<p>I am often skeptical of emphasis placed on this &quot;alphabet soup&quot; that has surrounded the shape of the economic recovery. Given the uncertainties at play with this type of forecasting, it may be realistic to just accept that the exact shape cannot be resolved empirically any time soon. Nonetheless, one particular letter has prompted me to delve further: <a href="https://www.investopedia.com/k-shaped-recovery-5080086" rel="nofollow noreferrer">K</a>.</p>
<blockquote>
<p>A K-shaped recovery occurs when, following a recession, different
parts of the economy recover at different rates, times, or magnitudes.
This is in contrast to an even, uniform recovery across sectors,
industries, or groups of people. A K-shaped recovery leads to changes
in the structure of the economy or the broader society as economic
outcomes and relations are fundamentally changed before and after the
recession. This type of recovery is called K-shaped because the path
of different parts of the economy when charted together may diverge,
resembling the two arms of the Roman letter &quot;K.&quot;</p>
</blockquote>
<p>Perhaps the K-shaped dynamics in US equities needs little introduction, given the coverage of NASDAQ and S&amp;P500 milestones this year despite deteriorating macro conditions. But going further, we see similar financial speculation in the fixed income space. Bond transactions motivated less by &quot;safe haven&quot; philosophy and more as motivated by speculative buying/holding and selling after sufficient capital gains (suggestive of bond traders simply trading momentum, not fundamentals).</p>
<p>In one of BofA's recent reports, we see the proportion of financial assets to GDP has been high for several decades, but has become even more pronounced in recent years.</p>
<p><a href="https://i.sstatic.net/lzBAL.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/lzBAL.jpg" alt="enter image description here" /></a></p>
<p>Taken together, it would seem the decoupling of the real economy from the financial economy is becoming more obvious. Though the financial services sector is likely a winner under the K-shaped recovery scenario, I'm not sure that comes at the expense of everyone else -- perhaps its not necessarily a &quot;bad&quot; thing for the economy as a whole. For example:</p>
<ul>
<li>Financial economy is picking up the slack of the real economy to achieve growth (since productivity is dead, need more debt)</li>
<li>Financial economy grows as a result of reflationary efforts to make sure we don't need to rely on austerity</li>
</ul>
<p>But there are sinister implications as well: credit, asset bubbles.</p>
<h2>Question</h2>
<p>What is the consensus view, and is there a benign explanation for how/why the financial/real economy's K-shaped recovery?</p>

CC BY-SA 4.0
2020-11-16T18:50:02.550Z
How does debt fix a reduction in productivity?
Criticize SE actions means ban
CC BY-SA 4.0
2020-11-17T00:36:54.183Z
@user253751 Yea, maybe I should say it doesn't fix it but rather allows us to offset falling income with debt financing, kicking the can down the road. That's how I see it anyway, there could be other interpretations.
Arash Howaida
CC BY-SA 4.0
2020-11-17T13:39:59.763Z
No financial games can counteract falling productivity. None of them. They can change the numbers which represent reality, but they can't change reality. The only way to have more iPhones is to make them; spreadsheets won't help.
Criticize SE actions means ban
<macroeconomics><united-states>
K-shaped recovery - is there a benign explanation for it?
Arash Howaida
# K-shaped recovery - is there a benign explanation for it?

(Asked by: username_0 on 2020-11-16)

I am often skeptical of emphasis placed on this "alphabet soup" that has surrounded the shape of the economic recovery. Given the uncertainties at play with this type of forecasting, it may be realistic to just accept that the exact shape cannot be resolved empirically any time soon. Nonetheless, one particular letter has prompted me to delve further: [K](https://www.investopedia.com/k-shaped-recovery-5080086).

> A K-shaped recovery occurs when, following a recession, different
> parts of the economy recover at different rates, times, or magnitudes.
> This is in contrast to an even, uniform recovery across sectors,
> industries, or groups of people. A K-shaped recovery leads to changes
> in the structure of the economy or the broader society as economic
> outcomes and relations are fundamentally changed before and after the
> recession. This type of recovery is called K-shaped because the path
> of different parts of the economy when charted together may diverge,
> resembling the two arms of the Roman letter "K."

Perhaps the K-shaped dynamics in US equities needs little introduction, given the coverage of NASDAQ and S&P500 milestones this year despite deteriorating macro conditions. But going further, we see similar financial speculation in the fixed income space. Bond transactions motivated less by "safe haven" philosophy and more as motivated by speculative buying/holding and selling after sufficient capital gains (suggestive of bond traders simply trading momentum, not fundamentals).

In one of BofA's recent reports, we see the proportion of financial assets to GDP has been high for several decades, but has become even more pronounced in recent years.

[![enter image description here](https://i.sstatic.net/lzBAL.jpg)](https://i.sstatic.net/lzBAL.jpg)

Taken together, it would seem the decoupling of the real economy from the financial economy is becoming more obvious. Though the financial services sector is likely a winner under the K-shaped recovery scenario, I'm not sure that comes at the expense of everyone else -- perhaps its not necessarily a "bad" thing for the economy as a whole. For example:

* Financial economy is picking up the slack of the real economy to achieve growth (since productivity is dead, need more debt)
* Financial economy grows as a result of reflationary efforts to make sure we don't need to rely on austerity

But there are sinister implications as well: credit, asset bubbles.

## Question

What is the consensus view, and is there a benign explanation for how/why the financial/real economy's K-shaped recovery?

**Tags:** macroeconomics, united-states

> **Comments:**
> **username_1**: How does debt fix a reduction in productivity?  
> **username_0**: @user253751 Yea, maybe I should say it doesn't fix it but rather allows us to offset falling income with debt financing, kicking the can down the road. That's how I see it anyway, there could be other interpretations.  
> **username_1**: No financial games can counteract falling productivity. None of them. They can change the numbers which represent reality, but they can't change reality. The only way to have more iPhones is to make them; spreadsheets won't help.  

---

## 0 answers

