"The consumer flavor of the K-shaped hypothesis might “feel” right to families because of lingering dissatisfaction with prices and affordability, which we can see in metrics like consumer sentiment."
"Some people with assets can borrow money against secured assets at 5-8% and those same people can invest money in an indexed fund and earn 10-12%. Most people pay 15-25% to borrow on a credit card and can only earn 1-3% on minimal savings.
This is the primary engine for the K-Shape in its simplest form. Some people make money borrowing/investing, but most people are forced to operate at a negative arbitrage on those rates, and that’s how the first group can create such a large spread and mitigate their risk."
Great piece Ernie!
"The consumer flavor of the K-shaped hypothesis might “feel” right to families because of lingering dissatisfaction with prices and affordability, which we can see in metrics like consumer sentiment."
I don't think this is quite true - see my post today. Consumer sentiment itself is *also* not K-shaped. https://substack.com/@besttrousers/note/p-191205198
Superb article! Fresh and original insights backed by credible data sources
https://commoncentsbook.substack.com/p/project-2028-funding-the-constitution
"Some people with assets can borrow money against secured assets at 5-8% and those same people can invest money in an indexed fund and earn 10-12%. Most people pay 15-25% to borrow on a credit card and can only earn 1-3% on minimal savings.
This is the primary engine for the K-Shape in its simplest form. Some people make money borrowing/investing, but most people are forced to operate at a negative arbitrage on those rates, and that’s how the first group can create such a large spread and mitigate their risk."
125k is strongly in the middle class. I feel that having that as your high-earning metric conflates the middle and upper class expenditures