New york: Due to the rapidly widening economic divide between upper- and lower-income groups in the US, the concept of the "K-shaped economy" is becoming increasingly important. Concerns are growing about the future of this economic model, which first gained attention following the COVID-19 pandemic in 2020.

According to Anadolu Agency, the "K-shaped economy" describes a situation where higher-income earners benefit from rising stock prices and housing prices, continuing their spending habits, while lower-income earners reduce spending due to stagnant wages and persistent inflation. Data from the Federal Reserve highlights this divide, with the top 10% of the income pyramid holding 67% of total household wealth, whereas the bottom 90% owns only 33%.

An analysis from the Peter G. Peterson Foundation shows that income concentration in high-income households has become more pronounced since 1981. Consumer spending, accounting for nearly two-thirds of US economic activity, has shifted significantly to the upper-income bracket. Mark Zandi, Chief Economist at Moody's Analytics, notes that households in the top 10% of the income pyramid now account for almost half of all spending, a significant increase since the pandemic.

The Federal Reserve's Beige Book report, released on Nov. 26, also highlights consumer divergence, with overall spending declining but remaining resilient among high-income earners. Economists warn that while high-income spending currently supports the economy, any cautious stance from this segment could lead to significant economic issues.

Peter W. Atwater, an adjunct lecturer of economics at the College of William and Mary, explained the 'K-shaped economy' as a widening economic divide. He noted three key observations: concentrated investment wealth at the top, significant consumer spending by the top income bracket, and differing confidence levels between economic classes.

Atwater also criticized the "trickle-down economics" approach post-pandemic, noting that benefits have not reached lower-income groups, who face high inflation in essential sectors like food and housing. He described the current American economy as a "top-heavy Jenga tower," vulnerable to market changes, particularly those influenced by AI.

Scott Hoyt, senior director for economic research at Moody's Analytics, echoed these sentiments, noting that credit issues are severe at the lower end of the income distribution. While high-income spending is increasing, the economy's dependency on the stock market's performance poses risks, including potential social unrest and political polarization.