Post Covid this is how the k shaped economy played out. Companies with pricing power passed through input inflation and added margin expansion on top. Workers got nominal wage increases, but not enough to offset the full cost-of-living shock. Asset owners and pricing-power businesses moved up the K, wage-dependent households moved down or sideways.
Winners:
Businesses with brand power, local monopoly power, subscription models, scarce capacity, housing/assets, stocks, private business owners.
Losers:
Workers without bargaining power, renters, young families, people buying cars/homes after rates rose, lower/middle-income households without asset inflation protection.
That is why many households feel poorer even when employment is strong and wages are higher. Their income went up, but the fixed cost stack: housing, insurance, food, childcare, cars went up faster.
AI can make the K-shape worse before it makes life cheaper.
That is exactly the same mechanism described earlier with inflation: costs go up 10%, prices go up 25%, workers get 10%, owners capture the spread. With AI, the new version may become: headcount grows 0%, revenue grows 8%, prices stay firm, margins expand, stock-based wealth rises. Potential for K-Shape inside white-collar work
AI creates a paradox: disinflationary technology, inflationary politics. Worst kind of Flywheel in affect
AI boosts productivity → companies capture margin → labor share weakens → political pressure rises → government spends more → deficits stay high → inflation risk persists.
So the economy can have micro deflation and macro inflation at the same time. Example:
- software, analytics, customer service, content, coding get cheaper;
- housing, insurance, healthcare, energy, childcare, defense, infrastructure stay expensive;
- asset owners benefit from productivity and liquidity;
- wage earners still feel squeezed.
In inflation terms, the winners are not just people who “work hard.” The winners are people attached to pricing power, asset ownership, scarce skills, or productivity leverage. AI increases the premium on all four.
Uday Reddy 