>> From WXXI News.

This is Connections.

I'm Evan Dawson.

Our connection this hour was made when the Dow Jones Industrial Average crossed 50,000 for the first time.

That was February 6th of this year.

The occasion was so important to the Trump administration that then Attorney General Pam Bondi ignored questions from Congress and told them that the country should stop worrying about corruption and celebrate the Dow.

In her words, passing $50,000.

But even in February, before the United States went to war with Iran and before gas prices surged towards $5 a gallon, many Americans were struggling.

The economy has been a strange beast, rewarding some, hammering others.

If you've ever wondered how the Dow or the Nasdaq or the S&P can be rocking and rolling while so many Americans feel financially insecure or even crushed, this hour is for you.

The soaring gas prices.

As American families.

Rethinking summer road trips or cutting back on other plans, the uncertain jobs future has workers wondering if they will have paychecks for very long.

Even college graduates are feeling angst.

You ought to check out the reels from this past weekend.

The videos from this past weekend were multiple commencement ceremonies broke into loud boos from the graduating students.

Just because the commencement speakers were talking about AI.

President Trump made an off the cuff remark to reporters last week about the effects of the Iran war on American's financial health.

He said he's not thinking about their financial health at all.

Vice president JD Vance later said, well, he didn't think Trump actually said that.

And the White House press team clarified that.

He did say that, but he was taken out of context.

And then Trump sat down with Bret Baier of Fox News and said, I did say that I wasn't taken out of context and it was perfect.

Let's listen.

>> That's right.

That's a perfect segue.

I'd make it again, but you can imagine how many people stopped the soundbite at.

I don't think about America.

The financial situation.

So what's your response to that framework?

It's very simple.

When people hear me say it, everybody agrees.

Short term pain.

It's going to be short term pain, but the pain is much less than people thought.

>> The pain, the president says, is not what people expected.

It's less.

And you know what?

Here's the thing.

Depending on who the president is talking to, he might be right.

We're talking about the K-shaped economy today.

That's the term that we're starting to hear more often.

And I thought, who better to help explain what the K shape actually is than Eric Morris Portfolio manager and Staff economist for Alesco Advisors.

It's an ESL company.

Dr.

Morris, welcome back to the program.

>> Always great to be here, Evan.

Thank you.

>> This is where I wanted to defend the president.

And I'm serious when I say this.

You know, if his team is shielding him from certain news or information which has been reported, and if most of his acquaintances and social circle are wealthy people and people who can weather $4.50 or $5 gasoline, then he might actually think that, you know, there's not a whole lot of Americans who are hurting.

I mean, I think he might actually be giving his perspective there that like, well, it's not as bad as people thought.

You know, people are doing fine.

I think that that's a plausible thing.

If he's looking at one branch on the K, for example, which we're going to talk about.

So this is not a political hour.

It never is.

But Eric Eric is not a Partizan commentator.

But when I hear that remark, a lot of people are playing that remark like, oh, the president, you know, he's he's lying.

Or and I'm, I don't know that he is.

It's possible that he's living on one branch of the K. Yeah, maybe.

>> Well, so what you're getting at is the idea that the experience of the economy is remarkably subjective for individuals because everyone experiences it differently, right?

So it's impossible to feel what everyone else is feeling, which is tough because when we talk about the economy, we talk about this one big, huge machine, this one big thing that applies to all 300 plus million Americans.

And of course, you can't talk about that as if it's one big monolith or one big thing.

It is a subjective experience that each person experiences differently.

Now there is data that we can talk about, and we do that a lot on the show, and we'll do it more today.

We'll talk about broad data that aggregates things, that talks about averages and the, um, you know, the overall experience, but that overall experience is never one individual's experience.

>> Yeah, I think that's well said.

This also is a president who's, he's very concerned about the stock market.

We knew that during Covid, when, you know, he was very concerned in the early days of Covid that the market was crashing and he wanted to see the numbers up.

And, um, you know, so if you look at certain metrics and you, you don't see other metrics, that's one thing.

But then there's the question that a lot of Americans have in a moment, I'm gonna ask you to define what the K-shaped economy is.

But before we even do that, the most common question I get before a show like this is, how is the Dow doing so well if so many people I know are not doing well, how is the market doing so well?

Is it totally disconnected from reality?

And I mean, what's the easy answer to that?

>> The easy answer is that it's not disconnected from reality.

It's it's directly connected to reality.

And the reality is on aggregate, people are spending money, which means companies are earning money.

And when companies earn money, people value ownership in that company.

They want to own it.

They want to buy shares of that company because as an owner, what you're purchasing is you're purchasing not just an ownership in the company, but you're purchasing the rights to the future earnings of that company, albeit maybe a small share for some or larger share for others.

But it's the rights to the future earnings of that company.

So if people are spending, one person's spending is another company's earnings.

And those earnings can either get spent back into the company, they can get used to hire employees and such buy materials, or they can get returned to shareholders by being an owner.

You you own the rights to part of that that gets promised to get returned.

And so the value of that is really high.

It's a little bit technical, but essentially, um, on the whole individual experiences might, might say otherwise, but on the whole people are spending, companies are earning that makes stock valuable.

>> Okay, so a k shaped economy, we all can think of a letter K right now.

Give me a definition.

>> K-shaped economy is a relatively new term and it's used to describe this idea that while the overall situation might be one thing, that underneath the overall surface, there could be two different experiences for two different groups.

So imagine that K you have the top leg branching out and the bottom leg branching down.

Um, that describes two different experiences from two different groups.

In this case, the K-shaped economy is talking about folks who are on the higher end of the earning and wealth spectrum, having a better experience than those that are on the lower end of the earning and wealth spectrum, which shouldn't be a surprise.

Generally speaking, folks that are on the higher end typically have a better experience than folks that are on the lower end.

But what it's describing is that there's been a divergence from the norm.

So typically we see the higher end people having an easier time than the lower end people, but they might be having relatively even better time on the higher end right now.

And those in the lower end might be having a relatively even worse time than usual.

>> Hence, it's not an equal sign or parallel bars, the K being the the top is going up and the lower part is going down diverging.

>> Exactly.

>> Okay.

And one of the things that I know you wanted to talk about is how, as useful as it is to think about the K-shaped economy, what happens in Rochester, New York, might not be the same story as New York City, might not be the same story as London, England.

And I want you to describe for us how you see maybe our market or our country, our state, how do we kind of contextualize the K-shaped economy?

>> Yeah, it's it's super interesting.

I've been thinking a lot about this, Evan.

I've been doing some, some, some, uh, casual research, not my usual deep research, uh, but some casual research on this.

And the idea is that, uh, with that higher end on the, on the earning and income spectrum, doing more, having a better time, they're spending more, they're floating maybe a disproportionately higher portion of the economy out there than the lower end typically, um, does.

And or than they typically do.

And the lower end is doing less than they typically do.

That means that the overall economy might be being sort of like driven and floated by a smaller group of people on the higher end.

Rochester doesn't have that same distribution.

So Rochester tends to skew towards the lower end of the spectrum.

Not not a huge, significant way.

But if you look at the national average and you look at Rochester, you know, our median income is going to be a little bit lower.

We're going to have a little bit more people in the, uh, the lower two quartiles of income distribution.

So that means like on the lower half of income earnings.

And what that means is that the Rochester economy right now isn't being floated by those that are on the higher end.

Um, and, and that has two takeaways.

One is that maybe Rochester isn't benefiting as much from the, uh, tremendous appreciation in stocks that we've seen.

You mentioned the Dow.

We look at maybe the S&P 500 or other indices growing and growing and growing.

So people's brokerage accounts going up in value there for one, is going up in value to the housing market going up, uh, housing prices going up.

That's a tremendous source of wealth for individuals.

So Rochester maybe not benefiting as much as the nation overall in that sense.

But on the flip side of that, you know, when, when the higher the higher income earners and the higher wealth, uh, people out there are driving most of the economic growth, that presents a risk that if something were to happen, like a market downturn were to happen in stocks or a market downturn were to happen in real estate, uh, that means that the it would be maybe potentially less fragile here in Rochester, because we're not relying as much on that, which, you know, I guess it's cold comfort for those who are saying, hey, our region might not be doing as well as the rest of the country right now because we don't have as many high earners and high net worth people.

Uh, at the at the same time, there is maybe less risk of the future that if, you know, the this gangbusters economy were to get toppled off the top of the hill, that Rochester would experience the worst of it.

I think we kind of saw that in 2008, 2009.

You know, Rochester suffered like other places, but not nearly as bad as some places like, say, the Sunbelt, where housing prices went through the floor.

And, you know, people really suffered more than in Rochester, where we kind of had a more stable experience, albeit negative, just not as, as as far of a fall down the hill.

>> I was going to ask you, who's maybe in a worse position than, than us are there?

Is it I mean, the Sunbelt again?

I mean, there are.

Is it obvious who's hurting more?

>> Well, there's two ways to look at this.

One is, say, who's hurting more.

The second would be who's in a riskier position, right?

Because if you think about the Sunbelt prior to the 2008 financial crisis and the real estate crisis that happened there, you know, in 2006, 2007, I mean, that was the place to be, right?

Like, you know, you owned a home in the Sunbelt and your home was doubling and tripling in value.

It's like, wow, I'm rich, I'm wealthy, I can do anything I want to do.

I can go get more loans, I can spend more.

Everything's good.

But when the values plummeted of the homes, then they didn't have that.

Uh, they had a terrible experience.

Right?

Whereas in Rochester, home prices went down a little bit, but people didn't have that run up.

So when you ask, is it worse?

I would say worse would be one thing, but riskier is another.

So if we think of worse, um, you know, the Rochester region right now that the, the unemployment rate is pretty close to the national unemployment rate.

So 4.6% was last I saw in Rochester, 4.3 for the nation.

So really not that much of a divergence.

Um, and, you know, people might have a harder time finding a job around here.

Wages might not be growing as fast.

Um, you know, places that might be, be hurting, uh, more, I think would, might be traditional other rust belt cities.

Um, but potentially you could be seeing some Sunbelt places too, because we have seen falling home prices in those places, whereas Rochester's housing market remains strong.

If you own a home in Rochester, you probably if you've gone on Zillow, you've seen your house, the Zestimate go up, um, that might feel good there too, but the riskier places are places where we've seen that real run up, which is like that with anything like it's like that with stocks.

It's like that with housing, it's like that with the economy.

When you see a huge real run up that presents a higher risk.

>> Um, I'm going to take Brian and Spencer sports call and I encourage the audience, if you've got questions, comments about the economy, I'd love to know how your sort of your feeling and doing.

Is there anything that you want to explain better?

Eric Morris is here.

Staff economist for Alesco Advisors and one of the regulars here who does such a great job at bringing the economy into layman's terms here.

So it's 844295 talk.

It's toll free 8442958255263.

WXXI if you're in Rochester 2639994.

Email the program connections@wxxi.org.

Join the chat on YouTube on the WXXI News YouTube page.

One other comment before I grab our first phone call here, or an idea that I'd love to hear you on here.

So you bring up the way that people may feel when they see that their housing value is going up.

Obviously, this is for the segment of people who own a home.

>> That's right.

>> And obviously that's not everybody, but it's it's a strange kind of value or asset to put on a balance sheet because it's real.

So, I mean, if you if you bought a home and it's tripled in value, which is totally plausible in this market, you know that in a crisis that is an asset that can save your bacon.

Um, now obviously you have to live somewhere else if you're going to sell your home.

And we've talked about that too, but conceivably, if you need something in a crisis, having that kind of asset is some comfort.

But it's a weird kind of comfort because the idea being, well, if anything goes wrong, I'm fine, but I have to sell my house and live somewhere else here.

I mean, like, it's not the most comforting kind of asset to have.

>> No, but we do.

This is a psychological thing.

Is there something in economics called the wealth effect, where it's not necessarily an income effect?

It has a similar impact on people's behavior, but an income effect would be if you if you're all of a sudden richer or feel richer in terms of income, that you will go off and spend more.

Right?

Yeah.

But income is liquid.

It's money that's coming to you.

It's directly spendable if you want to spend it.

Whereas wealth, when we use those two terms, income and wealth differently, wealth would talk about assets that are appreciating in value.

So, um, you know, stocks might be one thing.

Let's say you have a brokerage account, you own a couple stocks in there.

They appreciate in value.

Well, in order for that to actually be meaningful to you in terms of spending, you have to sell those stocks in order to turn it into cash and then go turn that into goods and services.

Same idea with a house.

The difference with stocks in a house is that stocks are in an online account.

A house you live in, right?

So that that does mean something very, very different.

And I don't mean to restate the point you just made there, but I want to compare the.

>> Two.

>> Assets.

>> No way.

That comparison is important because people sometimes think about appreciating assets as all in the same category.

That's right.

The housing one is very different for those reasons.

And I'm not saying that it's not important or that people shouldn't feel good about if they feel good about the home, appreciating.

It's just that may be an asset you never cash in.

Um.

>> You know.

>> And not to get nitty gritty, we, you can create, you can create money that's spendable money out of a house.

>> You're selling.

>> It, right?

You can go get another loan off that or, um, you know, you might feel better about other portions of your financial well-being and drawing on that, knowing that you're more wealthy in one sense, right.

With the house.

>> Um.

>> You know, where I learned that lesson, by the way, Ghostbusters.

So it's where they're buying the place that they're gonna, that was going to be condemned and they walk out of the bank and Bill Murray's character is saying to Dan Aykroyd's, Ray, relax, everybody's got three mortgages.

>> These days.

>> And I'm going like, as a kid, I was like, I don't really know what that means.

I think he's taking like taking out loans on loans, on loans.

>> They're Ghostbusters as a source of financial.

>> Ghostbusters, a source of everything.

>> That's really it comes down to it, right?

>> Yeah.

I mean, Eric Morris.

>> Is one.

Yeah.

But yeah.

Ghostbusters is two.

Ghostbusters is two.

>> Let me get Brian in Spencerport, who's been waiting to jump in.

Hey, Brian, go ahead.

>> Good afternoon.

Um, two quick things.

Um, workers, employees through their 401 s and other means of 403(b)'s and IRAs contribute a significant portion of their income, whether it's two, 3 or 4%.

That's discretionary money to them.

And I think that that amount of money every week, pouring into the stock market has an effect that most people don't appreciate, and that a lot of that money is just you're going to disagree with me.

But this is where the wealthy come in.

They know that those those mutual funds and individual stocks are going to go going to get bloated every week.

And so they can skim off and, and different kinds of trades to make themselves richer, whereas the worker and this is just going to pour that money into the stock market.

Every paycheck.

The other thing is that implies that, in fact, the worker has much greater risk than a wealthy person.

Even if a wealthy person loses a hundred thousand or whatever relative to their to their assets, if the stock market goes down, the worker is just going to get creamed as usual.

And that's what I have to say.

>> Brian, thank you very much, doctor.

>> Attention to the amount of money that's pouring into the stock market.

Please comment about that.

>> Okay.

Dr.

Morris.

>> Oh what I what I like best about Brian's point was about the idea of risk.

Uh, it's, it's really what I think about all day long.

Uh, is, is, is risk.

So Brian's point, I think, was the fact that when people are workers and they're participating in maybe a retirement plan that allows you to contribute to an account that's going to purchase mutual funds that are stocks and bonds, uh, that that is going to divert some very, very safe cash into a riskier assets, stocks and bonds.

And that's absolutely right.

That's the point of these things is to, is to encourage workers to take some risk as opposed to no risk, because risk is part of being potentially rewarded in the long run with investments.

So that's the idea.

Now, when we talk about whether something is too risky or not, that's completely an individual conversation.

It's a subjective conversation.

It's a conversation that I have with individuals, families and institutions, nonprofits, businesses all the time is what's the appropriate degree of risk for you?

And that's something that I think you can address at two levels.

And this is not to be construed as financial advice, but to think about it at two levels.

One would be how much money compared to your, your, your overall income, would you contribute to, to, uh, exposing to risk.

And two, once you expose it that way, they're not all assets are the same risk level.

You know, stocks are riskier than bonds.

You expect you have a higher expected rate of return because of that in the long run.

But they tend to fluctuate a lot more.

So you can have sort of like, um, you know, gut punches in there when markets do wobble around.

Case in point, the past year.

Right.

Um, and we've seen that really policy driven, geopolitics driven, event driven volatility.

That's risky.

At the same time the market has gone up.

It's not because it will always go up every year.

But uh, that you are investing in productive assets.

So I think that Brian's point about risk is really interesting that people who have less money to, to, to, um, expose to risk probably shouldn't be taking tremendous risks with their, their assets.

If you have more to expose to risk, you can the, the quandary there is that if you have more money to expose to risk and you will probably be rewarded for it in the long run, you're you're not the people that that need it the most, right.

So that's kind of the quandary.

And that's part of the K-shaped economy right now is that the tremendous run up in asset values has been very, very helpful for those at the top half of the wealth spectrum, whereas those at the bottom half of the spectrum have had a worse situation because they haven't been exposed to the risk.

That has actually been rewarding over the past couple of years.

>> Brian, I hope that helps.

Thank you very much.

Uh, this is John.

He says he wants to take a stab at the K-shaped economy here.

>> All right, John.

>> He says, here's where the K shaped economy has affected me.

Five years ago, we thought about putting a deck on our home, but we thought the prices were just too high.

We would wait for the prices to come down.

Now we realize that we were going to get a bargain if we only knew what inflation was coming down the pike.

We can't afford the deck now.

There's no chance that we can pay for it.

It's tripled in price.

We should have done it then, but the ultra rich certainly can still afford expansions on their homes, construction, et cetera.

Isn't this an example of the inequality of the economy?

John says.

>> Yeah, I think it's it.

>> Fits squarely in that k shape is that, you know, if, if, um, if now, if, if there was some money to be set aside to maybe participate in maybe the stock market through that time, maybe John would have seen that grow and then could have cashed it out, you know, paid the taxes on whatever gains were and built the deck with it.

But, um, that I think it gets down to the idea of inflation being part of the conversation here, because I've only been talking about income and wealth.

So income being wages and wealth being asset values.

Um, well, those are only meaningful in terms of what you can do with them in terms of purchasing goods and services.

So prices matter too.

Now the K shaped economy in terms of prices has been interesting.

So I guess I'll go with just wages and prices for now.

Back in 20 1314, coming out of the great financial crisis, it was, you know, five years later, but we're still kind of coming out of it.

Um, lower income workers wages were growing slower than everybody else.

And that was very difficult, right?

Because you look at that relative peace and that's that's not great.

Well, in 20 1516, that switched, that flipped.

And for almost ten years, the bottom quartile of income earners wages were rising faster than everybody else's.

Right.

That was seen as sort of a broadening of the economy.

And a good thing it actually took off post Covid, that the bottom quartile of earners wages were growing much faster than the rest of the 75%, 75% of the rest of the people, which is really an interesting phenomenon to be thinking that the lower wage earners incomes were growing faster than everybody's.

>> Yeah.

By percentage.

Yeah, yeah, yeah.

>> It's it's interesting that wrapped up in about 2024, there was an inversion that took place and the bottom quartile of workers, the lowest earners out there, have been lagging since early 2024.

The other 75% of the people at the same time.

That was when the pandemic stimulus was running out.

All these programs were essentially expiring.

Right.

Um, and, and we had sort of this new paradigm moving through where the support for the bottom quartile was going away as well, which I think could explain some of this k, uh, phenomenon we're seeing now.

I should be really clear about the k shape.

>> And this might startle some people, but when we talk about the K being one leg going up, one leg going down, that's not exactly accurate.

So the bottom quartile is earnings are still going up.

They're just going up slower than they had been before and not as fast as everybody else's.

At the same time, the bottom quartile is still spending.

It's not that the spending is falling off.

They're still spending and still spending adjusted for inflation.

The spending has continued to grow, just not as fast as everybody else's, and certainly not as fast as those at the top end of the spectrum.

So the downward facing leg of the K is a little misleading, but I think it's still enough to acknowledge that.

And this is really a phenomenon that started in 2023, prior to 2023, the changes in in the spending, the changes in experience really tracked from the top quartile down to the bottom.

Starting in 2023 and moving through 2024 and 2025, there was a divergence.

>> Uh, and.

>> I want to stay on John's comment about construction and putting a deck on his house and not feeling like he can afford it.

Where I can relate to that is it used to be about $1,000 to take down a large tree.

>> Mhm.

>> And, you know, you could have your trees trimmed for less than $1,000 if you live in an old neighborhood with huge trees, unfortunately, beautiful big trees can sometimes be dangerous in the kind of storms and wind that we get.

So you need them.

You need to get them trimmed.

I'm not saying cut down all your trees.

I am not I don't need you to send the Lorax.

>> After me.

>> I love trees and I'm in a neighborhood with huge, beautiful trees, but you have to trim them.

And the the amount of time that I have waited for the next trimming, that has to be done is longer because it's a three, five, $7,000 job just to trim trees.

I don't even take them down now.

And that's a, that's a consideration that, you know, you you go, I think we can afford this.

Can we, can we afford it?

If one of these things comes down on part of the house, what happens if we're wrong on how long we can wait?

But when you talk about what is happening in the economy, people are spending.

You're talking about money moving through the economy.

And we like when money is moving, we don't like when it's stagnant.

>> That's right.

>> Okay.

So if there are more people like John or like me going, boy, do I spend this money on tree trim.

Like I don't, it has to happen eventually.

But how long can I wait?

Maybe you wait.

Maybe you wait to put the deck on your house.

Maybe you wait to trim the trees.

>> Yeah.

>> And I've, I can think of an experience with cars, right?

And I same idea.

My wife and I.

>> How long can.

>> You get her needing a new car?

And we said, well, you know, why spend the money now?

Why spend the money now?

Well, if we had bought the car a couple of years ago or got the lease a couple of years ago, it would have been a lot cheaper.

Right.

And that's that sort of would have, should have.

You're playing a game.

It should be said that in the meantime, if you have money in a high interest savings account or a money market fund, or maybe it's exposed to risky assets in some way, shape or form, there's a reasonable expectation over longer periods of time that you would actually earn interest on on that.

But if you don't have the cash, then that's a moot point, right?

Um, so it is, it's kind of a game you have to play, but that's, this is the, uh, so I'm going to be the economist for a second.

This is the constrained optimization that you have to play, right?

There's, you have to make choices.

Everything in life is just a big series of choices that you have to make because you can't have it all.

>> So there was.

>> The economics professor.

>> In me.

And what do you say to John, who's.

>> Sitting there going, we are we regret five years ago not doing this construction.

>> I feel for John.

I mean, that's that's that's tough.

I'm sorry, John, I, you know, it's, um, I, I, I, I don't have any advice for you.

I mean, hindsight's 2020.

>> Try not to dwell on that.

>> I know there's no way, you.

>> Know, I would, you know, I'm, I'm, I'm sorry, but I, I, I do hope that it gives perspective, although, um, you know, someone once told me perspective is what you get when you don't get what you want.

>> So one.

>> Other question before we go back to listener comments here.

And again, it's connections@wxxi.org.

If you want to send an email, we'll read a few more of those coming up here, 844295 talk.

If you want to call the program ( 844)295-8255.

Uh, with Eric Morris, who is a portfolio manager and staff economist for Alesco Advisors, my assumption about who benefits from a k-shaped economy.

Again, if you're just joining us, you're hearing this term more really since the pandemic and more lately, a k-shaped economy in which one branch of who is doing well is going up, another branch of who's struggling is going down harder.

It looks like a K. It's pretty simple concept, but it's important.

My presumption is this I think the people at the top might think that a k-shaped economy could benefit them forever, but if it goes forever, um, you get to an extreme situation where if everything is all tilted in a very small, concentrated part of society, you know, then you're in real trouble because then people really can't buy your products or support your company or support your wealth in any way.

Right?

>> Absolutely.

And, and, uh, I think that's where I started to think about Rochester and think, uh, well, Rochester's not in as, uh, as prosperous of a state as other places that, that might have had more people in the top end, but certainly in a more, um, uh, uh, you know, a less fragile state.

Although Rochester's economy has lots of inequality and issues, um, that there are many organizations that are working really hard to try to mitigate the worst effects of and solve.

Um, and I'm lucky to be able to work with a lot of those organizations, but, um, but I think you're absolutely right that, that, that, that it can't go on forever.

Um, and that there are times in history where we look back and we see that type of extreme stratification lead to issues, uh, beyond just the economy, you can lead to social issues and political issues and things like that.

So, um, you know, I, I can sympathize with that.

>> Okay.

>> And, and Alex, on that note, Alex emails to say the, this is, I can't fact check this on the fly.

Maybe Alex is usually right.

He's a semi-regular.

He's very smart.

He says the median time for unemployed people to find a job last I knew is 26 weeks.

So six months.

Does that sound right to you?

>> Yeah, I, I.

>> It does sound right.

And I, I think that with Alex's point there that it has crept higher.

>> Okay.

Yeah.

>> And he says higher earners have a better time weathering a burden like that.

But I can't think of many people who could realistically last that long without making drastic.

Sell the clothes off your back changes, credit use is up and people are spending down their savings.

How much time do K-shaped economies have before they run out of road?

>> Yeah, it's.

>> A good question.

I I'm less concerned about this being like, hey, this is a Wiley Coyote moment.

We're going to run off the cliff.

The feet are going to be turning.

>> People are going to look down.

>> Right, exactly.

And we're gonna, we're gonna fall off the cliff.

Um, I, I can appreciate Alex's point about the, the, the debt piece.

This has been concerning, uh, to, to a lot of people saying, okay, well, if, if the, you know, they say, Eric, what you're telling us is that people on the lower end of the spectrum might be having a harder time, but they continue to spend this is confounding, right?

So they're having a hard time, but they're continuing to spend.

So, um, so, so this can't go on forever.

I'm sure it's because they're leveraged for debt or leveraged with debt.

Um, and that, you know, certainly debt usage has gone up.

But if you look at it relative to people's incomes, it's not like it's at some sort of like peak dangerous level.

It's actually way lower than it was prior to the great financial crisis.

So it should give some comfort that there's not like some sort of like, like, um, under the surface, like real rotting of the economy going on.

It's, it's simply goes back to this idea that, that, that instead of it being a downward pointing line for the K, it's really just not keeping up with the upward line, which again, isn't good.

And I, and I think that for Rochester, you know, we have to think about what we can do to kind of lift all the legs of the K, lift everything together.

Um, but it's not necessarily like a crisis brewing there.

Alex, where you see, you know, you pointed out that the debt piece there, um, it's not like a debt crisis.

How long can it last?

Um, you know, all things that can't last forever.

Forever don't last forever.

And one thing we can be certain of is that things will change.

Now, what will be the impetus of the change?

Will it be something that comes from the political realm?

Will it be something that comes from the economic realm?

I mean, I could lay out a whole ton of scenarios.

Maybe the and I'm going to get booed by all the college graduates here, but maybe AI comes out and all of a sudden, you know, completely lifts up the bottom end of the economy because people can be more productive, they can benefit from the productivity enhancements of this tool.

Maybe there's a change in the political tides where you have like, um, you know, uh, some policies that come through to sort of lift everybody up in that way.

Um, maybe you have a change socially speaking, it could come from anywhere, but I just do know that all things that can't last forever don't last forever.

>> Is he correct that credit use is up.

>> Credit use is up, but that's on an absolute, um, uh, level.

So if you look at debt interest and, and principal payments compared to income, which that data is publicly available, that's actually relatively moderate right now compared to historical levels, people.

So, so what you're actually paying to have a loan.

So overall debt principal and interest payments, which is what you pay for to service your loans compared to your income, which is like what a bank would look at to be like, okay, is this a risky proposition to loan this person, this money?

What's it going to be compared to their income?

Because if I were to tell you that I had $5 million in debt, what, based on what you know about me, would you be worried about me?

>> I, I yeah, you'd.

>> Be very worried about me.

>> Of course.

>> If I if I told you that, uh, another.

>> I thought, is this a trick question?

>> Yeah, it's a trick question.

If I told you that, uh, that Elon Musk had $5 million in debt, would you be worried.

>> About him?

No.

>> Okay.

So so relative matter.

>> Okay.

Thank you for that.

>> Right.

So while credit usage is up, debt is up, okay.

It's on absolute terms.

On relative terms, it's relatively moderate and stable, and it's not unhealthy.

>> Okay.

Well, Alex, I do appreciate that note.

Um, and when we come back from our only break, what has economist Eric Morris been missing?

One of our listeners is going to tell you, we got an email from yeah, we got some more emails to share and you can continue the feedback here for economist Eric Morris as we come back from break on Connections.

Coming up in our second hour, we're joined by a panelists of a panel, I should say, of artists, artists from different backgrounds, music and poetry and literature.

And we're talking about how they see the future of humanity, the humanity in art.

When artificial intelligence is getting really good at creating art.

So where do you draw the lines as a consumer?

We'll talk about it next hour.

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>> We really have the smartest listeners, Alex.

We fact checked you and you were on the money.

My man.

26.2 weeks.

>> Bravo.

>> Alex, uh, from the Bureau of Labor Statistics.

On the average time duration in unemployment right now.

Um, okay.

Christopher writes to say, I appreciate Dr.

Morris's comments about the K-shaped economy.

However, I still think the emphasis by almost all economists and analysts is on the health of the economy.

Economies don't matter.

People do.

For example, the economy is currently being lifted by the enormous unearned windfall profits that U.S.

Oil companies are making due to the Iran war.

This sort of thing happens over and over in the U.S.

Economy by design, and so the economy can be strong.

While most people are suffering.

Can your guests defend our current system, which puts the economy first and will respond with higher asset prices and GDP growth, while objectively leaving the majority of people further and further behind, unable to afford homes, college, health care, retirement.

>> This is Christopher.

>> Chris.

>> Chris.

Chris is absolutely right in the fact that people matter.

That's the bottom line, is that people matter.

Um, you know, he, he threw a little bit of a barb at economists as a whole.

And you go back to kind of the godfather of economics, Adam Smith, and who takes a lot of flack because I think there's just a tremendous, uh, misunderstanding and sort of like perversion of his ideas because he wrote everything about economics in this one thing called, um, it's abbreviated The Wealth of Nations.

And then he wrote this companion piece called The Theory of Moral Sentiments.

And they're supposed to go together, but most people don't put them together.

So they think that he's just a cold, heartless brute and that he just says that that greed is good.

And it's all about everyone looking out for themselves.

But that's really not the case.

One of the points that he had was the fact that, um, when it comes down to The Wealth of Nations.

Is it, is it things that make you wealthy people?

And he says it can't be things.

It has to be people.

Because if the people went away, the things wouldn't mean anything.

If the things went away, the people would rebuild because people matter most.

So for Chris's point about people mattering most, that's absolutely right.

When we talk about the economy as a whole, I've had to say this on this show.

I've said it in meetings.

I've said it when I was in the classroom, said it over and over again.

Macroeconomics comes off as being a cold, heartless practice because it's talking about aggregates as a whole.

The idea with macroeconomics is that hopefully by learning more about the whole, that we can lift, all ships have a rising tide that lifts all ships.

That's the only point of macroeconomics.

It's not to get one sector or small group of people to be better off than another.

It's trying to get everybody better off.

He talked about the system, the system of capitalism in America, US free enterprise, capitalism.

Uh, has done more to lift all ships than any other system that has ever been devised in humanity.

There has never been another system that has created the advancements in health care and longevity in child wellbeing, in, uh, overall quality of life, access to housing, access to, uh, communication technologies to bring us closer together, transportation technologies to, to shrink the market and get you closer to jobs so that you can earn and you can provide for your family, which is one of Adam Smith's points about providing for your family.

Um, I think the onus is on an outside idea to prove that there's something better.

And there hasn't been proof of that.

And as somebody who's thought a lot about this, I would be open to ideas.

Um, but it's, it's simply, um, the, it's, it's on somebody else to come up with an idea that, that shows that it can outperform what this system has done to again, improve life expectancy, to cure diseases, to eradicate diseases, to improve communication technologies, transportation technologies, quality of life overall in general.

Not to say that it hasn't come with a tremendous downside for individuals, for groups, it happens.

But that isn't the system's fault.

It's people's fault.

So to come back to the people mattering most, my point to Chris and I'm on a soapbox here, aren't I?

>> Evan Dawson no.

>> It's okay, I'm doing my professor thing.

Do it.

To come back to Chris's point, the people matter most.

Well, in the end, it's the people that are responsible for the the negative aspects of this, not the system, because the system is amoral.

It doesn't have a conscience.

It's not a thing.

It's simply a way of people interacting.

And the people make the decisions the people choose.

That's, that's where I enter this, this.

>> I think he would argue that the powerful people choose.

Most people do not choose.

>> So capitalism only works if the last little bit of the Pledge of Allegiance works.

Freedom and justice for all.

And that is the system that Adam Smith was talking about when he was tearing the British Empire, a new one in his book, and, and, and ripping apart the mercantilist, empirical, monarchical society that had evolved, that was exploiting the colonies.

Remember, the US was a colony at that point.

That wasn't the US, right.

It was the English colonies in America.

Um, that's what that was.

All those ideas came from.

And that freedom and justice piece is, is, is not just a nice side effect.

It's imperative for markets to function appropriately.

>> So the wealthiest can't just get away with it because they have wealth.

>> If that's happening, it's a, it's a perversion of what the ideal would be.

>> I'm gonna say that I think it still happens.

It's a question of like the scale of it.

>> I agree with you that it happens.

Of course it happens.

But with the idea that.

So when somebody says to me, you have to defend the system, there's.

There's a better system, there's a better system.

What we need is we need people to uphold liberty and justice with equal views of both of those things, right?

People forget about justice.

Justice is super important, right?

You need to have that right?

Because this is what this whole thing is based on is human interactions.

>> Absolutely.

>> And I know I've gotten a little bit far away from the K-shaped economy, but when somebody asks me to talk about the system, that's where I'm going to go.

>> No, listen, when you're here, we let them ask you anything our audience wants, including from Joe.

Any insights as to what is going on with the bond market?

>> Well, talk about a change of gears.

>> I'm just reading Joe's email.

>> Sure.

Hey, Joe.

So, uh, bond market, I mean, yeah, we've seen interest rates go up a little bit.

Um, it's probably because we've seen inflation go up and inflation is part of what investors factor into their, uh, overall interest rate calculations.

So with interest rate inflation going up, interest rates go up.

That means that they've gone up on pretty much all types of loans.

So when you look at the US bond market, there's corporate debt.

So interest rates have ticked up a little bit higher in corporate debt.

They've gotten really low.

Um they've ticked up for government debt.

They've ticked up for mortgages and things like that.

So when interest rates go up, it drives asset values down.

And that's kind of what we've seen in the bond market.

>> Okay, Joe, follow up.

If there's anything else you want to know on bonds, send me an email here.

Here's a comment from YouTube.

I got a house I could afford before the pandemic could sell it for $40,000 profit.

But I feel safer now than trying to buy any time soon.

It's not the market that bothers me as much as unpredictability.

Unpredictable costs, service and policies that scare my decisions.

What do you think?

>> I think that becomes part of your overall decision making piece.

Is that security?

How much do you value that?

Right.

And that's, that's really with, with, with anybody's individual.

That's what we talk about, the subjective experience of the economy.

You know, uh, people say you can't put a, put a price on safety or security.

Certainly it can.

We all do.

Right?

So we factor that into our decision making.

Um, I can't really give advice on that, but.

>> No, no, no.

Does that make sense?

Yeah, absolutely.

Yeah for sure.

And the housing market sort of strikes me as something a little different than when we talk about wanting money to move through the economy, wanting goods and services to flow.

Um, that probably means that when the housing market is stagnant, it's not good.

Now, I know a lot of people would say it's great when people don't move or don't have to move.

You build neighborhoods, you build continuity.

Yeah.

In many ways, yes.

But if people can't afford to move, they can't move to where they want to move or move into a house that suits their lifestyle or their family or a growing family, or they don't have kids because they can't afford a house that could suit them.

Then I think that the stagnant housing, stagnant housing economy is not a net benefit.

>> I think there's two really huge issues to it.

Um, and one would be if if somebody is not moving out of a house, uh, that means somebody else isn't moving in and there's gonna be a lot of first time home buyers that are going to be prevented from buying a house, which, as we talked about earlier in the show, uh, owning a home can be a really important source of building wealth.

And, you know, if, if there's some sort of structural stickiness in the market that is preventing homes from being vacated.

And we've talked in the past about the need to build more housing, um, that's going to prevent people who are first time homebuyers from having access to that.

And the second is from a market perspective, you want people to be able to move freely because geographically opportunity arises in different areas.

So, uh, you know, you might have grown up in, in, in Rochester and, uh, gone to school and gotten a job in aerospace engineering.

Uh, you can find some aerospace engineering jobs here.

We've got some interesting government contract work going on, but if there's opportunities in Boeing for, to work for Boeing in Seattle, you want to make sure that you can move.

And if the Seattle housing market's all glommed up and you can't get a house there, you know, that's really inefficient for the economy.

>> Okay.

Um, let me also read from the New York Times article on the K-shaped economy and just get your take on a couple of the points that they raised in their reporting.

This is from The New York Times, quote, the net worth of the top 1% of households climbed to a record share of nearly 32% of the national total in the third quarter of 2025, according to data from the Federal Reserve, which started tracking household wealth in 1989.

Spending patterns have also split households earning under $75,000 a year are spending less on discretionary categories like travel and experiences than they did in 2019.

While those making more than $150,000 are spending more.

And then they quote Beth Ann Bovino, the chief economist at US Bank, who wrote in a recent report, quote, we are returning to a typical pattern of extremely high income inequality and now stands at a 60 year peak.

The worry is not just where we stand now, but also whether ongoing developments will worsen the situation, end quote.

That's what I want to ask you about, because all of this reporting confirms some of what you've heard from Dr.

Morris throughout this hour, which is we actually did see for a number of years starting in 2015, some of the bottom income earners, uh, percentage wise, doing better and better and better.

That has now slowed and reversed.

And now we're now we're at a six decade high in income inequality.

But the question that she's raising is, is this where as bad as it gets or are the indicators that you see?

So some of our listeners are asking, well, is inflation going to affect this?

What's going on with inflation?

One listener wants to know, what is Dr.

Morris think of the economic effect of the Iraq war.

So I don't know what's on your mind about what's going to answer her question, but her question is pivotal here.

Is this going to get worse from here with the K-shaped economy.

>> With inflation having come down up until this past February or so, January, February, it looked like there might have been some relief for people on the lower end of the earnings spectrum, because inflation hits people on the lower end of the earnings spectrum harder than it hits people on the higher end.

Um, for several reasons, but it's just more of a burden for them.

Um, the Iraq war, uh, with, with the start of the Iraq war, inflation has gone higher.

It's gone up, not just ticked higher, it's gone up to uncomfortably high levels very, very quickly.

So that's definitely hitting people on the lower end of the spectrum harder.

So it's disappointing to not see that progress continue.

Uh, for the whole country and also particularly for lower income earners.

Um, what you're referencing with the 1% of the top 1% of wealthy people, that's kind of a separate conversation.

That's more about assets and asset prices and sort of the distribution of wealth there.

Um, certainly it's kind of funny to go back to one of the original callers, the participation in the stock market has been, uh, helpful for trying to get some of the lower end of the wealth spectrum to gain wealth.

So if you participate in markets over long periods of time, if you own a home over a long period of time, for the most part, on average, on the whole, this builds wealth.

Um, so that would get better.

Uh, right now it seems like it is getting worse because of inflation, because of, um, you know, some potential, uh, uh, um, rule slackening that's happening.

Um, with, uh, in terms of, uh, uh, who's participating in the top end of the asset market and things like things like that.

Um, that we've seen some policies that are kind of interesting and I'm not sure what the ultimate outcome of those will be.

Um, but I'm not encouraged to say, oh, this is definitely going to get better.

I'm also not saying it's definitely going to get worse.

And I'm sorry to be the economist here and say like on one hand on the other, but it's hard to say exactly where this goes next.

Uh, it's enough of a concern to me that I really wanted to come on and talk with you about it, but I just don't know exactly where it goes.

>> Well, we could have talked about this in February before the Iraq war.

That's right.

And so what some listeners want to know what you think the economic effect of the Iraq war is.

>> Well, it's not good.

Um, we were really making progress in several, several ways as a, as a, as an economy, inflation going down, um, the job market, you know, softening, but not necessarily in a, in a way that's like the bottom was falling out.

And really the concern had been on inflation for so long, we just wanted to get inflation back to more manageable levels.

Um, and that that was a trend.

It was trending back to, to, to more manageable levels up until the Iran war.

And the Iran war has directly caused inflation to go much higher to more uncomfortable levels.

Now, now the policy outlook is a little bit muddied because you know what our policymakers to do, if they see inflation going up, well, you certainly don't want to cut interest rates because that could potentially send inflation even higher.

And, uh, market participants had been really encouraged that inflation was or, excuse me, the interest rates were going to get cut a couple of times over the next year or so.

That, uh, hope has gone away.

So by market based indicators, there is zero expectation of rate cuts into the foreseeable future.

And, you know, that's disappointing because those rate cuts could be helpful to all sorts of people.

It could be helpful to people who are looking for, um, loans.

Those interest rates could have gone down.

It could be helpful for people who are invested in assets when rates fall, principles go up.

So it's disappointing to see that.

Um, but, you know, obviously the, the Iran war, uh, is, uh, is something that is not market driven.

It's something that is a human beings are in charge of right now.

>> So this is the question you will hate the most.

And we're going to close with this.

>> You ready?

Hit me with it.

>> It's May 18th on the nation's 250th birthday on the Fourth of July.

Oh, boy.

What will the average national gas cost be?

That's the worst.

>> Uh, my, my expectation is because of the mechanics of the oil market, uh, that you're not going to see a, a very quick reversion to pre-iraq war levels.

Um, I think people should expect their budget for themselves to pay higher prices for gasoline into the future, um, than higher than February 27th of this year.

>> The reason I think that's actually a mildly legitimate question, mildly legitimate is because some people think, well, there's got to be some political mechanism to get gas prices down, and this market is not going to move that quickly, is it?

>> No, no no.

Yeah.

And you and I talk about this, we've talked about it for a couple of years now.

There's just not enough that one person or one legislative body can do to all of a sudden just snap their fingers and make gas prices go one way or another.

>> Okay.

Yeah.

So be prepared just to kind of deal with this for a while.

Is a good piece.

>> That would be my, uh, my, I'm not giving advice, but that would be my instinct.

Yeah.

Okay.

>> Yeah.

I never asked you to give advice.

Instinct?

Yes.

Advice?

No.

Um, but it's an uncertain world.

And we talked to Eric Morris a lot, and I think that's a great point.

We could have talked him in February and who knew what was going to happen on March 1st and beyond with the Iran war.

So there's a lot that affects the economy, the economy.

I hope people have a better sense of the K-shaped economy now, thanks to you.

Thank you for being here.

>> Thanks for having me, as always.

>> And great questions from the listeners, as always, got more Connections coming up in a moment.

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