The K graph was pre COVIDIβve been reading about how the world has entered a K shaped economy post COVID. This is where different groups or sectors split where areas of the economy rise (the upper arm of the K) while others fall (the lower arm).
The winners:
- very high income
- asset owners
- technology companies and workers
The losers:
- average and low wage workers
- Most small and medium businesses not exposed to tech
This has been caused by:
- rapid AI adoption
- high inflation
- high interest rates
- high skill shortage but low skill oversupply
Takeaways: Middle class (and success) used to be divided by income, now itβs by capital and investments. If you rely on income you cannot get ahead - youβre competing with global workers and technology that can outperform you. Wage growth globally has been below inflation since Covid.
Owners of stores of wealth (houses and investments) are sheltered as the inflation erodes earnings, assets still rise (CGT just makes capital owners equally poor instead of fixing the underlying issues).
Solution: Time. Simplified - Productivity gains from technology will eventually kick in lowering inflation to match wage inflation. The economy will further move to more service, entertainment and personalised jobs not able to be automated and not competing with overseas companies.
