(Image: Marie Antoinette and her Children, Élisabeth Louise Vigée Le Brun, 1787)
“When the rate of return on capital exceeds the rate of growth of output and income, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”
– Thomas Piketty, Capital in the Twenty-First Century, 2013
“The reckless pursuit of profit without any consideration for the well-being of the planet and the human beings that live here should be considered a crime.”
— Oatly Beverage Carton, 2026
There is a graphic that describes the American economy of 2026 more accurately than any chart economists typically display – the “K-shaped” economy. Two trajectories splitting from a shared origin, one curving sharply upward into record asset wealth, the other bending steadily downward into stagnant wages, unaffordable housing, and a labor market that has perfected the art of offering positions that do not exist and taking advantage of workers who can no longer afford to quit.
The K-shaped economy is not a cyclical imbalance awaiting mean-reversion — it is the result of an economic order that is systematically extracting from the majority and transferring to the already extremely well-off, and its acceleration is driving most of the population toward a condition of permanent precarity that history suggests cannot hold.
THE HISTORICAL FRAME
The intellectual framework for understanding this moment was built decades ago. Piketty demonstrated, with granular historical data, that when the rate of return on capital exceeds the growth rate of the broader economy, inequality compounds inexorably — not as aberration, but as the natural result of the system left to its own logic.
John Kenneth Galbraith, sixty years earlier, identified the perverse social arrangement that Piketty’s formula produces. In The Affluent Society, Galbraith described a nation defined by “private opulence and public squalor” — one in which private wealth continues to accumulate even as shared infrastructure, public goods, and social provisions are starved. He was describing 1958, but description has only become more apt.
Hyman Minsky supplied the third element of the analytical frame: the instability embedded in what looks like apparent stability. His financial instability hypothesis holds that prolonged periods of calm do not reduce systemic risk — they concentrate it. A system that appears to be functioning — booming markets, resilient corporate earnings, buoyant luxury spending at the top — is simultaneously accumulating the fragility that will eventually lead to its downfall. The K-shaped economy is precisely this configuration: stable from the vantage of the affluent, a slow-motion crisis for the majority at the bottom.
The 1920s offer the nearest historical parallel. The decade before 1929 saw industrial productivity surge, equity markets triple, and the spoils accrue overwhelmingly to capital. What corrected the divergence was not organic rebalancing — it was a crash so severe it reset the notion of political economy for a generation. The post-war compact — progressive taxation, union participation, housing policy that all helped facilitate broad middle-class wealth — was not the natural order of capitalism. It was a political response to catastrophe and was enacted, at least in part, to save the system from itself. Indeed, in 1938 FDR said in a message to Congress:
“…the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.”
THE CURRENT DIVERGENCE
Unfortunately, the disparity now is in many ways even more stark. The S&P 500 has returned to all-time highs, surpassing 7,200, up more than 66% from its late-2022 lows while the Gini coefficient(1) has climbed to 42 — its highest level in more than sixty years. The top 1% hold nearly 32% of all household wealth; the bottom half hold 2.5% (globally the top 1% own half the world’s wealth, according to Credit Suisse). The share of US GDP flowing to workers as wages has fallen to its lowest level in more than seventy-five years of recorded metrics.
Meanwhile, 1.2 million Americans were laid off in 2025 — 58% more than the prior year, the highest rate since the pandemic. More than a quarter of the unemployed have now been out of work for more than six months. The labor market has simultaneously developed a particularly efficient cruelty: ghost job listings — positions posted with no intention of filling them — have become endemic, sustaining a fiction of opportunity in a market that is functionally contracting. The “quits rate” remains below pre-pandemic levels, not because workers are satisfied, but because they are afraid.
And most impactful for the majority, the cost of ordinary life has not waited for the cycle to turn. Food prices are on track to rise sharply in 2026. Energy costs surged 12.5% in the twelve months ending March. The median home price stands at $412,500 — roughly five times median household income — and a household earning $75,000, the bracket that encompasses nurses, teachers, and skilled tradespeople, can now access only 21% of available listings, down from 49% in 2019. Owning a median-priced home now consumes 48% of the median household’s income.
THE EXTRACTION MACHINE
The tariff architecture of the past year offers a perfect illustration of how this divergence is actively sustained. American consumers paid more than $231 billion in tariff-related costs between February 2025 and January 2026 — approximately $1,745 per household. Following a Supreme Court ruling in February, the government has made available up to $175 billion in refunds — to go to businesses, not households. Walmart may receive $10 billion. Target, $2 billion. Nike, $1 billion. A CNBC survey of chief financial officers found that none of the executives polled intend to share those refunds directly with customers. The household that paid the tariff tax at the register will receive precisely zero in return.
The employer-employee relationship follows the same extractive logic. Layoffs have already been accelerating, growing by more than 50% in 2025 from the year prior. Now firms are adding insult to injury. Deloitte recently cut paid parental leave from sixteen weeks to eight, reduced PTO allowances by up to ten days, eliminated a $50,000 adoption and surrogacy benefit, and axed its pension plan for certain employee groups. Zoom has cut parental leave for birthing parents from 22–24 weeks to 18, and for non-birthing parents from 16 weeks to 10. Business Insider reported that even PTO, parental leave, and pensions — once among the most durable and prized fixtures of the professional employment contract — are now on the chopping block. One expert quoted in the piece was candid about the mechanism: these rollbacks “legitimize that action for everybody else.”
None of this is happening because these firms are in distress. Amazon, Alphabet, Meta, and Microsoft are collectively on track to spend nearly $700 billion on AI infrastructure in 2026. Corporate earnings remain robust. The cuts are happening because the labor market enables them. With less people leaving their jobs, long-term unemployment rising, and at least 37% of companies planning to replace laid-off roles with AI by end of 2026 the power asymmetry has shifted decisively. Indeed, Meta said recently, in the latest such announcement, that they are cancelling previous plans to hire 6,000 for open roles and laying off 10% of their workforce – about 8,000 people – as the “company pushes deeper into AI.” Workers who might once have quit in protest now stay, because the alternative — months of ghost-job applications in a market that is working to replace them — is measurably worse.
One relevant note here on AI: the unprecedented capital investment cycle currently being deployed toward AI will almost certainly exasperate this inequality – regardless of the outcome. If AI development and/or monetization fails to justify such massive investments and stratospheric valuations, the market and economy will certainly come crashing down (since AI is almost single-handedly propping up the US economy), precipitating a downturn the wealthy can easily weather but that they majority of Americans will feel acutely for years or decades, à la the dot-com crash and the GFC.
If, however, AI does fulfill its promise and realizes the lofty claims being made, and we develop the ability to largely decouple productivity from most human work, precedent does not suggest that those benefits will be widely distributed. Up to now, as we’ve seen, the wealthy (capital, employers, corporations) have increasingly taken the lion’s share of the benefits from improvements in economic efficiency and productivity and reaped the benefits of what are effectively government corporate subsidies (bailouts, forgiven PPP loans, tariff refunds) – all while laying off more workers, raising prices, and increasing the precarity of employment for wages that have not kept pace. Why then should we expect them to be magnanimous when they finally have little need for most employees at all?
THE UNSUSTAINABILITY OF OUR PRESENT COURSE
Our current situation is where Minsky’s instability hypothesis becomes most instructive. The K-shaped economy appears stable from the top: equity markets at record highs, luxury spending buoyant, AI Capex surging. But this apparent stability is being purchased at the cost of the productive base that any durable economy requires. The top 10% of earners now account for 49% of all consumer spending (fueled by wealth tied to the markets, which are in turn supported largely by AI investment). When the expenditure of ten percent of households becomes the primary engine of demand, the system has not found a new equilibrium — it has staked the entire structure on a single, narrow pillar.
Galbraith’s warning applies with particular force. Private opulence and public squalor are not merely a moral observation — they are a description of a system consuming its own foundation. Housing is unaffordable to the median household. Energy costs are rising faster than wages. The safety net of employer-provided benefits — parental leave, pension contributions, paid time off — is being systematically dismantled at precisely the moment when workers have the least leverage to resist it. The consumer majority is not a peripheral concern to be managed around. It is the foundation. And it is being methodically gutted.
And all this data is not concealed. The Bureau of Labor Statistics publishes it monthly. The tariff refund story ran on every major financial outlet. The Deloitte and Zoom benefit cuts were not leaked — they were announced. The executives making these decisions understand precisely what they are doing, and the market rewards them for it.
Our economy’s incentive structure is twisted. Its goal function is rotten. And it is producing outcomes that are inherently unjust. As I wrote previously, Milton Friedman was wrong.
A MORAL QUESTION
Barry Bannister, chief equity strategist at Stifel, has called the K-shape “economically unsustainable”, and history supports this. However, it is not just unsustainable; it is leading us to a reckoning. Divergence at this scale has not been resolved through gradual rebalancing. It has been resolved through rupture — financial, political, or social — because pressure builds until something gives.
What remains to be seen is how the majority of the population, pressed steadily further into forced austerity and insecurity, will ultimately seek to rewrite the terms upon which the system operates. While lighting the fire that would burn down a 1.2 million square foot Kimberly Clark warehouse in California causing $650 million in damage, Chamel Abdulkarim, the man charged with the crime, repeatedly stated his grievance: “All you had to do is pay us enough to live.”
Even without condoning his actions, one can understand his sense of desperation and his anger. Burning down a warehouse, although an extreme act, is not real violence that harmed another person, and Kimberly Clark was certainly insured for the loss. But not being able to afford insulin or see a doctor, not being able to sleep due to worry over meeting your children’s needs, or having physical symptoms of stress due to the precarity of your future – that is very personal and very real.
If working a full-time job doesn’t earn you enough to live comfortably, but just enough to survive or even a little less; if the powers that be de facto view their employees only as an expense line item to be minimized by any means; if the benefits of our country’s immense productive capacity go overwhelmingly to a tiny privileged few; and if this unjust system looks set only to grow more unequal, then why continue to participate in the system at all? Why not burn it down?
So we must ask ourselves: what would make someone feel they had no alternative, no voice, no other avenue for redress? We need not condone his actions to see the direct line between his desperate protest and the systemic grinding-down that our current economy is subjecting people to as a matter of course.
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Footnotes:
- Gini Coefficient: A measure of income or wealth distribution across a population, scaled from 0 (perfect equality, where every household holds an identical share) to 100 (perfect inequality, where a single entity holds everything). The United States registered a Gini of approximately 37 in the early 1970s; the climb to 42 by 2025 represents a sustained structural deterioration, not a cyclical fluctuation. For reference, most Western European economies currently register Gini coefficients in the 28–35 range.