The debate over how to describe the U.S. economy has moved beyond academic journals and into boardrooms and the White House, with economists and executives now arguing over whether the recovery from the pandemic still looks like the letter K or something else entirely.
According to CNBC, Treasury Secretary Scott Bessent made waves earlier this month when he declared that the K-shaped economy was finished. The K-shape, which has dominated economic discussion since the pandemic recovery began, describes an economy where upper-income households continue to gain while lower-income households fall further behind, with the arms of the K heading in opposite directions.
Bessent argued a C-shaped economy is forming instead, one where the bottom class of consumers is gaining ground. He pointed to wage gains among lower earners and to tax policy changes including the no-tax-on-tips and no-tax-on-overtime provisions signed into law this year under President Donald Trump.
"I got sick of hearing about this K-shaped economy," Bessent told CNBC this month. "I can say here definitively, the K-shaped economy is over."
Hilton Worldwide CEO Christopher Nassetta offered support for the C-shape view from the private sector. Nassetta told analysts late last month that Hilton is seeing the middle and upper-middle segments of its customer base swing from negative numbers to growth rates as high as 6%.
"The middle class is getting back in the game," Nassetta said. "It's really impossible to deny."
Not everyone accepts the C-shape framing. Joel Mokyr, a Nobel Prize-winning economic historian at Northwestern University, called the various competing descriptions "some of the alphabet soup." Don Rissmiller, chief economist at research firm Baird Strategas, noted that it is unusual for letter-shape descriptions to retain staying power among everyday Americans several years after a recession ends.
"During recessions and recoveries, the letters are really popular," Rissmiller said. "To use a letter in the middle of a business cycle, I guess we could say that's a little new."
The stakes in the debate go beyond terminology. How politicians, monetary policymakers and consumer company executives read the shape of the economy directly influences decisions about interest rates, tax policy and business strategy. Mounting concerns around wealth inequality may be driving heightened awareness of the K-shape framing even years after the downturn that produced it, Rissmiller said.
For decades, letters have been used to summarize economic cycles, including V-shaped, L-shaped and W-shaped recoveries. What is new is the persistence of the debate well into a period that most measures would classify as a functioning expansion.
