Basketball and the K-shaped Economy

 Both of my children were involved in sports, starting in kindergarten.  I never missed a game.  By the time both girls had graduated from high school I felt like I had to call the athletic director and ask him where I was supposed to be on Tuesday.

            I was particularly fond of basketball.  When you watch a high school basketball game you are going to see every player leave their heart on the court.  And it is free.  That is why I was aghast to hear that the NBA finals were going for $7000 per seat!  

            While I am a free-market economist I know a problem when I see it. 

            Capitalism has a fatal flaw, and that flaw can be illustrated in what has come to be called the K-shaped economy.  Most economic models show themselves as waves, undulating up and down with changing circumstances.  In these waves both the rich and the poor move in concert.  What is bad for one is bad for all.  But at various periods in history a different phenomenon has taken over.  During the Roaring ‘20’s, and before that, during the Gilded Age (post-Civil War to about 1890), we have seen not a neat and democratic wave, but a sloppy and specialized K. 

            A K-shaped economy occurs during an economic recovery.   But instead of a recovery for everyone, different groups experience vastly different outcomes.  The “haves” enjoy amazing recovery while the “have nots” are subjected to inordinate deprivation.  The K is an economic pattern where the rich get richer and the poor get poorer at almost the same degree.  The catalyst for this divergence seems to be who was invested on the right side of the divide at some key moment in social history. 

            The pivot point for our current K economy was the COVID pandemic, though the trends toward sharp economic divergence were first sighted twenty years prior to that.  If you were employed and able to work from home, or had a key position, or were well-invested in property and bonds when the world fell to a new and aggressive virus you weathered the storm.  You found yourself able to take advantage of financial opportunities during the world-wide recovery.  If you were poor, hourly-employed or in a marginal state at the beginning of the pandemic, things were worse for you on every level.  The recovery never reached you and, in the meantime, the massive recovery of the wealthy increased inflation and affordability. 

The difference between inflation and affordability is like the wind chill.  The outdoor temperature and the wind speed are data points, completely objective.  Wind chill is how both these factors act upon a person.  One is a mathematical truth, the other a subjective reality.  Inflation and affordability are like that.  Inflation is a carefully derived number, affordability is how that number affects your daily life.  It is the difference between getting by and enjoying life.  Between survival and confidence.   

As the gap between the top earners and those scraping by is widening, the divergence makes people on both arms of the K nervous.  The people at the bottom feel trapped and dismissed (both of which are true).  If you have a government that only speaks to the top, those at the bottom realize they can’t change the economy without changing those doing the governing.  There is insecurity, unrest and desperation on both sides.

That insecurity is well placed.  Traditionalists will say that a rising tide floats all boats, but in a K shaped economy the boats launched by the top line swamp the boats below them in their wake.  This never ends well.  The Roaring ‘20’s ended in the stock market crash and the Great Depression.  The Gilded Age ended in the Panic of 1893 and a four-year depression.  These were worldwide problems that each contributed to worldwide wars. 

Problems do not solve themselves and even a good system can be corrupted.  Be informed, be responsible, and keep the faith.