The risks that come with US economy going from K to L-shaped
As corporations and governments sharply increase their spending on artificial intelligence, BCA Research’s chief global strategist and director of research, Peter Berezin, discusses how Big Tech’s expansion is creating a wealth effect within the US’s K-shaped economy.
Speaker A notes that many large-cap hyperscaler companies are exiting the quarter with capital expenditure well above what they had initially planned for the year, and asks how this surge in investment is influencing the US economy.
Berezin explains that the impact has been highly stimulative. The direct boost comes from the capital spending itself, which supports economic activity. More significantly, though, the run-up in equity markets has generated a powerful wealth effect. He points out that US households now hold roughly $75 trillion in equity wealth. At the height of the dot-com bubble in 2000, that figure was only about $12 trillion. So equity wealth has climbed from $12 trillion to $75 trillion, and as a share of GDP it is now about double what it was then. As a result, households that own these stocks feel more confident about spending. The personal savings rate has dropped to very low levels, which has helped sustain the economy despite almost no growth in real incomes. On a year-over-year basis, real income growth is essentially flat, yet consumption is still rising by about 2%, largely due to this wealth effect.
Speaker A then turns to the idea of a K-shaped economy, where higher-income groups continue to get richer while lower-income groups fall behind. He asks whether this pattern is likely to persist into the second half of the year and what that would imply for the broader economy and financial markets.
Berezin responds that the distribution of equity ownership is extremely skewed: the wealthiest 1% of US households own about 50% of all stocks. This means large portions of the population are not gaining much from the AI-driven market rally. In fact, some may be worse off, as they face higher costs for items like phone memory and electricity, partly because data centers’ heavy data usage drives up demand. He notes this is a real concern. Consumer loan data show that delinquency rates are not far from their peaks during the Great Recession, both for credit card debt and auto loans, indicating that many households are under financial stress.
Berezin warns that if the AI trade were to reverse—while stressing he is not predicting an immediate reversal—there is a significant risk that the current K-shaped pattern could deteriorate into an L-shaped economy, in which both the affluent and the less well-off segments experience pronounced weakness.
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