The Rich Are Not Who We Think They Are

By Seth Stephens-Davidowitz. He is the author of “Don’t Trust Your Gut: Using Data to Get What You Really Want in Life.” Excerpts:

"We now know who is rich in America. And it’s not who you might have guessed.

A groundbreaking 2019 study by four economists, “Capitalists in the Twenty-First Century,” analyzed de-identified data of the complete universe of American taxpayers to determine who dominated the top 0.1 percent of earners.

The study didn’t tell us about the small number of well-known tech and shopping billionaires but instead about the more than 140,000 Americans who earn more than $1.58 million per year. The researchers found that the typical rich American is, in their words, the owner of a “regional business,” such as an “auto dealer” or a “beverage distributor.”"

"What are the lessons from the data on rich earners?

First, rich people own. Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage. Salaries don’t make people rich nearly as often as equity does.

Second, rich people tend to own unsexy businesses. A different study, by the statisticians Tian Luo and Philip B. Stark, examined which businesses were most likely to fold fastest. The kind most likely to go out of business most quickly is a record store. The average record store lasts just 2.5 years. (For comparison, the average dentist’s office lasts more than 19.5 years.) Other businesses that fold quickly include toy stores (3.25 years), clothing stores (3.75 years) and cosmetics stores (4.0 years).

There are, however, plenty of unsexy businesses from which a few people are getting rich. These include auto repair shops, gas stations and business equipment contractors.

The third important factor in gaining wealth is some way to avoid ruthless price competition, to build a local monopoly. The prevalence of owners of auto dealerships among the top 0.1 percent gives a clue to what it takes to get rich."

"more than 20 percent of auto dealerships in America have an owner making more than $1.58 million per year.

Auto dealerships have legal protections; state franchising laws often give auto dealers exclusive rights to sell cars in a territory. Same for many beverage distributors, which act as middlemen between alcohol companies and stores and supermarkets. Beverage distributors have long been protected by a system set up after prohibition that prevents beverage companies from distributing their products themselves."

So it looks like government controls make or keep some people rich.