A K-Shaped Recovery

Stock market and home values have soared to record levels while hourly workers and small businesses remain stuck in economic mud. Economists call what’s happening a K-shaped recovery with an uneven impact on different income levels that could stunt overall recovery and justify another round of federal financial relief. CFMAdvocates.com

Stock market and home values have soared to record levels while hourly workers and small businesses remain stuck in economic mud. Economists call what’s happening a K-shaped recovery with an uneven impact on different income levels that could stunt overall recovery and justify another round of federal financial relief. CFMAdvocates.com

For most of America, the pandemic has created unparalleled hardship. “[A new poll by the Associated Press-NORC Center for Public Affairs Research] shows that about half of Americans say they have experienced at least one form of household income loss during the pandemic, including 25% who have experienced a household layoff and 31% who say someone in the household was scheduled for fewer hours. Overall, 44% said their household experienced income loss from the pandemic that is still having an impact on their finances.” CBSNews.com, March 10th.

But between the deficit busting 2017 massive corporate tax cut and the COVID-excuse to cut personnel and costs, asset-based wealth has soared like never before. As artificial intelligence driven automation upgrades, easily instituted during this pandemic, have taken the money that used to be paid to the displaced workers and put that money into the pockets of the owners of the relevant companies, income inequality has reached unprecedented polarizing numbers. Sure, a few larger companies (like retail outlets and malls, performance venues and movie theaters) have contracted from the pandemic, it’s the small businesses like restaurants and dry cleaners that have taken it in the teeth. Not to mention the workers whose employers simply disappeared… forever.

For companies trading in necessities or those able to expand online sales operations, the pandemic has been a gift from God. But as California just learned from tax revenues generated mostly by those earning more than half a million a year, producing an unexpected $15 billion income tax windfall to the state, this pandemic has definitely made the poor poorer and the rich vastly richer. And as small businesses died, big tech delivery giants stepped to fill the void.

Kristin Toussaint, writing for the March 23rd FastCompany.com, tells it as it is: “It’s officially been a year since many of the country’s COVID-19 lockdowns began, and for many Americans it’s been a year of struggling to work from home while caring for kids, or a year of being unemployed and anxiously awaiting more federal aid. For American billionaires, though, it’s been a year of record profits: In the past year, the combined wealth of the nation’s 657 billionaires has increased more than $1.3 trillion, or 44.6%. These billionaires now have a combined net worth of $4.3 trillion, exemplifying the idea of a K-shaped recovery.

“That figure comes from the latest report from the Institute for Policy Studies, a progressive think tank that has been tracking billionaire wealth during the pandemic since its first “pandemic profiteers” report in April 2020 that showed how billionaire wealth bounced back after the initial stock market crash. A year later, billionaires are still seeing their wealth grow, and there are 43 new billionaires who didn’t even exist at the start of the pandemic.

“Fifteen billionaires who saw their wealth grow the most—including Tesla’s Elon Musk, Amazon’s Jeff Bezos, and Facebook’s Mark Zuckerberg—saw a combined increase of $563 billion since March 18, 2020, when COVID-19 lockdowns began. Even among those top billionaires, some saw bigger earnings than others: Musk’s wealth increased by $137.5 billion, or 559%, and Bezos’s by $65 billion, or 58%. In that same year, almost 80 million Americans lost their jobs; as of February 27, 2021, 18 million were still collecting unemployment…

“Billionaires in technology saw the biggest boon, including Snapchat founders Murphy and Spiegel; Twitter’s Dorsey; and Roku’s Wood. Those in finance and investment were also big profiteers, like Gilbert of Quicken Loans. And automotive industry billionaires had the biggest percentage point increase in wealth—317% based on an increase in wealth of $172 billion—though the report says that was largely thanks to Musk. 

“As a company, Zoom, which became a household name during the pandemic, as it was used for everything from work meetings to virtual birthday celebrations to schooling, saw its profits increase 4,000%, from $16 million in 2019 to $660 million in 2020 (on which it paid no federal income taxes). Cofounder Eric Yuan’s wealth increased 153%—from $5.5 billion to $13.9 billion—and he didn’t even crack the top 10 list of ‘pandemic profiteers.’” The notion of giving rich folks lots of money – tax breaks and deregulation under a misguided notion of supply-side economics (trickle down theory) and that a rising tide floats all boats – never works. NEVER.

See my February 14th When the Political Foundation Plank is Simply Wrong blog, which features this simple summary: “Michael Hiltzik, writing for the February 7th Los Angeles Times, spent some time scanning the relevant research, particularly a new study published by the London School of Economics run by David Hope of the LSE and Julian Limberg of King’s College London. That analysis examined tax cuts enacted by 18 developed countries, including the U.S., over the 50-year span from 1965 to 2015. The answer was simple: based on hard data, supply side economics never works. We already know the later 2017 US corporate tax cut held true to the continued failure of every measurable effort to implement those high bracket tax cuts. Anywhere. Everywhere!!!”

We have so tilted the playing field in favor of big corporations, many of which pay little or no federal tax, that coupled with the underlying big-company benefits generated by the pandemic noted above, the level of income inequality seems so irretrievably one-sided today that absent some major changes in our tax code, the income polarization can only get worse. Add voter suppression, gerrymandering, the influence of big money via Citizens United vs FEC, Congressional gridlock and the death of the American dream of upward mobility (per my March 18th Stuck! Blog), there are no signs that ordinary Americans are going to improve their lot against the mega rich anytime soon. Biden’s wishes to the contrary. If you really look at Trump populism, the subtext is that “the economy doesn’t work” for his supporters either. Hmmmm!

I’m Peter Dekom, and if an economy fails to work for a vast majority of the population, eventually the society that supports that system will eventually fail as well.