. I think you were associated with a sort of, you know, a quite dramatic statistic about what share of spending was now associated with the top 10%. And there's been a sort of lot of back and forth. You're talking about my estimates. The reason why we're having all this debate is that there is no definitive source of data here, right?

7:39There's no smoking gun data point we can all point to and coalesce around. So we're all looking at different data, constructing different estimates. I've constructed an estimate with my colleagues that is based on a methodology that was first unveiled by the Federal Reserve back in the internet bubble and used quite extensively during the housing bubble because that was another period when we were seeing tremendous wealth effects. So it's just an estimate, and I'm not going to die on that hill. I just created the estimate because we need to get some sense of the numbers here. Whether the numbers are precisely right, I don't know.

8:17But I think directionally and spiritually, they're telling us the reality. And just to give you the headline number, going back to the buzzyness of all this, the folks in the top 20 % of the income distribution, and to be in that top 20 % nationwide, you need to make$175K. I know that doesn't sound a whole lot like a lot in London or in New York, but that's a big deal. It still sounds like quite a lot, actually. Yeah, okay. And sadly, most of UK. Okay, very good. So, you know, if you make over 175K, you're in the top 20%. You account for 60 % of personal outlays, and that's up from 50 % back in the early 90s.

8:58So that's a pretty striking number. Is it exactly that number? Well, I'm not sure, but it's a big number. And I'm pretty confident that it's been increasing. and most recently increasing because the obvious, the stock market has gone skyward, sending wealth stratospheric. And we know that the bottom two-thirds of the American population don't own a whole lot of stock, if any stock. It's really the top third and really the top 20%, the top 10%, the top 1%, the top 0.1%. So we know this for sure. And that's where the action is and that wealth is driving spending. And we can feel it, we can see it.

9:34You can see it in how retailers are doing, which retailers are doing good, well, which retailers aren't doing well. So I think it's pretty, and you can see in the consumer sentiment surveys and the polls and everything. I mean, we don't have a data point that says this is the precise number, but everything but that data point is screaming, this is what's going on.

9:53Stephanie Flanders:I want to get into that because I think it's as important as the exact facts is this sort of the fact that everyone believes it because that also affects behavior. Because it's true. I mean, it's not they're making this up. I mean, come on. Okay, so I think at the upper end, we can have a debate about what the exact share is but there's clearly a large share I think the BLS suggests it's maybe closer to 40 % but you know there's clearly a large share of the economy is associated with a relatively small highest income part. At the lower end though you have had this debate since Covid about whether or not real wages even adjusted for their consumption patterns of the lower 20-40 % of the population have kept up with this inflation we've seen.

10:37Stephanie Flanders:I want to bring in Andrew here. I mean, when you just look at the sort of the wage picture, which defines this affordability debate, certainly from 2019 to 2014, it seemed like real wages have been keeping up with this inflation and even have seen some growth, even though the cost of sort of to day items has gone up a lot. Is that right, Andrew? Oh, can I just, let me just weigh in on there before Andrew comes. Sorry, Andrew, I just got to, I can't resist. That's true. You know, we're focused on the income distribution, and that's what you just articulated, and that's very true. The wealth distribution, bottom third of the American population, they don't own anything.

11:17They owe stuff, but they don't, in the middle part of the distribution, they own homes, they don't own stock.

11:21Stephanie Flanders:But that's completely true. But this is, but it's an example of something that people feel equally strongly is true and actually it's just not in the data people feel that their wages have not kept up even though everything in the data suggests that they have actually matters in the last year it hasn't right i mean it has not right the data now say the real wages aren't rising for the folks in the bottom part of the distribution in fact real after tax income so that's after inflation after tax income has gone nowhere in the past year and that's for the typical American in the middle of the distribution.

11:54So we know that real after-tax income for people in the bottom half of the distribution is probably falling, you know, at this point. So we know that for sure. And then at the bottom of the distribution, also the spending is a higher share of their income. So any inflation or, you know, particularly gas prices is going to hit them harder. Having said that, how do you think about the sort of the medium-term impact of AI where it would seem that people at the higher end of the distribution have more to fear? I don't know. I'm not sure. Like everything related to AI, I'm unsure. I'm uncertain. This can play out in a gazillion different ways.

12:36You know, it feels like the workers that are most likely to be substituted out aren't the folks at the top, the highly skilled and with lots of experience. They're going to be empowered by AI. It's really kind of folks in the middle part of the distribution, entry-level, college-educated, with lesser experience, I should say. That's where it feels like the substitutability is going to be most significant. For the folks in the top part, it feels like a complement, not a substitute. So my intuition, my sense is that it's not going to hurt folks in the very bottom part of the distribution. It's going to benefit the folks in the top part of the distribution.

13:17The real pressure is going to be in the middle part of the distribution. But I say that with no confidence because there's just so many moving parts here.

13:22Stephanie Flanders:I suspect we'll go down the black hole if we think about AI. We'll try not to think about AI for just one episode of Seth Trump and not thinking about AI. I will say, though, for the next 6, 12, 18 months, that is less relevant, I think. I mean, clearly that's a big deal dead ahead, but I don't know that that's a big deal through the end of the year and through 2027. That's going to play out over a longer period of time, I would think.

13:49Get the news you need in just 15 minutes. Start your day with Bloomberg Daybreak, the podcast with a global view on the stories that matter. I'm Nathan Hager. And I'm Karen Moscow. Join us each morning for curated stories on current events, politics, business, and foreign relations. Plus one conversation on the day's biggest developments, all in just 15 minutes. Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter. Listen to Bloomberg Daybreak each morning on Apple, Spotify, or anywhere you listen.

14:26Stephanie Flanders:so Andrew one of the reasons I want to have you on is that we were sort of playing around with this idea how much we thought was true we all agree that this element of capital income and appreciation of the higher end the people who own shares doing extraordinarily well and how that's driving a lot of spending but it is interesting some of the things that feel true so far we haven't been able to get data on. And you've been looking at the earnings and sales of stores that sort of sell to different segments of the income scale. Yeah. So we use the Aspie Bloomberg function and sorted the retailers into sort of mid-range, low-end like the Dollar Generals and high-end like Lululemon.

15:09And over the last few years, their sort of revenue growth was roughly the same in all three buckets. Mr. Zaney, do you see something very different? Please call me Mark. Mr. Zaney sounds so formal. I know I'm getting older, though. Maybe that's what it is. When you have no hair, you get called Mr. more often than not. You know, I haven't looked at it as carefully as you, Andrew. My sense is listening to retailers, and it's all it's more anecdotal obviously the folks that are uh the retailers are catering to the wealthier they're doing quite well and it goes beyond retail when i think about i think about home builders i think about vehicle sales you know i think more broadly about what people are spending their money on travel folks in the middle part retailers that kind of cater to the middle and lower part it's more difficult it's been more of a slog the lower end it's a little bit complicated, right?

16:07Because you can see trading down, right? Because people in the middle part might be under a lot of pressure. And so they start shopping at low-end retailers like a Dollar General. So it's hard to know exactly what the dynamics are there. We get all the credit files in the country from Equifax every month. I got a census of all the credit files, anonymized, obviously, through May of this year. So it's high-quality data. It can't get any better than that data. And it's showing stress. I mean, if you're subprime borrower at origination, and I define subprime, there's a lot of debate as to what's subprime, but I define subprime as below 660 score.

16:45The typical American has a score that's kind of just over 700, like 710, 720, just for context. So if you're below 660, the delinquency rate, that's the percent of all loans outstanding. That's across the whole shoot match. That's cards and auto, consumer finance, buy now, pay later, mortgage, so forth and so on, is now over 10%. And it's the highest it's been since 2014. And the direction of travel is not very comforting. It's moving straight up. This is through May. And of course, through May, everyone was getting tax refunds, big tax refunds because of the OBBA legislation. And generally, historically, that goes to paying credit card debt and keeping current on your debt.

17:27So despite that, we've had this delinquency rate rise. And those tax refunds are now behind us. They're in the rearview mirror. And we're still left with$4.50 for a gallon of regular unleaded, though it feels like that might even go higher at given events. So that's real data. And that's saying to me that these folks are under a lot of stress and consistent with the observation that retailers that are carrying to the folks in the bottom middle parts of the distribution have got a tougher time than the folks that are carrying to the top part of the distribution.

17:57Stephanie Flanders:And actually, just to your point on the tax refunds a few weeks into the Iran crisis, the US economics team had a telling bit of analysis which showed that even by that point, all the benefit of those refunds was going to be completely offset by the impact on incomes of those higher gas prices. And we've obviously seen that continue even longer than we originally expected. Andrew, that's the piece of this that we think is most relevant on the K-shaped aspect. If you're thinking about those assets that people have, the real difference between one side, you know, whether it's K or whether it's E, you know, the difference between the higher end in this kind of environment and the lower end is the higher end, you know, they're hit by higher gas prices.

18:41Stephanie Flanders:They don't necessarily have to reduce their consumption. They have things to fall back on, whereas it's going to have a much bigger impact on those in the lower part of the distribution. Absolutely. And then with the, they have, 10 % more to the extent they have stocks in their portfolio than they did six months ago. In terms of the sort of macroeconomic impact, how does that feed into when we're thinking about the forecast for the next year or so, given this hit, but different parts of the economy reacting differently? Does that make it harder for us to forecast the economy? Or is it something we just have to look through?

19:19I think the volatility in stocks and asset prices obviously makes the forecast more difficult. But at the same time, people very much smooth and damp their responses to sudden moves. It's, you know, just part of the game that we always have to deal with.

19:37Stephanie Flanders:Mark, I know you write quite a lot about Kevin Walsh and how he's, you know, the kind of Fed that he may lead and the policy that's appropriate for him. Does any of this change the way the Fed to think about the economy and think about whether or not the macro data it's looking at is an appropriate thing to focus on when it comes to policy. Not first order, right? I mean, first order, what's going on with the economy? What is the mandate, the dual mandate? You know, am I full employment or how close am I? And what about inflation and inflation expectations? All this other stuff we've been talking about, obviously, are critical to both those mandates, but, you know, they're more second, third order kind of things.

20:16First order, you know, it's very confusing with regard to what should be done here. I mean, the economy is soft, in my humble opinion. Job growth is very weak. Even despite the slow labor force growth because of immigration policy, demand for labor is even weaker because unemployment is drifting higher and participation is drifting lower. That would argue for, obviously, rate cuts all else equal. But of course, now we've got inflation and inflation expectations, which are getting to a place where we should pay attention. They're high by any historical standard, and they feel like they're going to break out to the upside here pretty soon.

20:56And that argues for, obviously, rate increases. But so the net of all that is sit on your hands. You don't know what to do until things kind of clear. But all these other things that we've been talking about, obviously, are very important to understanding what that means for the growth in inflation mandates. But they're more second, third order, I think, at this point.

21:16Stephanie Flanders:So, Mark, I just wanted to sort of get a sort of final takeaway where we started, really, whether we should consider this recovery and this economy to be unusually vulnerable or lopsided, not from an equity standpoint or inequality standpoint, but also in terms of its potential for suddenly reversing. If you're sitting at the Fed or even if you're just working in a big company, should you feel that this is a sort of unusually insecure recovery, to put it that way, in terms of how many legs it has and what parts of the economy are growing? Yes. I mean, I'm searching for the right word. I'm sure it'll be buzzy when you come up with it.

22:01Tenuous, precarious, vulnerable, fragile. I've used all those words. None of them feel exactly right. So we've got to come up with another one. You're right. We've got to come up with another buzz phrase. But yeah, it feels like we're growing 2 %-ish, maybe a little bit below at that point. This is below the economy's potential. That means unemployment is rising and labor force participation is falling with some combination of the two. That's just a very uncomfortable place to be, particularly in the context of much of the growth is being driven by one sector of the economy and one group of American households.