Peter Atwater, a professor of economics at William & Mary in Williamsburg, Virginia, began popularizing the idea of a “K‑shaped economy” shortly after the pandemic began. Analysts were debating on social media what the recovery would look like after the self‑induced coma into which GDP had been plunged, and they floated the usual options: an L (a plunge followed by stagnation), a V (a rebound as sharp as the drop), a W (a renewed recession after a brief uptick)… Though he wasn’t the first to suggest the K. An unknown user — now rebranded as Ivan The K — argued on X (still called Twitter at the time) that the final letter would be a K: meaning some things would recover and others wouldn’t. For Atwater, 65, that message was a revelation that went much further: the more privileged social groups would emerge from the pandemic strengthened in several aspects of their lives, while those at the bottom would be worse off relative to 2019.
“Now we’ve become friends, and I try to give him all the credit for coining it. Basically what I did was work with the idea because I found it very worrying,” the professor says by videoconference. A regular media contributor and the author of The Confidence Map, a 2023 book in which he explores the role of confidence and information in decision-making, Atwater says that six years after 2020 the trend he feared has solidified: “We have mutated into a K-shaped economy.”
Question. We have been talking about inequality for many years, but less about a K-shaped economy. What is the nuance — how does one differ from the other?
Answer. It’s something that has evolved a lot in recent years. I think of it as a K-shaped life experience, where what those at the top now live through, their life experience, looks nothing like the experience of those at the bottom in terms of health care, education, access to technology or even judicial standing. There are so many ways that the life of those at the top is different from those at the bottom. And what AI is now demonstrating is that our preferences are in opposition to each other. AI increasingly resembles a zero-sum game from which those at the top will benefit at the expense of the rest. Today wealth is more tightly concentrated among those at the very top than we’ve seen since the Gilded Age [after World War II]. We also see it economically, where those at the top benefit from asset inflation, with the value of their investments increasing. At the same time, those at the bottom are experiencing price inflation, with the cost of everything going up.
Q. With inequality, too, the gap can widen even when the lowest‑income groups see their living conditions improve — which is why some neocon thinkers don’t view it as a problem. People don’t die of inequality, the saying goes, but of hunger.
A. Yes, but what we see is that the living conditions of the people at the bottom fall further and further behind, while the opportunities to bridge the gap, to climb socioeconomically, have become much more limited. A significant difference between the United States and Europe is the safety net. European governments have done a better job at keeping citizens from falling into despair. I don’t think of poverty only as an economic condition but as one of hopelessness and powerlessness. And that leads to violence.
Q. You have studied the field of confidence and its impact on decisions and the economy extensively. After this series of crises and shocks the world has endured, how can we define confidence today — where can it be drawn from?
A. I think we have gone through two phases. First, we had this great uncertainty, but now we are developing a sense of powerlessness, and we see that particularly in the response to the AI boom. People at the bottom feel very powerless, and to regain confidence it is important that individuals and groups — more likely collectives — feel they can take back control of their lives by fighting for better wages, through strikes… During the pandemic, we demonstrated a lot of creativity and ingenuity and managed to take control; we did many things to restore confidence, but now some people feel more vulnerable than during COVID-19. We may see a reaction, a backlash to the authoritarian figures that have been on the rise in recent years, as we just saw in Hungary.
Q. What impact could this second Donald Trump administration have on the United States?
A. The richest have felt incredibly empowered by this second administration. More billionaires were present at the inauguration than probably ever before in history. We have deregulated, financial markets have skyrocketed, and there is a belief that, ultimately, Trump will accommodate if not capitulate to the markets. This is a golden age for the rich in the United States. But the election in New York of a socialist, populist mayor like Zohran Mamdani, to me, is an indication that people who are not part of the elite are growing frustrated.
Q. What are the other long-term effects of a K-shaped economy?
A. They are troubling because they’re very destabilizing to the political establishment. In Europe, for example, I watch energy prices closely, which are suffe¡ring a second shock in barely five years [first from the Russian invasion of Ukraine, now from the conflict in the Middle East]. Unless prices fall — and with them food prices — we could see a very populist shift in political tone in Europe.
Q. In the world of consumer spending, the adaptation toward a K‑shaped economy is already tangible, with the boom in luxury goods — though that segment has always been there.
A. Yes, companies are not only adapting to a K-shaped economy. In the case of airlines, they are highly dependent on the top end of the market, able to pay exorbitant prices to travel, up to 10 times more than others. Airlines’ profits basically come from the front of the plane, and if markets stumble, it creates a much more dramatic impact on the economy than we would have seen before. I refer to it as a Jenga tower that’s top-heavy. As you remove support from the bottom, the tower becomes more fragile. To me, that’s a very fragile economy.
Luxury, indeed, existed before, but now it’s become more glaring. It is also more segregated. There are more private flights now, more separate spaces and entry routes at football stadiums… That creates another effect: the people at the top only see their own reflection. Nothing else. They suffer from a glaring blindness, and, at the same time, those at the bottom can’t help but see what life looks like above them from social media.
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