The Ludwig Institute's founder ranks the income gap above AI bets among the expansion's weak points

The ranking is what separates this column from the rest of the AI-capex worry list. Writing in American Banker, the founder of the Ludwig Institute for Shared Economic Prosperity sets out three weak points under the current expansion: bets on AI and other emerging technologies whose ultimate returns remain uncertain, federal deficits pressing on borrowing costs, and a widening imbalance between upper-income Americans and those below them ^[3]. He wrote that the expansion has "its own clay feet" ^[13]. Then he picks one. "Much of my personal angst centers around the last of these," he wrote ^[4].

The distributional finding is stated as a share of national income: the bottom 60% of Americans, as a group, do not command enough of it to achieve a minimal quality of life ^[1]. Three-fifths of the country measured in aggregate, with the remaining 40% holding the rest ^[1]. LISEP also finds two decades of stagnation for low- and middle-income Americans, amounting for many to a real decline ^[12], and the column notes that some have described these households as "hanging on by their fingertips" ^[15].

The financing those households increasingly rely on, buy now/pay later lending and private credit among it, is private with limited publicly available data. That, the author says, makes just how vulnerable these income groups are hard to determine with certainty ^[7].

His remedy runs into his own second item. He has favored adjusting the payroll tax so it lands less heavily on working families, alongside lower prices on the few key expenses that make life sustainable ^[9]. Payroll tax relief costs federal revenue, and federal deficits pressing on borrowing costs are the item he lists second ^[3]. He also puts a condition on the benign path: "Assuming employment holds up, finding sustainable ways to lower some of these costs could strengthen the economic foundation beneath the headline numbers," he wrote ^[10].

Two readings compete with his. The stagnation he documents has run for twenty years ^[12] through expansions that kept going, so chronic distributional stress has not by itself dated a recession. And the shocks he names are shocks, none of them scheduled: higher oil prices, an unexpected health expense, a lost job, another bump up in interest rates, landing on households already spending most of what they earn on housing, transportation, food, healthcare and childcare ^[8].

I would take his side on direction and not on timing, which is roughly where he leaves it himself: he says a serious shift from a virtuous to a vicious circle is more likely ^[11]. What would settle it is delinquency in the private channels turning before bank books do, and most banks currently report that their lending metrics remain good, with some reporting a deteriorating trend ^[6]. The analogue he names is 1989 to 1992, the period he most remembers as the S&L crisis ^[5].