OUR DAILY THREAD: A Bifurcated Society, Brought To You By The Letter K

The shape of things to come

THE SET-UP: Delta Airlines beat expectations in the fourth quarter of 2025. That’s despite the fact it lost $200 million from the prolonged government shutdown.

How did they do it?

They adjusted their business model to economic reality. The reality is that American consumers are quickly diverging into two separate and woefully unequal categories. On one track you have people of means who earn robust six figure salaries, enjoy passive income from investments and/or rely upon intergenerational wealth. For them, the economy couldn’t be going better. On the other track, you have a growing mass of wage earners and service workers who struggle to make ends meet. Those are the two increasingly divergent arms on the K-shaped graph that is the US economy.

So, Delta devised a cunning plan ... cater to the top arm of the K and write off the bottom. Forbes explained it today:

Delta recognized, earlier than other airlines, a split between how high-income and lower-income customers were booking airline seats. Seeing robust demand for pricier premium economy seats, Delta invested heavily to overhaul cabin interiors across its fleet to give more real estate to roomier seats with deeper recline. “That has been a very smart strategy,” Rob Britton, a former airline executive and now an adjunct professor at Georgetown University’s McDonough School of Business, told Forbes, given the “greater margins in premium economy and in business class.” Throughout last year, executives at Delta Air Lines repeatedly noted how demand for premium was more than making up for softening demand for coach seats. On Tuesday’s earnings call, the word “premium” was uttered 24 times. Looking ahead to 2026, Bastian told investors he doesn’t expect the premium gravy train to end anytime soon. “If you look at strength of the market … at how high-end consumers are feeling about their opportunities, they're quite bullish.”

High-end consumers are quite bullish, indeed. Last year it was reported both at the start and the end of the year that roughly 10% of all consumers account for nearly 50% of all consumer spending. In other words, the people riding the top arm of the K have the wherewithal to pay more for everything. Delta is just adjusting to the economic reality of late-stage supply side economics. Predictably, the other airlines followed suit:

Like Delta, United Airlines has embraced premium economy. (In December, Bastian told Morgan Stanley conference-goers that rival United was “smart” for “copying” Delta in prioritizing high-end customers.) It’s unsurprising, then, that No. 3 American Airlines has also enthusiastically jumped on the premium bandwagon with its new Flagship Suites and premium economy seats in an attempt to catch its rivals. Speaking at a Goldman Sachs conference in December, American CFO Devon May said he believed premium was “where the demand trends will go,” adding “I think if we had more [premium] today, we’d be more profitable today.” As if to hammer home a new zest for wooing the rich, American Airlines recently announced passengers booking basic economy seats will no longer earn points or frequent flyer miles.

It’s that last line that really drives home the implications of the K-shaped economy. The longer this divergence goes, the more the rich will be catered to at the expense of everyone else. The bottom line is they can they can afford inflation.

And that may explain why the Consumer Price Index showed today that inflation is “sticky,” particularly in the grocery store. The price of food keeps on rising despite the oft-reported fact that it’s too expensive for most Americans’ taste. It made sense during the pandemic … supply chains were broken, people got stimulus checks and Door Dashing became a daily ritual. But the expected re-adjustment back to a pre-pandemic economy never came. Instead, Big Food kept on jacking up prices while shrinking its products. What should’ve happened was a change in consumer behavior. Cash-strapped consumers should’ve stopped buying groceries they couldn’t afford, opting instead for cheaper alternatives. Or they’d just stop buying pricey corn flakes. That would exert deflationary pressure on sellers and the prices would at least stop rising. But that doesn’t happen in the K-shaped economy.

To the contrary, the wealthy consumers are willing to pay up. So much so that their spending if offsetting the declining purchasing power of the lower arm of the K. Big, aggregate metrics like Gross Domestic Product no longer give an accurate accounting of the economy. The disproportionate purchasing power of a small cadre distorts the picture when the top 10% can soak up 50% of the products. Simply put, forty-five years of Milton Friedman’s Neoliberalism has paid off … economic policy has tanked the demand side economy bequeathed by the New Deal and replaced it with a bifurcated society that pools wealth on the supply side while wage earners on the demand side try to get by on a trickle. - jp

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Here’s the inflation breakdown for December 2025 — in one chart
https://www.cnbc.com/2026/01/13/cpi-inflation-december-2025-breakdown.html

From coffee to electricity, latest CPI report shows where inflation is hitting the middle class the most
https://www.marketwatch.com/story/from-coffee-to-electricity-latest-cpi-report-shows-where-inflation-is-hitting-the-middle-class-the-most-5544820f

A K-shaped recovery is still crushing America’s working class
https://investorsobserver.com/news/a-k-shaped-recovery-is-still-crushing-americas-working-class/

The K-Shaped Economy Isn’t Dead—And ETFs Are Picking Sides
https://www.benzinga.com/etfs/sector-etfs/26/01/49880590/k-shaped-economy-etfs

K-Shaped Economy Is Here To Stay As Goldman’s Consumer Dashboard Shows Growing Divide
https://www.zerohedge.com/markets/k-shaped-economy-here-stay-goldmans-consumer-dashboard-shows-growing-divide

Luxury hotels and the K-shaped economy: A tale of two markets
https://www.travelweekly.com/Travel-News/Hotel-News/K-shaped-economy-for-luxury-hotels