True confession: I am about to write a blog post about a book I have not read. Its Authors were interviewed on two podcasts that I listen to, and I have now read two reviews. This one, from John Lanchester in The New Yorker, and this piece by Andrew Duehren in The New York Times. I think I get the idea, and it is quite revelatory. It seems like a stimulating book, and I recommend it to people who have more time than I do to devote to its subject matter.
The book in question is by Owen Zidar of Princeton University and Eric Zwick of the University of Chicago and is called The Everywhere Millionaire: Who Is Really Rich in America and How They Got There. The title pretty much tells you what it’s about. The Authors have various names for these Main Street Millionaires. They are the stealthy wealthy. They are the middlegarchs. There are about three million of them, and their average net worth is $25 million. Collectively, they are thirteen times as wealthy as the Forbes 400 billionaires combined. They are not really all that stealthy. The Authors found them by looking through registries for superyachts and private jets. One middlegarch made headlines by spending $50 million on a wedding. Seems like that would put a lot of pressure on the couple to stay happily married.
The Authors provide the A,B,Cs of wealth in America, and it is not about corporate executives at well-known Fortune 500 companies. Riffing on a bit the Authors performed on the Odd Lots Podcast, I can share that A is for appetizers (like frozen mini-quiches), B is for beverage distributors, C is for car dealers, D is for dentists, E is for extraction (e.g., oil and gas), F is for financial services, etc. These are local businesses and franchisees who have benefited from favorable tax laws that benefit pass-through business entities to become multi-millionaires. The pass-through entities are not taxed at the entity level, and the profits that flow through to the principals are taxed at a lower rate than taxable entities pay. The tax aspects of the book seem so interesting, it almost makes me wish there were a blog like this one devoted to tax law. In the right hands, that could be really interesting. If such a blog existed, it could even provide links to more articles about the book!
The Odd Lots episode was good, but I think I liked Planet Money’s episode on the book even better because it included interviews with some of the millionaires. Part of the book is a feel-good story about plucky people who started from scratch and built extremely profitable businesses by dint of their own grit and ingenuity. And if you happen not to be a millionaire, you don’t have to feel bad about that, because you probably wouldn’t want to do what these people had to do to become as wealthy as they are. They are monomaniacally devoted to their businesses. They often built up their businesses slowly over decades. They don’t have hobbies or significant interests outside of work. These businesses are often not Jones and Sons because the Main Street Millionaires can’t let go — until they sell their businesses and spend $50 million on a wedding.
But there are downsides. The middlegarchs are overrepresented in Congress and grossly overrepresented in congressional committees that make decisions about things like the tax code that favor their kinds of businesses. According to the Authors, one quarter of the members of the congressional committee responsible for re-writing the tax code are small business owners. They clearly think that these members influenced their colleagues to write a code that favored their businesses. Can they show receipts? If you’re the kind of person who asks such questions, you should read the book! Here’s a telling exchange from the Planet Money Podcast:
Sarah Gonzalez: You’re not saying that this group of people got so rich because they’ve benefited from this generous tax policy where they get to pay less taxes than a traditional corporation. That’s not why they got this wealthy, or are you saying maybe it is?
Eric Zwick: Uh . . . Didn’t hurt.
That almost sounds like Professor Zwick does think that tax treatment explains how the stealthy wealthy got that way. I think he didn’t want to devalue the pluck and ingenuity of these entrepreneurs. Still, the Authors also are aware that we have gross disparities of wealth in this country, and some of that disparity could be addressed through tax reform.
So part of the story of the book (which I remind you I haven’t read) seems to be about a hidden and subtle form of crony capitalism. It’s not that the middlegarchs are influencing politicians; it’s that they are politicians. And they come by it naturally. They are hands-on people of business who are accustomed to addressing problems personally. Theirs is the first car in the parking lot and the last to leave. They are out there on the sales floor every day talking with their sales team and making friendly eye-contact while shaking hands with customers or clients. They interact with people of average wealth in ways that the Forbes 400 billionaires do not.
But part of the story is about lobbying. The Authors tell what Planet Money calls a Goliath v. Goliath story in which the middlegarchs won out over Elon Musk. Mr. Musk, and presumably other car manufacturers, would like to sell their cars directly to customers and reduce reliance on dealerships. The dealers mobilized to create legislative barriers to such direct sales, even though eliminating the middlemen would facilitate a sizable saving to consumers. The car dealers came into state legislatures with impressive numbers about the size of their workforces and the revenues that they generate for local residents. They won. How should we feel about that?
On the one hand, one might think that the dealerships are middlemen whose value-added to the exchange doesn’t justify the added expense associated with them. Moreover, it’s not as if the dealerships’ entire business is devoted to sales. Buyers might still rely on local dealership for repairs and maintenance, and it seems entirely possible to me that some buyers will still patronize their local dealership even if they could buy cars directly, so that they can do the usual things — compare cars, take test drives, and one-stop shop for the car and the financing in a face-to-face conversation. So the dealers may have exaggerated the threat they face from competition with their suppliers.
On the other hand, although the Authors have convinced me that the Elon Musks of the world are not the only rich people about whom we should be worried, I prefer a world in which economic power is diffused among three million disaggregated middlegarchs rather than concentrated in the hands of the world’s twenty richest people or families. Maybe the cost of the middlemen is something that makes consumers better off in ways that go beyond a 5-10% saving on the price they pay for their cars, and that saving might be short-lived in any case if the middlemen aren’t all competing with one another.
That said, if I read their book, I suspect that I would be persuaded by the Authors’ argument that we need to address the favorable tax treatment that is permitting the middlegarchs to accumulate more wealth than is needed for them to thrive. While diffusion of wealth through middlegarchs is preferable to its concentration in the hands of oligarchs, we need not use the tax code to enhance the wealth of those already well-off. The Authors show how the wealth gap is increasing in this country, and part of the transfer of wealth in favor of the rich could be addressed through the tax reforms that they propose.
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