As Trump’s first year back in office comes to a close, it is clear most voters think the economy is in poor shape and that prices for essentials have become unbearable.
Our economic malaise for the bottom quintiles has been decades in the making and the discontent won't go away quickly either. The second and third lowest quintiles are exactly the ones that have felt the pinch, forever. It's going to take a heck of a lot more than short term small gains of income to make up for 35 years of decline.
I think tariffs are a lot less damaging to joe lunch box than they are corporate America, but the constant mention in the media is a great way to make people blame them for a general sour economy. The bottom quintiles spend almost nothing on imports. When you are short on money to pay the bills, and you hear the government is going to make anything more expensive, you get pissed at the government.
Corporate America however has taken some pain.
Last week the Fed announced they'd be buying bonds again, an easy way to pump liquidity into our economy without lowering rates. $40 Billion a month. The market every day is at or close to record highs. Hedge funds aren't happy but everyone else is.
"I think tariffs are a lot less damaging to joe lunch box than they are corporate America, but the constant mention in the media is a great way to make people blame them for a general sour economy."
Agree completely. Companies don't have the pricing power to pass them on, so they are getting absorbed in lower margins.
One of the most useful contributions of this piece isn’t the “K-shaped” metaphor itself, but the distinction you draw between a wage-based economy and what you describe as a risk-based one. That framing gets closer to how the system actually functions. It shifts attention away from whether growth or employment looks healthy in aggregate and toward where volatility and shock absorption really land. For understanding what people are experiencing, that distinction feels more informative than the K-shape alone.
If this is truly a systemic shift, though, it likely didn’t originate with any single administration or event. Systems of this scale usually change much earlier and reveal themselves later. The post-2008 period already hinted at this: despite aggressive stimulus and a strong recovery in asset prices, wages and household security didn’t respond the way prior models would have predicted. That suggests the transmission mechanism had already weakened.
One way to sharpen the hypothesis would be to look further back (1960s–present) and let a small set of long-run curves speak for themselves. For example: real equity market returns alongside median real wages, paired with some measure of household risk exposure, fixed costs as a share of income, reliance on credit for necessities, or emergency-expense fragility. If those curves begin to decouple in the 1990s (which I suspect), that would point to a structural shift rather than something driven primarily by Covid. Systems don’t change quickly, and one as fundamental as this likely has several significant structural drivers. Identifying them matters if we want to fix them.
Seen that way, Covid may be less the cause than the stress test that made the system’s design visible. Your wage-based versus risk-based framing points toward a genuinely useful diagnostic. Anchoring it more explicitly in long-run, data-based system behavior would make it even clearer where, and how, the economy changed
How much of the rich's outperformance in income over the past 45 years is due simply to asset appreciation? I am guessing most of it. I think the government played a role in that.
One of the more insidious pieces of legislation from the 1970s is the Fed's dual mandate, which tells the Fed it must control inflation and minimize the unemployment rate. Well-intentioned, it sounds good in theory. In practice, it has driven this increase in inequality.
The dual mandate in practice tells the Fed to keep the pedal to the metal as long as CPI inflation is behaving and we are below full employment. While the Fed recognizes the risk of "too much money chasing too few goods," it has no problem with "too much money chasing too few assets."
Indeed, since the dual mandate has been in place, we have seen serial asset bubbles in commodities (early 80s), stocks (late 90s), and residential real estate (mid 00s). If you own assets like the rich, it is great - it increases your wealth and income. If you are middle class or lower, it just raises your cost of living.
There aren't many policy levers to address costs. Energy is probably the easiest since many of its costs are artificially imposed by the government: taxes and regulation which can be reversed.
Maybe there is something that government can do to increase housing construction, but I doubt it - we just completed a boom in multifamily construction and it has led to only slightly declining asking rents, but nothing major.
It is clear government doesn't have a clue how to lower healthcare costs, if Obamacare's effect on the bending the cost curve is any indication. All it knows how to do is add more subsidies, and as any econ 101 student knows, when the government subsidizes an inelastic good, the subsidies accrue to the producer.
Does Trump have the answer? I think his instincts are correct. Lowering energy costs and re-shoring manufacturing are probably going to have the most bang for the buck.
As a GOP partisan I urge, nay, IMPLORE Democrats to run with the "economy sucks." Betting against the U.S. economy, over time, is a losing proposition. Meanwhile, Trump has nearly completely restructured the U.S. government financial system to be tariff based on foreigners, not tax burdened based on Americans. I predicted 6-8 mo back in 2024, but I had no idea judges would temporarily block so many elements for about six months. So, like the Reagan Recovery of 1981-82, the Trump Boom will hit in the next 2-3 months. If Ds are focused solely on that, game over.
Our economic malaise for the bottom quintiles has been decades in the making and the discontent won't go away quickly either. The second and third lowest quintiles are exactly the ones that have felt the pinch, forever. It's going to take a heck of a lot more than short term small gains of income to make up for 35 years of decline.
I think tariffs are a lot less damaging to joe lunch box than they are corporate America, but the constant mention in the media is a great way to make people blame them for a general sour economy. The bottom quintiles spend almost nothing on imports. When you are short on money to pay the bills, and you hear the government is going to make anything more expensive, you get pissed at the government.
Corporate America however has taken some pain.
Last week the Fed announced they'd be buying bonds again, an easy way to pump liquidity into our economy without lowering rates. $40 Billion a month. The market every day is at or close to record highs. Hedge funds aren't happy but everyone else is.
"I think tariffs are a lot less damaging to joe lunch box than they are corporate America, but the constant mention in the media is a great way to make people blame them for a general sour economy."
Agree completely. Companies don't have the pricing power to pass them on, so they are getting absorbed in lower margins.
One of the most useful contributions of this piece isn’t the “K-shaped” metaphor itself, but the distinction you draw between a wage-based economy and what you describe as a risk-based one. That framing gets closer to how the system actually functions. It shifts attention away from whether growth or employment looks healthy in aggregate and toward where volatility and shock absorption really land. For understanding what people are experiencing, that distinction feels more informative than the K-shape alone.
If this is truly a systemic shift, though, it likely didn’t originate with any single administration or event. Systems of this scale usually change much earlier and reveal themselves later. The post-2008 period already hinted at this: despite aggressive stimulus and a strong recovery in asset prices, wages and household security didn’t respond the way prior models would have predicted. That suggests the transmission mechanism had already weakened.
One way to sharpen the hypothesis would be to look further back (1960s–present) and let a small set of long-run curves speak for themselves. For example: real equity market returns alongside median real wages, paired with some measure of household risk exposure, fixed costs as a share of income, reliance on credit for necessities, or emergency-expense fragility. If those curves begin to decouple in the 1990s (which I suspect), that would point to a structural shift rather than something driven primarily by Covid. Systems don’t change quickly, and one as fundamental as this likely has several significant structural drivers. Identifying them matters if we want to fix them.
Seen that way, Covid may be less the cause than the stress test that made the system’s design visible. Your wage-based versus risk-based framing points toward a genuinely useful diagnostic. Anchoring it more explicitly in long-run, data-based system behavior would make it even clearer where, and how, the economy changed
How much of the rich's outperformance in income over the past 45 years is due simply to asset appreciation? I am guessing most of it. I think the government played a role in that.
One of the more insidious pieces of legislation from the 1970s is the Fed's dual mandate, which tells the Fed it must control inflation and minimize the unemployment rate. Well-intentioned, it sounds good in theory. In practice, it has driven this increase in inequality.
The dual mandate in practice tells the Fed to keep the pedal to the metal as long as CPI inflation is behaving and we are below full employment. While the Fed recognizes the risk of "too much money chasing too few goods," it has no problem with "too much money chasing too few assets."
Indeed, since the dual mandate has been in place, we have seen serial asset bubbles in commodities (early 80s), stocks (late 90s), and residential real estate (mid 00s). If you own assets like the rich, it is great - it increases your wealth and income. If you are middle class or lower, it just raises your cost of living.
There aren't many policy levers to address costs. Energy is probably the easiest since many of its costs are artificially imposed by the government: taxes and regulation which can be reversed.
Maybe there is something that government can do to increase housing construction, but I doubt it - we just completed a boom in multifamily construction and it has led to only slightly declining asking rents, but nothing major.
It is clear government doesn't have a clue how to lower healthcare costs, if Obamacare's effect on the bending the cost curve is any indication. All it knows how to do is add more subsidies, and as any econ 101 student knows, when the government subsidizes an inelastic good, the subsidies accrue to the producer.
Does Trump have the answer? I think his instincts are correct. Lowering energy costs and re-shoring manufacturing are probably going to have the most bang for the buck.
As a GOP partisan I urge, nay, IMPLORE Democrats to run with the "economy sucks." Betting against the U.S. economy, over time, is a losing proposition. Meanwhile, Trump has nearly completely restructured the U.S. government financial system to be tariff based on foreigners, not tax burdened based on Americans. I predicted 6-8 mo back in 2024, but I had no idea judges would temporarily block so many elements for about six months. So, like the Reagan Recovery of 1981-82, the Trump Boom will hit in the next 2-3 months. If Ds are focused solely on that, game over.