We need to talk about K
An economic shape for haves and have nots
Introducing: K chat
I kept hearing it. In podcasts, X posts, media interviews, you name it. The K-shaped economy. By mid-2025 I couldn’t open an economics newsletter without someone drawing two diverging lines on a chart and calling it a revelation. The basic claim was clean enough: top earners were pulling further ahead while ordinary incomes stagnated. One economist described it as “the jaws of a crocodile,” which is the kind of metaphor that sounds better than it explains. Top-third spending rose 4% year-on-year while the bottom-third grew less than 1%. Two lines, shaped like a K. Case closed, supposedly.
But is it true?
Where the K came from
The term traces back to 2020, when an anonymous Twitter account called Ivan the K made a playful reference to a “K recovering” in the early weeks of COVID. Peter Atwater, a behavioural economist at William & Mary, picked it up and ran with it. Atwater had noticed a gap opening between white-collar workers who shifted to home offices and blue-collar workers who couldn’t. The white-collar crowd felt fine. The hospital workers, supermarket clerks, and warehouse staff felt worse by the week. Atwater used the letter K to describe an economy splitting in real time: one arm rising, one falling. It was a good metaphor, because it was visual. You could draw it on a napkin and people would nod.
The term went viral almost immediately. By late 2020, Al Jazeera was explaining it as “Wall Street soars, Main Street struggles.” Within a year it was in every economics podcast, every op-ed section, every investor note. Fortune called it one of the biggest business buzzwords of 2025. It joined the alphabet soup of recession shapes (V, U, W, L) but added something new: not just speed of recovery, but divergence. For the first time, the metaphor said the economy wasn’t just slow or fast. It was splitting apart.
The post-COVID K shaped recovery
The K became the default explanation for the post-pandemic economy. The story went like this: white-collar workers shifted to home offices and kept earning. Lower-income workers got furloughed, put on benefits, or lost their jobs entirely. When the economy reopened, the white-collar labour market tightened fast. Employers competed for knowledge workers, a salary premium emerged, and the gap widened. Top-third consumer spending rose while the bottom-third barely moved. The IFS noted that poorer households faced higher effective inflation because they spent more of their budgets on food and energy, so even where incomes held steady, purchasing power didn’t. Draw it on a chart and it looks like a K. For a moment in 2024 and early 2025, this seemed to explain everything
Then the Minneapolis Federal Reserve published a review, and things got messier. Their researchers looked across years of household data and found “little support for a consistent K-shaped pattern in recent years.” Before 2025 hit, lower-income households often outperformed higher-income ones in terms of income growth. The narrative started to look shaky.
Noah Smith made a similar point on Noahpinion, arguing that income inequality had actually started declining post-COVID, and that some of the wealth gap was “imaginary” because it was driven by stock market valuations rather than anything tangible. Krugman went the other way, arguing the K was real but politically contingent: Biden-era wage gains had briefly narrowed it, and the Trump-era economy was pulling it apart again.
The income K, it turned out, depended entirely on who you asked and what they measured. It didn’t show two clean groups pulling apart. It showed something messier: three or four tiers, shifting at different speeds depending on the metric. Not a clean split. A fracture.
But what if the K is somewhere else?
I think we’ve been missing the point.
The real, durable K-shaped split isn’t income-based at all. It’s about assets, housing, generations, and who owns what. And the story in Britain and Australia is both clearer and sharper than the American one.
Let’s look at the UK first. The Gini coefficient, that standard measure of income inequality, barely moved over the past decade. By that metric, nothing much changed. Yet wealth inequality tells a completely different story. The gap between the wealthiest and poorest British households grew roughly 50% over eight years. The IFS has argued that wealth is now a more important driver of economic divides in the UK than income. The generational split is even sharper. ONS data shows individual wealth peaking in the 60-to-64 age group at nine times the level of the 30-to-34 group, with younger generations less likely to own homes than any cohort before them. One generation rode housing inflation like a winning trade; the next one arrived after the party ended, with deposits to save for homes that cost twice what they did a decade earlier.
Australia shows the same pattern, amplified. ABS data puts it plainly: the bottom quintile of income earners holds just 0.4% of total wealth, while the top quintile holds 63%. Property prices have climbed roughly 2,300% since the early 1970s, while wages rose about 1,400%. The Grattan Institute reports that the typical Australian home has gone from four times median income in the early 2000s to over eight times today. The Treasury’s Intergenerational Report projects $5.4 trillion in wealth transfers over coming decades, with inheritances having more than doubled since 2002.
The Australia Institute now frames the housing crisis not as a standalone policy issue but as the primary driver of inequality in the country. A young Australian earning a decent salary might see real income growth while wealth moves further away. Not because they’re failing, but because the asset base itself has become an entirely different ballgame. The K-shape here is really a property-price shape wearing a K’s costume.
Consider what this means for policy. If the K-shaped recovery was really about consumption smoothing between rich and poor, then you’d want to think about incomes, transfers, and purchasing power. Fiscal policy. Minimum wages. Universal basic income debates. The usual suspects.
But if the K is really about housing and inherited wealth, and the evidence from the UK and Australia suggests it is, then the policy conversation shifts entirely. You’re talking about land supply, property tax reform, intergenerational capital gains taxes, and whether a 50-year asset price bull run should be allowed to continue its march against wage growth. You’re talking about whether future generations should expect to inherit housing or student debt. Those conversations are messier. They threaten people who own (or control) existing assets.
The right letter, the wrong axis
The K-shaped economy was a useful metaphor when it was new. It pointed at something real. But everyone got the right letter for almost entirely the wrong reasons. The K that matters isn’t about who earns and who doesn’t. It’s about who owns and who rents. Capital vs labour. The media saw the letter and ran with it. Economics journals filled with papers. Think tanks produced reports. And all of them were measuring the wrong axis.
We don’t need a new letter of the alphabet. We need more houses. And we probably need to stop inventing clever names for problems we already know how to describe.
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