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More than 49 percent of all consumer spending in the United States is now performed by the top 10 percent of U.S. earners—meaning that nearly half of U.S. consumption originates from around one-tenth of the population, with the rest of the country in relative stagnation.

This pattern has become described as a K-shaped economy: the idea that economic life has stopped reflecting shared experiences and instead reflects divergent ones. Is the so-called Cantillon Effect responsible for this economy? Is the K-shaped economy also a global phenomenon? What are its political effects?

More than 49 percent of all consumer spending in the United States is now performed by the top 10 percent of U.S. earners—meaning that nearly half of U.S. consumption originates from around one-tenth of the population, with the rest of the country in relative stagnation.

This pattern has become described as a K-shaped economy: the idea that economic life has stopped reflecting shared experiences and instead reflects divergent ones. Is the so-called Cantillon Effect responsible for this economy? Is the K-shaped economy also a global phenomenon? What are its political effects?

Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.

Cameron Abadi: To the extent that there is a single engine of this K-shaped divergence in the U.S. economy, some refer to the so-called Cantillon Effect—the suggestion that the post-financial crisis policy toolkit, when there were zero interest rates plus quantitative easing, has played a big role. What exactly is the Cantillon Effect, and is it responsible for the K-shaped economy that we’re talking about?

Adam Tooze: The Cantillon Effect is an interesting idea. Cantillon was an Irish-French economist who wrote in the founding period of modern economics, so 50 to 70 years before Adam Smith, at the beginning of the 18th century. And it’s a really powerful, important idea, that when an expansion of credit and money happens in an economy, it doesn’t happen in a uniform way. It impacts the economy in particular points. Somebody becomes the first spender of the new credit.

So, if you start with a simple monetary policy framework, maybe a quantity theorem of money—MV equals PT, where M is the money stock—and you expand the money supply, you could think of this as rippling across the entire economy at the same moment, which is obviously a highly unrealistic view. De facto the money hits a particular bit. There is one lot of debtors who get to spend first, and their purchasing power then drives the economy. They are also the prime beneficiaries of that credit shock.

Any monetary policy is also a distributional policy: There’s no such thing as kind of neutral helicopter money that just rains down on society. And in the age of large-scale monetary policy intervention, like the 2010s with quantitative easing, you could see why that would move to the center of the conversation. I have to say I was quite struck that you brought it up.

My sense is that we’re dealing........

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