[Global Focus] Poverty Amid Plenty: The Shadow of Growth Cast by the K-Shaped Economy

Polarization Between Income Groups Deepens in the U.S. Economy
Frozen Consumer Sentiment... 'Affordability' Emerges as a Key Issue
"Risk of Recession if Upper-Income Spending Contracts"

The so-called "K-shaped economy," in which economic recovery paths diverge among income groups in the United States, is becoming more entrenched. Although gross domestic product (GDP) growth and advancements in artificial intelligence (AI) technology create an appearance of prosperity, the benefits are concentrated among a select few, while the majority continue to struggle with high living costs-making the phenomenon of "poverty amid plenty" increasingly pronounced. As high prices and an unstable job market continue to suppress consumption among lower-income groups, there are warnings that even a slowdown in spending by the wealthier upper-income class-who have accumulated wealth through financial assets-could trigger a recession, especially if stock prices fall.

Mamdani: "Living costs are not just a matter of expenses, but a condition of 'freedom'"

On the 1st (local time), Zohran Mamdani, the newly appointed mayor of New York City, delivered his inaugural speech in front of New York City Hall. Photo by AP News

On January 1, the first day of the new year (local time), Zohran Mamdani, the newly appointed Mayor of New York City, addressed these issues during his inaugural ceremony in front of New York City Hall. He referred to policies he has long emphasized, such as those related to housing, transportation, and childcare costs, stating, "These policies are not simply about making certain expenses free. They are about filling people's lives with freedom." He continued, "For a long time in this city, only those who could pay enjoyed freedom. Now, that will change."

Mamdani, who ran as the Democratic candidate in last November's mayoral election for New York City-America's largest city and the heart of global capitalism-became the first immigrant to be elected mayor. Campaigning under the slogan "A City We Can Afford," he pledged to raise the minimum wage and provide free buses and education. This political message, which actively sought to reduce the cost-of-living burden for ordinary citizens, resonated across regions, races, and genders.

Donald Trump, President of the United States. Photo by AP Yonhap News

In contrast to Mayor Mamdani, who made the cost-of-living burden a central issue, President Donald Trump dismissed the very term "affordability"-which refers to households' ability to pay for housing, food, and medical expenses-as "the biggest scam," while promoting economic achievements such as GDP growth. However, voters remained unimpressed. According to a poll conducted by CBS News and the polling agency YouGov, released on December 21, only 37% of respondents approved of President Trump's economic policies. In particular, only 34% supported his inflation policies, while 66% disapproved. Additionally, 50% of respondents said President Trump's policies had made their financial situation more difficult.

As voter dissatisfaction with high perceived prices persisted, the Trump administration eventually adjusted the pace of tariff increases on items that directly affect living costs. On December 31, the White House announced via presidential proclamation that the effective date for tariff hikes on certain furniture items-such as sofas-as well as kitchen cabinets and sinks, would be postponed by one year, from the originally scheduled January 1, 2026, to January 1, 2027. The very next day, the administration also announced a significant easing of anti-dumping measures on Italian pasta companies. Initially, tariffs of up to 90% had been planned for these companies due to unfair dumping practices, but the final tariff rate was reduced to around 10%.

There is a growing assessment that the Trump administration's trade strategy-characterized by aggressive protectionism and "tariff bombs"-is being adjusted in response to the realities of cost-of-living pressures and inflation. Industry experts had predicted that if tariff hikes on furniture such as sofas were implemented, home remodeling costs would soar. In the case of pasta, the combination of a 15% base tariff on U.S. imports and anti-dumping duties would have doubled the price of Italian pasta in the United States. Previously, in November, the Trump administration also decided to eliminate or lower tariffs on agricultural products from Central and South America, such as coffee, bananas, and cocoa, in response to concerns over rising grocery prices. The Financial Times noted, "The White House adjusted tariffs in response to political pressure from high living costs and elevated consumer prices."

'The Shadow of the K-Shaped Economy'...Outward Growth, Internal Fractures

Concerns are mounting over the entrenchment of the "K-shaped economy" in the United States, where economic recovery is diverging by income group and polarization is deepening. This term gained attention after the COVID-19 pandemic in 2020, as it described how the wealthy and the poor in the U.S. were experiencing economic recovery in vastly different ways. Amid a weak job market and persistently high prices, the economic recovery for each class is splitting in a pattern resembling the letter "K."

Peter Atwater, the economist who popularized this concept during the pandemic, recently described the U.S. economy as "a Jenga tower weighted at the top." This structure can distort economic data: when increased spending by the wealthy-whose assets have grown due to a booming stock market-makes the economy appear to be expanding, while in reality, a large and unstable lower-tier economy coexists beneath the surface.

According to data from the Bureau of Labor Statistics at the Atlanta Federal Reserve last month, wage growth among the lowest income group is decelerating much more rapidly than among the highest income group. Additionally, Moody's Analytics, a subsidiary of global credit rating agency Moody's, reports that U.S. consumer spending is concentrated among the top 10% of income earners, who account for about half of all consumption. Meanwhile, the share of consumption by the bottom 80% has fallen from about 42% before the pandemic to 37%. While high-income earners-who benefit from rising asset prices such as housing-continue to spend, lower-income groups have cut back due to inflation and a shrinking job market.

Last November, a customer was purchasing groceries at a Walmart store in New Jersey, USA. Photo by Reuters Yonhap News

This trend is clearly reflected in recent U.S. consumer spending patterns. CNBC, the U.S. business media outlet, described a facet of the K-shaped economy as the "appetizer economy." According to Buyers Edge Platform, a supply chain data analytics company, while sales of main courses and desserts in the restaurant industry stagnated or declined last year, orders for appetizers increased by 20% compared to the previous year. This indicates that American consumers are ordering more affordable appetizers instead of expensive main courses.

The Wall Street Journal (WSJ) also reported that, due to persistent inflation, more Americans are reconsidering car purchases. Analysis of dealers, experts, and industry data revealed that consumers are setting clear limits on what they will pay for new cars, downsizing vehicle classes, opting for used cars, taking out long-term auto loans, or waiting for discounts-demonstrating more frugal spending patterns. In contrast, some high-income earners with increased assets are spending heavily on SUVs and truck models equipped with heated steering wheels, massage seats, and advanced driver-assistance systems (ADAS), according to the WSJ.

Experts warn that as most consumption becomes concentrated among high-income earners, the U.S. economy is becoming increasingly unstable. Much of this wealth accumulation over the past few years has been driven by a surging stock market, and even a moderate adjustment in the market could quickly curtail spending among top earners, potentially leading to a recession.

Kevin Gordon, Senior Investment Strategist at Charles Schwab, stated, "A rising stock market can boost consumer spending, but the opposite can occur when the market crashes. If the market enters a prolonged downturn in the future, the sentiment among the wealthy will gradually become more cautious." Rebecca Patterson, Senior Fellow at the Council on Foreign Relations (CFR), also warned, "Current U.S. growth relies heavily on capital investment related to AI, and this is where value is being created. For the world's largest economy to depend on just a few dozen companies is not sound economic risk management."