The first time I heard the term “K-Shaped Economy” was on the YouTube channel, Thoughtful Money by Adam Taggart. Taggart captured in one phrase the issues we are seeing and why there is such conflicting economic data. This is a vivid description of why we hear on CNBC that the markets are doing great, while all around us, we see evidence of struggle. In my lifetime, I do not believe I have seen this type of economy or the disparity between consumers.
The Consumer Debt Issue
Total consumer debt is now approaching $18 trillion, with the bulk of that, $12.8 trillion, in the form of mortgages. But with $1.6 trillion in auto loans and another $1.6 trillion in student debt, the load for college attendees is staggering. Add another $1.2 trillion in credit card debt, and it becomes overwhelming for most people. But the problem has grown so widespread that those in their seventies now have an average debt of $43,000. Ninety-one percent of people over sixty have a credit card, and thirty-nine percent cannot pay it off monthly. Today, every age group, every economic stratum, and every demographic group has debt.
The K-shaped economy is an issue, a big issue. But the real danger is whether the K-shaped economy will evolve into an I-shaped economy, as Adam Taggart often notes in his discussions. It is the I, not the K, he most fears. And as Baby Boomers live longer, the anticipated wealth transfer in the coming decades may not materialize. Many Baby Boomers have much of their net worth tied up in their homes, but with declining values in many regions, that asset value is a phantom.
The Arm of the “K”
The “K-Shaped Economy” has now made its way onto the national stage, with pundits on CNBC and FOX News regularly using it to describe what we see around us. Usually, a “K-shaped economy” follows a recession and explains what happens when one segment of the economy recovers while another does not. But, at least in my observation, this is not what has happened this time.
According to many, we have not had a recession since Covid. During Covid, the Federal Government pumped so much money into the economy that a recession was not just unlikely, it was impossible. If there was a recession, it lasted only in 2020, hardly enough time to be felt and cushioned by the flood of cash.
Years ago, if this economy had emerged, we would have assumed a line of demarcation between workers with and without a college education. This has been the prevailing thought for decades. But this time, the “arm” of the “K” evolved due to the rapid adoption of new technologies, and those with assets and those without. The most visible and the most talked about of these is artificial intelligence. But the most crucial thing is assets.
Lines of Demarcation
If you have the technical skills to work in the AI industry, you see this as a golden age with unlimited possibilities. But even those individuals constantly look over their shoulders to see if they have programmed their jobs out of existence. But for now, the most skilled seem to be fine. From ChatGPT (OpenAI) to Gemini (Google) to DeepSeek (China) to Claude AI (Anthropic) to Copilot (Microsoft) to Grok (xAI), there seems to be a spot for everyone with the right qualifications. Like with the Dot Com era, there will be millions of jobs that are just one step removed from the main action, and the AI boom is likely to be a net job creator, in my experience.
A more resilient segment of our workforce directly tied to Artificial Intelligence is the support cast. We know from repeated news articles and reports that this supporting cast will include nuclear energy and power in all its flavors, data center construction and maintenance, networking, corporate consulting, robotics, and a host of things that do not even exist in the world we are coming from. For job stability, this group may have the best career path. Companies will focus on replacing more expensive tech workers first. Long before they conquer AI and robotics to replace the support staff, we will all be just memories.
Not surprisingly, the days of a college education producing a clear career path seem to be over. Our colleges and universities have priced themselves out of the market for many professions and created a plethora of majors that lead to nothing of value. There is nothing in the new economy that requires a college degree outside of engineering, and even that might be considered a trade. If you believe the AI revolution is real and you want to be involved, and you want to make a living at it, then your career path is likely to be one of ancillary attachment.
Asset Rich, Asset Poor
Getting rich in America is not particularly difficult. There is a straightforward formula. Spend less than you make and invest in something that earns money on your savings. Then stick with it over time, investing as you can, even if the sum is modest. For our youth, you have time on your side.
For those who follow this simple formula, the upper arm of the “K” will serve them well. In an inflationary world, over the long haul, asset values rise with inflation. Debt and excessive spending keep you from acquiring the assets needed to buffer you from rising inflation.
The Leg of the “K”
Since World War II, we have lived in an economy where we buy first and pay later. This mentality has served us well in the postwar economy, but it is strangling us now. We have record levels of credit card, student loan, vehicle, mortgage, and buy-now-pay-later loans. Accompanying all this borrowing is now the associated past-due payments and bankruptcies. You cannot save and borrow simultaneously; they are antithetical. Interestingly, there seems to be no correlation between education and debt.
The Affluent Poor
The leg of the “K” is not differentiated on education alone; it is on habits. Well-educated people with poor financial habits are in the leg of the “K.” This group may have underwater mortgages and will remain trapped in this leg of the “K” for decades, waiting for home prices to recover or for debt to be paid off through inheritance or market luck. They may be more susceptible to debt problems because they appear to lenders to be more creditworthy. This is also a group that has always been there, often with polite acceptance. I like to think of them as the socially acceptable poor.
This group is distinguished by carrying all forms of debt far in excess of their ability to pay. These debts were accumulated by the “keeping up with the Joneses” syndrome. And yes, I now consider going to college to be a matter of keeping up with peers. The false promise of student debt forgiveness has placed many who might otherwise be in better shape in this category. Once those loans were put back on a payment schedule, delinquencies skyrocketed, illustrating how stretched consumers with multiple forms of debt are on a monthly cash-flow basis.
The COVID and Non-working Poor
The second-worst decision by Congress since our founding was the COVID relief money and associated programs. Most of the problems we see today with the national debt and related issues were put on steroids at this juncture.
During this time, we reinforced a trend in able but non-working men in their prime working years. There was already a workforce decline in this demographic, but it seems to have been reinforced during COVID. President Trump is right to push for reshoring manufacturing jobs because it will directly address this problem. Hopefully, this will provide the miracle we need because it is estimated that we have 6.8 million able-bodied unemployed men in this category.
The Real Poor
There is always a segment of any society that cannot make it. When this results from real handicaps, we have an obligation as a society to step in and support this group with resources in many forms. But supporting this societal segment with ever more debt is not a solution.
Avoiding the “I”
Our most significant risk is that the “K-shaped economy” collapses into an “I-shaped economy.” In that scenario, a tiny elite holds most assets while the majority subsist on wages with little hope of wealth accumulation. This mirrors oligarchic structures seen in parts of Europe, England, South Africa, Canada, and Russia, where wealth is concentrated at the top. Such an outcome would further erode the American middle class and undermine social mobility.
But avoiding the “I” is not just about economics – it is about preserving the very fabric of society. History shows that when inequality becomes extreme, social unrest follows. Political grievances and economic disparity fueled the French Revolution. In the United States, the Great Depression revealed how fragile prosperity could be when wealth was concentrated and debt widespread. Each time, the lesson was clear: societies cannot thrive with excessive debt and unequal access to opportunity.
A Cultural Shift
Avoiding the “I” also requires a cultural change. For decades, consumerism has defined success by possessions. The “keeping up with the Joneses” mentality has trapped many Americans in debt. A shift toward savings, resilience, and long-term planning is necessary. Wealth should be measured not by what we have, but by what we own.
The Role of Technology
Ironically, the same technologies that risk widening inequality could also help prevent it. Artificial intelligence, if harnessed responsibly, can democratize access to knowledge, reduce costs, and create new industries with new opportunities. But if monopolized by a few, it accelerates the march toward the “I.” Ensuring broad participation in technological growth is essential, as it was in the Dot Com era.
A Call to Action
Avoiding the “I” is not a passive hope, but it takes energy and vigilance. We must take responsibility for our financial choices. We must value financial discipline and opportunity. And society must recognize that prosperity is more sustainable when it is shared. The American middle class, long the envy of the world, is worth preserving. If we fail, we risk becoming a nation where wealth is a vertical line – a select elite at the top, and everyone else at the bottom.
The “K-shaped economy” is not just a metaphor — it is the reality we live in. Debt defines our priorities, technology accelerates both equality and inequality, and habits determine financial fate.
Individually, we can pay down debt and invest safely and consistently. We can also continue to learn, to understand the economy and the coming technological changes. In short, we can do for ourselves what the government at all levels refuses to do. We can build a fortress around our personal finances. These are all within our control, and they buttress us from the irrationality and irresponsibility of others.
Whether America remains a land of opportunity or slides into an “I-shaped economy” depends on how we confront debt, investment, and rebuild meaningful work. Avoiding the “I” is essential if we want prosperity to be broadly shared and the American Dream preserved.
Resources and Additional Reading
Debt by Degree Executive Summary, by Staff, National Endowment for Financial Education, nefe.org, ~2019.
Finally, a win for working men, by Brent Orrell, The Hill, thehill.com, November 26, 2024.
K-Shaped Recovery: Definition, K-Curve Chart Example, and Causes, by Adam Hayes, Investopedia, investopedia.com, March 16, 2025.
Labor Force Participation: A Major Obstacle to Rebuilding the Post-COVID-19 Economy , by Maria Ilcheva, Ph.D. and Howard Frank Ph.D., Metropolitan FIU, metropolitan.fiu.edu, ~2021.
Mike Rowe warns Americans that the ‘will to work’ is disappearing — says 6.8 million able-bodied men aren’t even looking for a job. Here’s why and what it means for US job market, by Vishesh Raisinghani, MoneyWise, moneywise.com, July 23, 2025.
More men in their prime working years are neither working nor looking for jobs — here’s why, by Juhohn Lee, CNBC, cnbc.com, September 19, 2025.
The Demographics of Household Debt In America, by Maureen Milliken, Debt.org, debt.org, July 11, 2025.
The Pandemic’s Impact on Unemployment and Labor Force Participation Trends, by Andreas Hornstein and Marianna Kudlyak, Federal Reserve Bank of Richmond, richmondfed.org, ~2022, Last accessed December 14, 2025.
Thoughtful Money YouTube Channel, by Adam Taggart, YouTube, youtube.com, Last accessed December 5, 2025.
Tired of Google Search? These Are the Best AI Search Engines, by Michael Muchmore and Ruben Circelli, PC Magazine, pcmag.com, September 17, 2025.
