Forget Billionaires - America Runs on Millionaires

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1:16No prompt engineering. No setup. They show up where the work is happening. Already onboarded in your workflows. Ready to deliver. Asana, where humans and agents workflow together. Try it at asana.com. That's A-S-A-N-A dot com. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. We've got with us Eric Zwick, Associate Professor of Finance at the University of Chicago School of Business, and Owen Zadar, professor of economics and public affairs at Princeton University. They're the authors of the brand new book, The Everywhere Millionaire, Who is Really Rich in America and How They Got There.

2:02Welcome, guys. Welcome. Congratulations on the new book. Thanks for having us. This is really interesting because we do talk about the rich all the time, as you know, and we track them pretty closely. Do we have it wrong in terms of who is rich in America? If you look at the data, it's really amazing. There's this legion of millionaires who are ordinary Americans running pretty mundane businesses who are extraordinarily wealthy. And collectively, if you add up all of their wealth, it's 10 times that of the people you just named, the richest 400 people. Yeah, you guys have like a chart at the beginning of the book that shows like here's the Forbes 400 and here are the other people we're focused on.

2:37And it's a remarkable delta. That's right. You went down that list and it was tech, tech, tech, a little bit of finance, tech. And so we're told kind of the path to prosperity path to the top is Silicon Valley, Sand Hill Road, Wall Street. And we're interested in Main Street and Metro Parkway. Or the car dealerships. Exactly. Hold on. Before we get to the car dealerships and the farmers and the HVAC folks, which you guys read about. Or doctors. There is something to be said about what is happening and what has happened in technology. You go out to Silicon Valley right now. I mean, you can't find an entry, a starter home in San Francisco.

3:13Yeah. Because, you know, everybody who's worked at Anthropic, OpenAI, or SpaceX are gobbling those things up. You're going to, we're going to have, I don't have that data in front of me, but you're going to have something like seven from just from Anthropic alone, seven billionaires. And then like many hundreds of millionaires as a result of that. That is a totally. Does that change the game? Happening. Does that change the data? That is totally a story that's true. And it remains the case. The American economy is far broader and far more diverse. So there are 8 million homes worth more than a million dollars before this demand surge in San Francisco.

3:43So it's true that if you look at the coast, maybe they have 10 % of the population, 25 % of the income. It's also true that 75 % of it's away from the coast. And we're sort of saying, look, it's the duck rabbit story. Kind of like, yeah, it's a duck. We're not saying it's not a duck. But if you look at it a slightly different way, it's also a rabbit. We're saying there's this massive amount of wealth that's abundant, also closer to home for so many Americans that aren't used to thinking about it that way. And think that tech is just gobbling everything up. And we just aren't seeing that. Let's get to the process, because you guys basically make this point that we are in the first age of millionaires.

4:19How did you guys go about collecting this data? I think that in itself was kind of fascinating. Owen, come on in. There are two steps. The first is a decade of research where it started with an investigation at the Treasury Department. They brought us in to try to figure out how much private business owners are paying in taxes. So we had to link private business owners to the, sorry, businesses to their owners to figure out the answer to that, which is a pretty nerdy kind of small thing. And then what emerged was this amazing picture of extraordinary wealth that no one talks about. And it's just really hard to capture who's rich because if they're not public company CEOs, they don't report to investors.

5:00And wealthy people don't answer surveys often. And so this was a new view on wealth in America. But they file tax forms. Exactly. everyone. Um, and so you, we had that as a toehold and then we did a series of research projects and that was the first step. And then the second step was to go out, um, and move beyond that private and protected data, which is de-identified to try to tell some stories and bring it to life. And so we went and, you know, collected private jet data, uh, super yacht data, property registries, industry information of things like car dealers that we, that showed up on the list.

5:34And then we started to get these stories and asking people, you know, who's the wealthiest person, you know, and you get amazing stories. We have so many millionaire stories now of just people doing pretty mundane things like storing paper or fixing garage doors or distributing toilet paper or tanning salons, tanning salon. And it's very fun. And like, and people then are like, Oh yeah. And now that I think about it, the guy who has that really nice vacation house, they own seven Jiffy Lubes and like that's really wealth in America. Yeah, we both have little kids at home and we sort of joke that, you know, it's the ABC book, like the ABCs of getting rich.

6:10A is for auto dealers, B is for beer distributors, C is for contractors, D is for dentists and we can keep going. You know what's interesting about the A and B? They're kind of like natural monopolies. So like a car dealership has barriers to entry. There are like you can't just open a Ford dealership next to another Ford dealership. Like there are barriers to entry with this stuff. Beer distributors, I mean, there's a, that's a challenging business to get into for a lot of reasons. But not for Cindy McCain's family. Which I did not know that. Indeed, the Hensley, the keys, you know, the keys to that campaign were really funded on a boat winding down a river of beer.

6:51The beer distributors, I mean, it's amazing. He didn't know how many houses they owned in the middle of the housing crisis because, you know, it was mostly the Hensley family's wealth. And so, yeah, the beer distributors, these businesses, there's a class of them that are operating in these local markets with protections that are codified in state and local law in a lot of cases. As demand for that activity has grown, these middlemen and middlewomen are, you know, grabbing a slice of this growing market. And so we see tons of these car dealers and beer distributors. The Chicago Blackhawks, you know, I'm in Chicago.

7:25that's a beer distributor family, the Wurtz family. Can we just go to how the book begins? Because when you guys were going to talk about a wedding, I'm like, oh, they're going to talk about the Jeff Bezos wedding. That was the Carol Masser wedding. I was reading about the beginning of the book. It was not the Carol Masser wedding. Tell us about this, a$60 million wedding that had multiple moving parts. Yes, so reportedly a more expensive wedding than the Bezos-Sanchez wedding, in fact, called the wedding of the century by social media. That's sort of how we came across this extremely extravagant wedding.

7:55So for folks who read The Millionaire Next Door, there's a lot of frugality in that book. This is a very conspicuous consumption behavior. This is not fit out of that book. But it turns out, you know, they flew all the guests by private jet to Paris. They ran out for a side, not for the wedding, but just for another event the day before. And they dressed the part, didn't they? It was great. They had makeup artists, right? And people like styling them. I think unironically dressed in the period costume of the late monarchy. You know, the bride at the bachelorette party dressed as Marie Antoinette on one evening.

8:24At the meat cake. There you go. They did. And more. And Adam Levine sang the first dance. You know, we'd sing in Maroon 5. It's really outstanding. That means good song. We've got to snort, so we're done. So they were car dealers. That's the punchline. They were car dealers. And Nick Saban bought the dealership with a consortium, I think, for several hundred million dollars. Nick Saban, the football coach of Alabama. So it's, you know. You're seeing finance go after these same businesses, too, right? If you're just joining us, we're speaking with Owen Zadar, Professor of Economics and Public Affairs at Princeton University.

8:59Eric Zwick with us, too, Associate Professor of Finance at the University of Chicago, Booth School of Business. They're the authors of the new book, The Everywhere Millionaire. They join us here at Bloomberg. Owen, I want you to come in because the way you started talking about the process for this, it sounded actually a lot simpler than you lay it out in the book. This was not an easy thing to do. I mean, people would think, OK, Treasury Department, they should know how much small businesses are paying in taxes. or you should be able to log into some database pretty easily and get this information.

9:25No, like you guys moved into to D.C. to do this. And a really nice part of the building, right? Oh, we were in the basement. It was lovely. There's a lot. They were moving things out of the room to just get us a place. I was looking through some old photos and it's really brings you back. But the way the systems are set up, it's the information on tax forms, but they're stored so that one auditor can kind of go on a specific form and check. Does that make sense? They're not at all set up to do these big linkages and make sure that the aggregates make sense. And so there were periods when, you know, Eric should tell the story because he was the one who did it.

10:02We'd have to, like, figure out what was going on because sometimes you'd add up all the stuff that's supposed to add up to the other thing, and it wouldn't come anywhere close. And then it turns out that zeros were actually missing and meant different things, and digits were out of order. And so Eric went to go talk to someone we called the architect. Yes, at the Treasury. Right. So, I mean, they're trying to do tax policy proposals. They're trying to figure out what revenue would be raised if we change the tax code. But you want to know where you're starting from, like what tax do these businesses currently pay?

10:35And for this emerging class of businesses where the tax isn't paid by the business but by the owners, they couldn't do the link at scale. And it turns out – The pass-through. The pass-throughs. So this is sort of like this watershed moment. 1986 tax reform spawned the growth of these pass-through businesses to where they were a very small share of the economy, to where they're more than half of business income, about half of employment. Most businesses are pass-throughs, even today. they account for more than half of the rise of the top 1 % income share business income coming from those pass-throughs so the treasurer was trying to link them at scale and the way the data is stored you know the links are kind of all broken up and just you know and so i actually knew this guy who was working as kind of a database systems engineer architect whom we called him the architect based on the matrix actually i think um and uh i was like oh i'm gonna go give talk in utah let me stop and have lunch with him and just ask him all these you know enduring questions about the code he wrote to build the system and that kind of set of questions and then following up with him over time but i met him for a burger and beers and he's wearing like you know kind of like a plaid kind of lumberjack shirt you know with a beard like it's sort of not the person you would expect to be kind of the architect of this electronic filing tax system and and we had a great conversation, had a great time with them.

11:58But that was sort of one of the moments of unlock for us. Eric Zwick, professor of economics and finance at the University of Chicago Booth School of Business and Owen Zadar, professor of economics and public affairs at Princeton University. They are the co-authors of the new book, The Everywhere Millionaire, Who is Really Rich in America and How They Got There. Very briefly, before we get to the implications of this, the how we got there part is what I want to focus on. Because whether I was reading about building equipment contractors, specialty trade contractors, quiche makers. Yes. Private equity came up over and over again for the way that these folks exited their businesses and sold them for billions of dollars or hundreds of millions of dollars.

12:33What is the role of private equity in making these people millionaires? So I love to think like private equity is almost like the child that some of these founding business owners never had because they didn't have anybody to take over the business. Yeah. Private equity has determined there's a lot of money left in the banana stand when the founder doesn't have anybody to hand it off to. And they come in and they buy up these businesses. And that also helps us find some of the more salient stories because they are paying big multiples for businesses in very unglamorous industries. Private equity is looking for home security businesses, pest control solutions, you know, methadone clinics, roll-ups.

13:08Portillo, one of the, you know, the heroes of the middle of the book where we tell his story of how he started this hot dog stand and grew it to the largest private chain fast casual restaurants in the Midwest selling Italian beef and chocolate cake shakes. He sold it to Berkshire partners for over a billion dollars, still had a lot of the real estate and rented it back to them. Never took outside investors, but private equity was looking at the numbers. The margins in these stores were outrageous compared to maybe a typical McDonald's. They were doing three times as much revenue and they were more profitable per unit.

13:38They reset the multiples, the prices in the whole fast casual dining scene. So there's another, there's a pizza company called Malnati's based in Chicago. And the guy who worked there when they sold to private equity was like, I love the Portillo's sale because it got us a much better price. Private equity is flooding capital in and they're looking for targets. And there are just tens of thousands of these businesses, if not hundreds of thousands that are big enough for exits that look really great for the founders. We have a question coming in from one of our viewers, Brendan, sending in a question and says, given our changing labor dynamics, as you reveal in your book, do you have any thoughts on how the education industry could shift gears to provide broader opportunities for students to pursue these path to millionaire jobs?

14:24Any thoughts? So one lesson that comes out of our book is the way you often get rich is by owning and not earning. And so even if you're an adult, kind of thinking about your kids, what should they do early on? If you want to be an owner, one way to do it is to start in an industry like construction or auto repair, where it's much more likely to go and become an owner 10, 15 years down the line. Nobody was telling us that in college. No. But if the comparison is that or like working at Ford or GM, they're much less likely to do that. And it depends on what you want to do. There's risk. So it's not everybody should do this.

14:59But it's remarkable just how many people in America are getting rich. It's kind of giving the blueprint for success or a blueprint when a lot of younger people are not feeling great about the conventional advice of work hard, get a good job, go to a name brand company and just earn a salary for your life. There's so many different ways we could go from here. We've just got a few minutes left here. But you write in the book about how we need to hold Main Street millionaires accountable when they wield their power unfairly. And a lot of them do. So one of the surprising facts we learned in the course of this investigation, our research more broadly, was how politically active a subset of these.

15:36So the typical one, I think, cares about politics insofar as it affects the tax bill, the bottom line, but they're not super engaged. But when we start to look at who's politically active, it turns out they're way, way overrepresented. So a quarter of Congress and even closer to 30, 40 percent of state and local office is occupied by private business owners. And if we look at public policy outcomes in certain sectors, whether it's local market regulations that affect who can enter, what types of protections workers enjoy, who's writing those rules in a lot of cases, in a lot of places, everywhere millionaires that are actually occupying elected office, not just lobbying.

16:16If you look at the tax code, over the last 40 years, we've seen a lot of benefits accrue to these business owners in the form of reduced tax bills, opportunities to deduct things that maybe are on the border between investment and consumption, opportunities to pass on the businesses to the next generation with relatively little tax. They don't sell to private equity or maybe they can structure that sale to minimize the tax for transfer. Those tax rules are, again, influenced disproportionately by these folks that are occupying elected office. The other thing is, though, sometimes the consumer is getting hurt in this process, whether it's through medicine or I mean, right.

16:51That's the takeaway also. Absolutely. So one of the big problems in America is things are more expensive. You had the beef prices up not that long ago. And if you think about what people are spending money on, it's like housing, health care, cars. And in a lot of these industries, you see everywhere millionaires. And so in housing, for example, a lot of the demand for housing when we're not building that much is not from Elon Musk. And for cars, a lot of protections that initially went in to try to protect the little guy from bullies ended up creating a new class of bullies that effectively make these things more expensive for us.

17:26Those are the car dealers. Why is it important? We've only got about a minute left here. And I'm just thinking as we wrap up here, how do you want readers to use this information? Why is this important, this story to tell? So we think of this as like an eye-opening experience for people if they're able to read the book. And, you know, we want them to see the economy as it really is and not necessarily as Instagram Reels tells them it is with this amplification distortion that's just Elon Elon all the time. I mean, my white kitchen and my perfect teeth. The cooking videos, go for it. I'm all about it.

18:03But yeah, so if you want to understand the economy as it really is, what's going on with economic growth, what's going on with income and wealth inequality and how that's evolved, you want to have prosperous future for yourself or for your kids thinking about the American dream and whether it's alive or dying. I mean, I think there's a lot of lessons here. If you want to fix public policy problems, there are also a lot of lessons here that I think we should pay more attention to. So in each case, it's just seeing the world as it is. So then we can move forward from there with our goals. Unbelievable.

18:34It's a great book. Everybody should check it out. It's called The Everywhere Millionaire, Who is Really Rich in America and How They Got There. Eric Zwick, Professor of Economics and Finance at the University of Chicago Booth School of Business. Owen Zadar, Professor of Economics and Public Affairs at Princeton University. Check out the book. It's out now. Come back soon. Let's continue this. Thank you so much. Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else.

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