Are The Days Of The "K-Shaped" Con Finally Over?
The pandemic has been a financial and political boon to the 1%. Will they
really change the pattern in the next round of bailouts?
Matt Taibbi
Mar 2
Current and former Treasury Secretaries Janet Yellen and Lawrence Summers
have been engaging in Internet flame war. It's odd and cringe-worthy, like
watching a rap battle break out between Romneys.
Summers started it. Waving salamandrine arms in alarm, the ex-Harvard
president went on a media tour to insist that the Joe Biden/Yellen pandemic
relief proposal would end in inflationary disaster. He wrote in the
Washington Post a few weeks back:
There is a chance that macroeconomic stimulus on a scale closer to World War
II levels than normal recession levels will set off inflationary pressures
of a kind we have not seen in a generation.
Yellen went on her own morning talk show tour in response, insisting that
there's no risk that we're anywhere near what Summers described as the
best-case scenario, an "overheated economy in which employers are desperate
to find workers and push up wages and benefits." In fact, she said: "We're
in a deep hole with respect to the job market," adding that minus a robust
recovery plan, full employment would not return until 2025:
Until now, the Covid-19 relief programs most resembled the bailout policies
of George Bush and Barack Obama in 2008-2009, which stressed
recapitalization of the financial sector. The CARES Act initially appeared
as more of the same: a Fed-fueled Wall Street romp pitched as a trickle-down
rescue, that didn't do much trickling down.
The result of such policies is sometimes euphemistically described as a
"K-Shaped Recovery" (see TK Finance Dictionary, above). In this "recovery,"
the happy upward prong of the letter K represents banks, real estate, the
telecom sector, as well as anyone who owns any kind of financial asset, from
a home to a stock portfolio. The down-pointing prong usually represents
wages or the "real" economy, which humorously has often had to be described
in press treatments in clinical terms, as a separate, alien thing.
In fact, the "K" is just camouflaging jargon for a faux recovery, in which
massive upward gains for a few, that in the aggregate offset greater losses
for everyone else, are pitched as a net positive for society overall. Joe
Biden mocked this concept as a candidate. Is he serious about abandoning it
as president?
A lot of Wall Street analyses are predicting a recovery that will be less,
er monodirectional than last year's CARES Act. As of now, people making
above $65,000 are doing better than before the crisis, while low-wage
workers are still down 20%, a situation Bank of America predicts will be
remedied. "Biden's team is unlikely to break out the champagne over reaching
full employment if it isn't evident across income and racial groups," the
bank wrote, in a letter to clients.
While the surface fight between Republicans and Democrats in the Trump era
has been described as being over a thousand things - Russians, hate speech,
white supremacy, "insurrection," "kids in cages" - the real constant subtext
has been a fight about that "K."
The dirty secret of American politics going back decades is an ongoing cycle
of popped speculative bubbles followed by government-aided rescues, with
both parties embracing the concept of trickle-down "recoveries" built on
statistical deceptions.
Since 1989, the share of national wealth owned by the top 1% has risen from
30% to 39% - you will frequently see this difference described as a rise not
seen "since the roaring twenties"- while the bottom 90% saw their share fall
from 33% to 23%. It's not a difficult picture to explain: the rich have
gotten richer, apparently at the expense of everyone else.
As previously noted, the split widened after the last round of bailouts,
with the top 1% seeing their share rise 4% between the years 2010-2016,
faster than before.
Even though the Occupy protests popularized these facts for the first time,
the press in the Obama years was slow to catch on to the scale of the
post-crash realities faced by poor and formerly working-class people.
According to Federal Reserve statistics, the bottom 50% of the country saw
its share of national wealth drop by over half between 2007 and 2013:
This was exacerbated by what was going on at the other end of the curve,
where the crisis never dented those at the top of the distribution:
The Obama administration continually pointed to rising GDP, a surging stock
market, or "record corporate profits" to offset the on-the-ground details of
its uneven rebound. Obama himself adopted the language of Occupy, with the
White House on October 16, 2011, proclaiming that Obama was "working for the
interests of the 99%."
In the last years of the Obama administration, overall incomes finally
started to rise again, so much so that Paul Krugman of the New York Times
was able to write a column just before the 2016 election touting the
outgoing president's "trickle-up economics," noting among other things that
taxes for the very wealthy had gone up. But despite some income growth, the
overall wealth picture continued to show a schism. As the Fed wrote in 2017,
"The distribution of income and wealth has grown increasingly unequal in
recent years." If you went by overall share of wealth, you still saw that
nagging K:
If you ask Democratic Party strategists, some will privately concede that
they made a big political error by not making sure that the recovery plan
after 2008 didn't look quite so one-sided, a move that left a door open for
protest campaigns by both Donald Trump and Bernie Sanders. Even Summers says
this now, claiming he agrees "with the general consensus of progressive
economists" that "it would have been much better if the Obama administration
had been able to legislate a much larger fiscal stimulus in early 2009, in
response to the Great Recession."
That's ironic, because in December, 2008, Summers wrote a secret, 57-page
memo for incoming president Obama, telling him that although the "economic
outlook is grim and deteriorating rapidly," and the economy would lose 3 to
4 million jobs in 2009 in the absence of fiscal stimulus, the bigger overall
worry was the deficit. He told Obama to stress a policy that focused on
charting a "fiscally sustainable course," so as to avoid "sticker shock to
the American public" that might reduce "your ability to pass your agenda and
undermining economic confidence at a critical time."
Obama took that advice, and the result was a recovery that achieved the
opposite of what Summers argued, draining confidence in the system. The
Democrats would likely have been fine had a traditional Republican been the
opponent in 2016, but they rolled snake eyes and drew the one GOP opponent
willing to stir up the class divide.
Trump stuck with Republican orthodoxy in some areas, preaching tax cuts,
curbed immigration, and defense spending as economic solutions, but his
kinky twist was attacking both Republicans and Democrats as tools of a
crooked banking elite. He borrowed more shamelessly from Occupy rhetoric
than Obama, promised "the biggest economic boom in this country since the
New Deal," and positioned himself as "Crazy Bernie's" brother from another
ideological mother, regularly talking about welcoming Sanders voters with
"open arms" - a move that seemed to freak out Bernie himself, who at the
time was struggling to get Hillary Clinton to even pretend to listen to his
polite demands in the Democratic platform debate.
As Clinton was ghosting Bernie, in fact, Trump in June, 2016 all but asked
for his hand in marriage, saying, "It's not just the political system that's
rigged. It's the whole economy." This ended up becoming a major running
theme of his campaign:
What's amazing, looking back at that time, was that there were still
analysts in the commercial press who kinda-sorta agreed. with Trump. CNN's
writeup of Trump's "rigged economy" speech said that while "few economists
would go as far as Trump and Sanders. in saying the entire system is
'rigged,'" it was "hard to deny" that the middle class was shrinking, the
typical family was earning the same then as in 1996, and the majority of
Americans believed their children would be worse off than them financially.
To make a long story short, Trump won, at least in part because of anger
about a gamed financial system. However, after three years of a frothy
economy that presented a mixed picture on the wealth inequality front, the
pandemic saw Trump preside over a grotesque repeat of the 2008-2009 bailout
strategy he once denounced. From March through October of 2020, billionaires
increased their net worth by $637 billion, while 40 million Americans filed
for unemployment benefits. In his campaign against Biden, Trump resorted to
waving the K-shaped recovery at crowds, asking things like, "How's your
401K?" - apparently unaware that most people no longer have one.
There seems to be near-universal recognition that the next recovery plan
will have to at least appear different from these previous versions.
Suddenly, representatives of both parties are fighting to see who can sound
most like Samuel Gompers in their promotion of recovery plans.
Last Friday, February 26th, the Senate parliamentarian ruled that one of the
key elements of the Democrats' relief package - a significant minimum wage
increase, from $7.25 to $15 - could not be passed through the budget
reconciliation process, which allows votes to go through via simple
majority.
Leading Democrats reacted as if the previously unknown Elizabeth MacDonough
had shot their dog. "We are deeply disappointed in this decision," cried
Chuck Schumer. "Democrats in the House are determined to pursue every
possible path in the Fight for 15," said the $114-million woman, House
Speaker Nancy Pelosi.
Sanders was furious with the MacDonough decision and helped propose a
work-around that would raise taxes for companies that paid less than $15 an
hour. Surprisingly, he was joined by Missouri Republican Josh Hawley. When
was the last time you heard something like this coming from a non-Trump
Republican politician (grammar error notwithstanding)?
For decades, the wages of everyday, working Americans have remained stagnate
[sic] while monopoly corporations have consolidated industry after industry,
securing record profits for CEOs and investment bankers.
Polls have consistently shown that even majorities of Republicans now favor
ideas like $1400 relief checks. Is this a philosophical shift? Doubtful.
More likely, it signals increased awareness even among Republican voters
that K-shaped rescues long ago turned the American economy into a parody of
"normal" capitalism. Why should any voter reject a small rescue check from
the state on ideological grounds, when BlackRock, American Airlines,
SeaWorld Entertainment, and countless other ticker names are getting big
ones no matter what you do?
This is a fascinating moment in American history. On the one hand,
generations of elite-focused politics have left a tiny oligarchical minority
not only in possession of massively increased wealth, but also political
power. Since 2008, we've seen increased disparities in income, but also
criminal justice outcomes, regulatory attention, access to tax loopholes,
political influence (through decisions like Citizens United), vulnerability
to surveillance, and rights to transparency, and, lately, speech. With the
corporate-friendly Biden administration in office, there's a clear
opportunity for his backers to continue the K-shaped influence distribution
if they wanted.
But we may be at the end of the era where even the most rapacious interests
feel they can get away with such policies. Between the 2016 election of
Trump, the near-nomination of Sanders in 2020, and widespread unrest on both
the left and right, it sounds like the Washington consensus is inching
toward the realization that they finally have to deliver something
significant for ordinary people, if they want to keep their cushy DC
sinecures, to say nothing of staying pitchfork-free:
Is the right move simply spreading the Fed largesse to more working people,
in the form of more direct checks and/or unemployment benefits? God knows,
but the question that interests me is how America's political elite views
the situation.
For decades now, we've watched our politicians continually make decisions
that widened wealth and influence divides, while blowing off possibilities
of backlash from below. For a long time, there was a rationale behind this,
because the big-money capture of both parties left the Volk without obvious
avenues for revolt. The two parties didn't need to govern with the bottom
half of the country in mind, so they didn't. They continued their myopia
even through disasters like the Trump election.
Is it possible those days are over? Did Biden learn from the Obama/Summers
experience, even if just on a cynical political level? I'll believe it when
I see it, but we're at least hearing politicians sound like they recognize
the days of being able to sell a "K-shaped recovery" are probably over.