We’ve all heard references to a “K-shaped” economy. It’s an image that reflects the growing wealth disparity in America. Those on the upward pointing arm of the “K” are seen as the wealthy, investor class. They are prospering, despite rising gas prices and concerns about job losses. The booming stock market has increased their retirement accounts. Home prices remain at high levels, adding to their wealth. If they put a purchase on a credit card, it’s likely to earn miles or points.

In short, the wealthy don’t have to worry so much about the price of gas to fill their jets, or yachts, or fancy cars.
Then there’s the downside of the “K” – the slanting arm pointing to the ground. For some it’s a slippery slope toward poverty. They must choose between filling up with gas or paying rising prices at the grocery store and restaurants. And their wages are not keeping up.

Record credit card balances, now over $1.3 Trillion, are a sign that people can no longer manage everyday expenses without paying a high rate of interest. If it weren’t for swollen income tax refunds of $30B this year because of changes in the tax law, families would be falling farther behind. It’s no wonder that the U of M Consumer Sentiment is now at a lower level than even during the pandemic.

The Strength of K
But there’s another force at work here, strengthening the economy – at least for now – and pushing the stock market to new record highs, despite all the negative economic news. It forms the backbone of the “K” – that straight vertical line holding up the other two branches.

That backbone is dominated by capital investments that are expected to approach $1 trillion this year. It’s not just the semiconductor chips you see making headlines. It’s everything about the race to artificial intelligence.

Data centers demand everything from cement to electricity to water – and the workers to build them. If you think back to the booming economy of the 1950s when our national highway system was built, you get some idea of the impact of all these expenditures. This is not a consumer-led economy anymore. It’s an economy driven by new technologies. And new tax laws that allow immediate expensing of these investments.

The Super K – Kondratieff
There’s another “K” at work – a sort of “super K” impacting the economy almost silently.

You might have heard of the Soviet economist Nikolai Kondratieff. In the 1920s he postulated that economies experience recurring phases of high growth (expansion) followed by stagnation or recession, with each cycle typically lasting 50 to 60 years. Sadly for him, the Soviets decried the possibility of economic cycles – insisting their communist system would provide permanent prosperity. So, Kondratieff was executed.

But the Kondratieff Wave Theory has remained a cogent description of regular technology-driven cycles that not only cause disruptions but create advances caused by capital investment. Consider these previous cycles:

1780-1830: Steam power technology revolutionized travel, created the mechanization of tasks such as the cotton gin, and incented the building of canals.

1830-1880: This was the era in which the railroads were built, transforming the economy of America with a huge capital investment.

1880-1930: Electricity became the transformative technology, enabling the telephone, global telegraph, and allowing the development of cheap steel and chemicals.

1930-1970: The technology that changed America during this period was the automobile, and internal combustion. It led to mass production, and the demand for oil as energy, and it was also the period when electricity became universal.

1970 – 2020: The information age was launched – but first came color TV! The Internet changed our economic landscape in ways that are still being developed, with capital being deployed in new technologies.

Now, followers of the Kondratieff Cycle Theory believe we are entering a new era, which we currently label Artificial Intelligence, but will probably have a broader name before it’s over.

This casual lesson in economic history is not meant to be precise, and there is still disagreement over the exact length of each cycle. But in each and every cycle there is a period of technological revolution, of capital investment, which is then followed by a period of stagnation and decline – making way for the next cycle.

And in every cyclical change, economies, jobs, and societies are disrupted. Buggy makers were displaced by assembly line auto-workers. Wagon trains with horses were displaced by railroads. And even rail travel was eventually disrupted by jet plane travel.

In every transformation, some lost their livelihoods, while others participated in an incredible period of growth. And the overall trend for America has always been upward, despite those periods of recession or depression or changing job markets as cycles played out.

If you want to learn more about this Special K – the Kondratieff Wave – your AI program on your smartphone will give you the specifics to understand this huge force. It is inexorable. Yet in each generation, many have tried to hold it back, opting for the familiar.

Those who can accept and harness change will prosper in the new era. It happens every time. And that’s The Savage Truth.