[Jang Won Lee's Viewpoint]Capital Flows Upward, Pain Flows Downward

(Seoul=Yonhap Infomax) "It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness."

British novelist Charles Dickens famously described the intense hatred and anger between the aristocracy and the poor in London and Paris in his classic, "A Tale of Two Cities." More than 160 years later, the gap between the wealthy and the working class remains a central issue in modern society.

Recently, the term "K-shaped economy" has gained traction in the United States. The phrase refers to the widening economic divide between the rich and the poor, with the letter "K" symbolizing the diverging fortunes—one line rising, the other falling. According to Moody's Analytics, the top 10% of Americans account for half of all consumption, a stark illustration of deepening polarization and structural division in U.S. society. Federal Reserve Chair Jerome Powell publicly warned last month that "the economy is splitting in two," underscoring the same concern.

This polarization reflects a fundamental limitation of the capitalist system. Left unchecked, capital continues to accumulate among the wealthy, while workers see their assets dwindle. This is precisely the situation in the U.S. today. High-income Americans have reaped the benefits of rising prices in stocks, real estate, and cryptocurrencies over recent years. In contrast, middle- and lower-income groups, having exhausted pandemic-era relief funds and savings, now face mounting pressures from inflation and high interest rates. As living costs soar, sales at budget-friendly chains like McDonald's are declining, while luxury brands and premium services are thriving—a textbook example of K-shaped polarization.

Government fiscal expansion is typically aimed at stimulating the economy, but paradoxically, it often exacerbates inequality. Increased liquidity tends to flow into financial and asset markets, boosting the wealth of the upper class, while the cost of living for ordinary people rises. The uncomfortable truth is that stimulus measures make the rich richer, while the working class faces higher prices.

The International Monetary Fund (IMF) noted in a 2020 report that while increased fiscal spending can support short-term growth, it may also intensify polarization if accompanied by asset price inflation. A 2022 Brookings Institution report on the pandemic found that 68% of U.S. pandemic fiscal spending ultimately supported asset markets, leaving the middle and lower classes—who own fewer stocks and real estate—feeling relatively deprived.

The artificial intelligence (AI) boom is further overheating asset markets, favoring the upper class. The surge in shares of the "Magnificent 7" tech giants has increased the wealth of affluent stockholders, while those excluded from these gains see little change in their assets.

Rising layoffs and job insecurity driven by AI are expected to further fuel polarization. Companies, citing economic slowdown and cost pressures, are reducing hiring and rapidly adopting AI-driven automation and restructuring. This trend threatens middle-class jobs, with unskilled and clerical workers at high risk of displacement. Ultimately, AI delivers investment returns and efficiency gains to the upper class, while imposing job losses and income declines on the lower class—a new engine of inequality.

South Korea is not immune to these trends. Asset holders, particularly in real estate, continue to see their wealth grow even in a high-interest-rate environment, while the working class is overwhelmed by housing costs, loan interest, and education expenses that cannot be covered by income alone. The vulnerability of small businesses and the self-employed is acute, and the spread of AI threatens to erode middle-class jobs. In the past, addressing polarization was a major election issue in South Korea, but momentum for solutions appears to be waning. It is hoped that efforts to expand growth engines and strengthen safety nets will help prevent further entrenchment of inequality. (Jang Won Lee, Senior Reporter)

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jang73@yna.co.kr

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