Economic inequality isn't some immovable force of nature, according to economist Paul Krugman—and recent history proves it. In a new analysis, Krugman argues that the United States has abandoned an inclusive recovery that lifted low-wage workers in favor of what he calls a "Trump freeze," where the wealthy continue climbing while everyone else treads water.

When the Bottom Rose Faster Than the Top

Krugman points to Atlanta Fed data showing something unusual happened between 2021 and 2023: a genuine "Great Compression" where wage growth for the bottom 25% of earners consistently beat the top 25%. This wasn't accidental. A tight labor market gave low-paid workers actual bargaining power for the first time in years.

That dynamic has evaporated. Since late 2024, the gap has widened again. High-income earners—especially those holding stock portfolios—are doing just fine, while wage growth for low-income workers has essentially flatlined, barely keeping ahead of inflation. We're back to a K-shaped economy where fortunes diverge based on which side of the wealth divide you started on.

The Job Market Just Stopped

What changed? Krugman identifies a "frozen" labor market as the culprit. Remember 2023, when employers were practically begging people to work? That's over. Today's hiring environment looks nothing like it. Businesses are paralyzed by uncertainty, and Krugman blames President Donald Trump's unpredictable tariff policies for making companies reluctant to commit to new hires.

"Trump may claim that we are economically 'the hottest country in the world,' but the truth is that we last had a hot labor market back in 2023-4," Krugman writes.

Who Gets Left Behind

The consequences aren't falling evenly. While overall unemployment has drifted up to 4.6%, Black unemployment has been "soaring" since summer 2025. The people who benefited most from the tight labor market of 2022-2023 are now bearing the brunt of its disappearance.

Krugman's broader point is that none of this was inevitable. The Biden years demonstrated that deliberate policy choices can create full employment and narrow the wealth gap. What we're seeing now is the result of different choices producing different outcomes.

Markets Hit Records Before Holiday

Meanwhile, Wall Street closed out Christmas Eve with both the S&P 500 and Dow Jones hitting record highs. Year-to-date, the S&P 500 gained 18.12%, while the Nasdaq Composite jumped 22.47% and the Dow rose 14.95%.

The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), tracking the S&P 500 and Nasdaq 100 respectively, both closed higher on Wednesday. SPY advanced 0.35% to $690.38, while QQQ gained 0.29% to $623.93.

Futures for all three major indices were trading lower on Friday.