The American economy is recovering. That’s not up for debate.
But the manner in which the economy is bouncing back is very much disputed by economists and politicians.
Joe Biden says it’s a “K-shaped” recovery. Donald Trump said the bounce-back is “V-shaped.” Here’s what that means:
In a K-shaped recovery, the economic bounce-back is bifurcated like a “K”: The wealthiest Americans are quickly rebounding, even thriving, while the middle- and lower-income set are not.
US stocks have soared to record highs following a huge selloff in March, thanks in large part to the Federal Reserve pumping cash into the market.
But most Americans aren’t feeling that boost. As of the first quarter of 2020, the wealthiest 10% of American households owned 87% of all stocks and mutual funds, according to the Federal Reserve.
Just over half of American families have some level of investment in the market, mostly through 401(k)s and other retirement accounts, according to the Pew Research Center. Only 14% of households are directly invested in the market.
Simply put: the stock market is not the economy, so Wall Street’s fortunes don’t reflect the realities on Main Street. The US economy is still down 11.5 million jobs during the pandemic, which means the economy has a long way to go to make up that ground. Many Americans’ jobs are never coming back.
“Millionaires and billionaires like [Trump], in the middle of the Covid crisis, have done very well,” Biden said during the debate. “The people who have lost their jobs are the people who have been on the front lines,” Biden added. “He’s going to be the first president of the United States to leave office having fewer jobs in his administration than when he became president.”
A V-shaped recovery means pretty much what the letter “V” looks like: A sharp decline followed by equally sharp growth.
The President’s contention that we’re in a V-shaped recovery is supported by the fact that the economy is roaring back better than many economists expected. When the pandemic hit the United States this spring, 22 million jobs vanished, and already 10.6 have been added back.
But that doesn’t paint a full picture.
Small businesses were absolutely slammed by the pandemic. Many of them will never reopen.
The sugar high from Congress’s initial stimulus has worn off. Many Americans were able to get by because of direct payments and expanded unemployment benefits under the unprecedented $2.2 trillion CARES Act passed in March. Those benefits expired at the end of July, which means millions of Americans could be in for a rough winter without further intervention.
“The risk going forward is that people are spending [now] because they have money in the bank even though they’re unemployed,” Jerome Powell, the Federal Reserve Chair, said. He added, “It’s likely that additional fiscal support will be needed.”