The American economy presents a paradox that would confound even the most seasoned economic observers: robust headline numbers masking a profound divergence in fortunes between those at the top and everyone else. Gary Cohn, former chief economic advisor to President Trump and ex-president of Goldman Sachs, has emerged as one of the most prominent voices warning about this K-shaped economy—a phenomenon where the wealthy surge ahead while middle and lower-income Americans fall further behind.
According to Business Insider, Cohn has been sounding the alarm about this economic bifurcation, noting that traditional metrics like GDP growth and stock market performance obscure the reality facing millions of Americans. The K-shaped recovery, which emerged prominently during the COVID-19 pandemic, has now calcified into a structural feature of the American economy, creating two distinct economic realities within a single nation.
This divergence manifests in stark ways across nearly every economic indicator. While the S&P 500 has reached record highs and corporate profits have soared, real wages for median workers have stagnated when adjusted for inflation. The top 10% of earners have seen their wealth balloon, buoyed by asset appreciation in stocks and real estate, while those without significant investment portfolios have watched their purchasing power erode under persistent inflation.
The Wealth Accumulation Machine at the Top
The mechanics of this wealth divergence are straightforward yet consequential. As the Federal Reserve maintained historically low interest rates for over a decade following the 2008 financial crisis, asset prices inflated dramatically. Those who owned stocks, bonds, and real estate—disproportionately wealthier Americans—saw their net worth multiply. The subsequent rate hiking cycle that began in 2022 did little to reverse these gains, as the wealthy had already locked in substantial appreciation.
Data from the Federal Reserve’s Survey of Consumer Finances reveals that the top 1% of Americans now control approximately 32% of all household wealth, while the bottom 50% hold just 2%. This concentration has accelerated in recent years, driven by the compounding effects of investment returns that far outpace wage growth. For those with capital to invest, the past decade has been extraordinarily lucrative; for those living paycheck to paycheck, it has been a period of treading water at best.
The Struggle at the Bottom Half
Meanwhile, Americans in the lower half of the income distribution face a fundamentally different economic reality. Housing costs have surged to consume an ever-larger share of household budgets, with median home prices in many markets doubling since 2012. Rent increases have similarly outpaced wage growth, leaving millions of families spending 40% or more of their income on housing alone—well above the 30% threshold that economists consider affordable.
The erosion of purchasing power extends beyond housing. Grocery prices, healthcare costs, and childcare expenses have all risen faster than wages for typical workers. While headline unemployment figures remain low, the quality of available jobs has deteriorated for many, with the gig economy and contract work replacing stable, benefits-bearing employment. This precarity means that even those who are technically employed often lack the economic security their parents’ generation enjoyed.
Education costs represent another dimension of this divide. As public universities have raised tuition to compensate for declining state support, student debt has ballooned to $1.7 trillion nationally. This debt burden disproportionately affects middle and lower-income students, who must borrow to attend college, while wealthier families can pay out of pocket. The result is that education, once a reliable path to upward mobility, now often serves to entrench existing inequalities.
Corporate Behavior and Market Concentration
The structure of corporate America has evolved in ways that amplify these disparities. Market concentration has increased across numerous sectors, from technology to healthcare to consumer goods. This consolidation has given large corporations greater pricing power, allowing them to maintain profit margins even as they face cost pressures. Rather than sharing productivity gains with workers through higher wages, many companies have directed profits to shareholders through buybacks and dividends.
Executive compensation has soared in tandem with stock prices, creating a class of corporate leaders whose interests align more closely with shareholders than with their own employees. The ratio of CEO pay to median worker pay has expanded from roughly 20-to-1 in the 1960s to over 350-to-1 today at many large corporations. This widening gap reflects a fundamental shift in how corporations view their obligations, prioritizing shareholder returns over stakeholder welfare.
The Role of Monetary and Fiscal Policy
Government policy has played a complex role in this divergence. While the Federal Reserve’s aggressive monetary stimulus prevented a deeper recession in 2008 and again in 2020, the primary transmission mechanism—lowering interest rates to boost asset prices—inherently favors those who own assets. Quantitative easing programs pumped trillions into financial markets, creating windfalls for investors while doing little directly for workers.
Fiscal policy has similarly shown mixed results. Tax cuts enacted in 2017 disproportionately benefited high earners and corporations, with promised wage growth for workers largely failing to materialize. While pandemic-era stimulus payments and enhanced unemployment benefits provided crucial support to struggling families, these programs were temporary. The expiration of the expanded Child Tax Credit in 2022 saw child poverty rates spike, illustrating how vulnerable many families remain to policy changes.
Infrastructure investment and industrial policy initiatives represent attempts to address these imbalances, but their effects will take years to materialize. The CHIPS Act and Inflation Reduction Act direct substantial funding toward manufacturing and clean energy, potentially creating well-paying jobs in new sectors. However, whether these initiatives can reverse decades of deindustrialization and wage stagnation remains an open question.
Social and Political Ramifications
The economic bifurcation Cohn and others warn about carries profound social consequences. Geographic sorting has intensified, with prosperous metros attracting educated workers and investment while rural areas and smaller cities struggle. This creates not just economic but cultural divides, as Americans in different regions experience fundamentally different realities. The political polarization that has come to define American public life correlates strongly with these economic fault lines.
Social mobility, long considered a defining feature of American exceptionalism, has declined markedly. Children born into lower-income families now have diminished prospects of climbing the economic ladder compared to previous generations. Research shows that economic mobility in the United States now lags behind many European countries, challenging the notion of America as the land of opportunity. This erosion of the American Dream has fueled populist movements on both left and right, as voters seek explanations and solutions for their economic frustrations.
The Path Forward Remains Uncertain
Addressing the K-shaped economy requires confronting uncomfortable truths about how modern capitalism functions and who it serves. Some economists advocate for more progressive taxation to fund investments in education, infrastructure, and social programs that could help level the playing field. Others emphasize the need for stronger labor unions and higher minimum wages to give workers more bargaining power. Still others focus on antitrust enforcement to reduce corporate concentration and restore competitive markets.
The challenge is that many of these solutions face significant political obstacles. Wealthy individuals and corporations have substantial influence over the policy-making process, and proposals that might reduce their advantages often face fierce resistance. Meanwhile, the complexity of modern economic problems makes simple solutions elusive. Trade-offs exist between economic efficiency and equity, between growth and redistribution, between innovation and stability.
What seems clear is that the current trajectory is unsustainable. An economy that works exceptionally well for a minority while leaving the majority behind breeds instability and resentment. The social contract that underpinned American capitalism in the postwar era—the implicit bargain that hard work would lead to a comfortable middle-class life—has frayed badly. Restoring that contract, or forging a new one suited to 21st-century realities, represents one of the most pressing challenges facing American policymakers and business leaders.
Gary Cohn’s warnings about the K-shaped economy reflect a growing recognition among even those who have benefited most from current arrangements that the system is failing too many people. Whether this recognition translates into meaningful action remains to be seen. The forces driving economic divergence are powerful and deeply entrenched. Reversing them will require not just policy changes but a fundamental rethinking of how we structure economic opportunity and distribute the gains from growth. The alternative—continued divergence and mounting social tensions—presents risks that even the wealthy cannot insulate themselves from indefinitely.