The K-Shaped Economic Recovery Gets Much Worse

Among the most visible debates as the United States moves well into the fourth quarter is whether the COVID-19 pandemic and its economic fallout will trigger another recession that starts late this year or early next. A vaccine will come too late to keep the spread of the disease from a merciless rise over the winter months. Stimulus packages, particularly the CARES Act, give jobless benefits to over 12 million people but will end in a month. On the other hand, there is little evidence that the highest income people in America have been affected much economically. Evidence from high-end home sales to a hockey stick stock market shows the rich continue to grow richer.

Economic recovery in which the rich grow richer and most of the balance of the population is left behind is said to be K-shaped. When the overall economy recovers quickly from the effects of the pandemic, that is deemed a V-shaped recovery. It could drop again from its initial recovery, which would form a W-shaped recovery. It may take several months to decide which of those apply.

In the meantime, the end of stimulus for the jobless means a rise in poverty level, evictions and even hunger. Homeless shelters in many cities already have started to overflow. The number of people who actually claim they or their families go without food for some part of a week has risen as well.

For the middle class, the specter of large company layoffs has not gone away. Business owners helped by the Paycheck Protection Program find that money is gone. Some businesses that will be further damaged by the resurgence of COVID-19 may have to close. Certainly, tens of thousands of restaurants, bars and hotels will suffer. So will major industries, led by airlines and entertainment.

Another stimulus package could be introduced under the Biden administration, but there may be a split government in which the Republicans control the Senate and can block any effort to offer financial aid to millions of people and thousands of businesses.

Many economists claim that without financial help it is unavoidable the people at the low end of the income scale will not only suffer hardship but will cease to be consumers. Those at the high end already have the protection of net worths that are actually rising.

The economy has reached a crossroads, and the K-shaped recovery has started to worsen.

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