Owen Zidar and Eric Zwick: The Everywhere Millionaire: Who Is Really Rich in America and How They Got There

First of all, you define those Main Street Millionaires as individuals that have, on average, about 25 million. There are three million of them in the country. But you say that collectively, Main Street Millionaires have more than 13 times the wealth of the Forbes 400. 13 times. That's not enough. On top of it, you say that Main Street makes more than 10 times what a C-suite executive makes. And then, on average, they make one and a half times as an average CEO of a public company. I think our attention has been on the wrong group of society for too long. You're opening our eyes to a much bigger part of the country that's doing very well and we'll learn more how and why. I mean, the basic data are all of the tax forms. The company has to file forms for each owner so you can basically follow the money if you're able to link these two. They weren't made to be linked. And so we had to do a lot of work to decipher what exactly everything meant, made sure that all added up. And figure out how to bring it all together and we were the first to do that. And what emerged is really fascinating because then, for the first time, you can see the whole economy what it actually is. You take the Forbes 400, which is maybe the popular version of the wealth in America, put them on a map. They're mostly on those like four cities, five cities, more than half of them are in those five cities. Now, take the same map and instead populate it with everywhere millionaires. It's a reason we call them everywhere millionaires because the whole map lights up like everywhere there are people basically. There's everywhere millionaires living in suburbs. They've got big houses. They have second houses in Aspen or on Lake of the Ozarks. So they're all over. So their abundance in number is just really striking and hard to wrap your mind around. Welcome to Talking Billions. We talk about big ideas, big inspirations, big topics. 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The link will be in the show notes. My guests today are Owen Zidar and Eric Zwick, two economists, Owen and Princeton, Eric at the University of Chicago Booth School of Business. They spend a decade building the first database linking confidential U.S. tax records to individual business owners, starting from their work at the Treasury Department. Their book, The Everywhere Millionaire, argues that America's real wealth is in coastal billionaires, it's the Main Street Millionaire. The ordinary seeming owner of a car dealership or dental practice worth tens of millions, hiding in plain sight in nearly every town in the country. Owen, Eric, so nice to see you. How are you? It's great to be here. Thanks. Thanks, Boogwell, for having us. Great to be here. I share with both of you how much I enjoyed your book. I manage money for wealthy individuals and I hear stories and anecdotes and I probably have heard or seen more. Then most, but at the same time your book opened my eyes to a whole world that I didn't know and I'm sure this audience will appreciate learning more about it. I'll share two quotes from the book before I ask some questions that really struck a chord with me. First of all, you define those Main Street Millionaires as individuals that have on average about 25 million. There are three million of them in the country and here are some numbers that really made me pause and I'm sure we'll talk more about it. But you say that collectively Main Street millionaires have more than 13 times the wealth of the Forbes 400, 13 times. That's not enough. And then on average, they make one and a half times as an average CEO of a public company. I think our attention has been on the wrong group of the society for too long. But let's take us back to the Treasury Department. I really like the stories you're sharing. You're in the basement 2014. Let's go back. What was happening in your mind, the original question that you were trying to answer before this whole project started? Treasury Department, your first research there, whoever wants to start. Yeah, so I'll start. Thanks. I love that intro. And, yeah, so imagine, you know, even younger looking because, I mean, Owen looks so young to me when I see him on the screen here. Younger looking, newly minted economics PhDs in the basement of the Treasury we brought in to work with staff economists there on a tax policy problem. Sort of how to, how to help design and, you know, improve tax policy even answer basic questions about changing the tax code. When we think about these private businesses, they didn't really have the data set up in a way where you could link the businesses to the owners to think about how much tax those businesses paid. So we were working sort of on the first database to try and connect the businesses to those owners and answer tax policy questions. But this sort of was kind of narrower focus on that led us to sort of take a step back and think, okay, but now we can kind of understand who is at the top income wealth entrepreneurship. There are questions about the health of the American economy using this data. We didn't know the individuals who they were by name that's anonymized and importantly, you know, protected taxpayer privacy through the way that we were accessing that data. But we could get a pretty good picture of sort of where they were what they were doing what they were up to. Which kind of told us where to look when we started to write this book and tell this story, but that was the initial initial setup there in the basement of the Treasury. So those IRS databases, they were not meant to talk to each other you did some magic and he found a way to connect them. Yeah, I mean, the basic data are all of the tax forms. So businesses file a form that says, here are my revenues, here are my costs, here's my profit. And then for pass through businesses, which are the typical business in America, the profits and losses flow through to the individual owners. And so the owners have to file or the company has to file forms for each owner that says, you know, Eric owns 30% of this company and the money. Flowing to him as that's until you can basically follow the money if you're able to link these two, but as Eric said, they weren't made to be linked. And so we had to do a lot of work to kind of decipher what exactly everything meant, made sure that all added up and figure out how to bring it all together and we're the first to do that. And what emerged is really fascinating because then for the first time, we could see much like much more than what you can typically see, which is just public company CEOs, you know, tail. Swift and celebrities and you can see the whole economy for what it actually is. Yeah and that linking process took us to interesting places like we tell a little bit of the story about how I was on sort of an academic seminar trip but I stopped along the way to have lunch with a person that we call the architect who was one of the designers of the the database system, the electronic filing database system for tax returns because I wanted to understand this database better than we could because there was really no documentation that was just sort of like this raw database with you know columns that didn't mean anything really. How could we do this linking? It seemed like it would be possible but like you know what were the steps that were required and we tell a little bit about those sort of sleuthing stories in the book to get there. You know first one year of matching so you have like the population of businesses linked to their owners for one year then you could add the workers for that year then you say okay what if we do this for all the years we have available. So going back to you know the early 2000s late 1990s you start to add you know different cuts of the data to try and answer different questions over time but also to start with that initial investigation. Was there a specific data point or discovery early on that made you realize that you stumbled onto something that much bigger than a policy question that you started with? Yeah so I think there's this really famous graph in economics the top 1% income share over time it comes from Piketty and Saiyaz's work on income inequality. You know one of the big questions at the time that we were starting to do this work what's driving income inequality? What factors are responsible is it policy? Is it globalization? You know who is at the top of the income distribution? And well you know that initial work was sort of pointing towards this class of people didn't really tell us that much about what they were up to you know are they working or they just have passive portfolios that generate interest and dividends that they sort of hang out on the beach and just the bank accounts get fuller what's going on there we don't really know and when we look at this top 1% share over time in this early work that we were doing and say what if we held fixed the pass through income? So the income that's coming from these businesses that people are owning which seem really important at the top. Turns out more than half of the increase in income inequality from late 1980s into 2000 into 2021-2022 is coming from pass through business income. So this income of ordinary profits from privately held businesses flowing through to these people driving the growth of the income share at the top. They're like okay we want to understand it's an equality question let's let's learn about these past their businesses and their owners of what they're doing. Come back to the rise of the pass through a big point in the book in a little bit but before that I want to set the stage here how do you define rich in this book and why did you land on that threshold? So what we did what we said anyone who has five million dollars in net worth counts as an everywhere millionaire in particular a private business owner who is outside of finance and tech and five million is about the fourth percentile of the wealth distribution and what we're saying is true if we would have done it at 10 million or 20 million or 50 million basically as you go up the wealth distribution the probability you own a private business increases by by the time you get to 100 million it's basically everyone owns a private business. So we picked five million because it seemed like a material amount for the typical reader it's like you're doing quite well you have some substantial assets and but you know the broader story I think is true if we would have said deck of millionaires or sent to millionaires even. What surprised you the most about the number of those private business owners like clear the bar that you said it's a big number. Right so it's a three million roughly where we are today private business owners have that five million plus net worth that means their average net worth is around 25 million so you know that's um that's some walking around money as we like to say uh although i mean a lot of it is in the liquid asset of the operating company right and so they don't necessarily come to you to manage that piece of the portfolio they come to you to manage the the stuff they've taken out and put into uh into um you know the markets for some diversification three million of them is a that's a lot of people so for every large public company CEO as you think like the fortune 1500 or SMB 1500 something like that these would be people you know the executives that get paid quite a lot on public markets in the US there are more than a thousand private business owners with at least 25 million in net worth uh so that's a lot of people and the other thing about it is geographically I think because of the media it's all in New York or on the coasts because of you know Silicon Valley is so salient in our everyday lives with like the tech companies and platforms you take the Forbes 400 which is maybe the popular version of the wealth in America put them on a map they're mostly on those like four cities five cities more than half of them are in those five cities now take the same map and instead populate it with everywhere millionaires it's a reason we call them everywhere millionaires because the whole map lights up like everywhere they're people basically there's everywhere millionaires living in suburbs they've got big houses they have second houses in Aspen or unlike of the Ozarks and stuff um so they're all over so they're they're abundance in number is just really striking and hard to wrap your mind around yeah I mean one thing to find started real quick uh one thing that I think was pretty striking about the world cup is you saw a lot of people come from all over the world come to places like Kansas City and then they see you know how great America is and there's all these Twitter threads of someone from Germany that's just like look at this uh or they went to Texas and then they saw buckies which is a big convenience store that it's just an absolutely enormous um institution in Texas where people can make million just selling things from that store online and you know they come in for the first time and they're like look at the bounty of America it's really amazing and a lot of that just isn't in that day-to-day when you just read headlines about Bezos and Musk we'll come back to how you take us on this journey through the country in the book I'll ask more about it but it's such a good point that when we think about the Forbes 400 we just have the two coasts in mind a handful of cities reading your book I realize almost every town every city has somebody that's probably on your list of three million somewhere with a home or two and we'll come back to it I want to ask about something that really made me pause reading your book and kind of is a big building block of the whole story the tax reform of 1986 can you walk us through why it happened what happened what was America like before and how you're making an argument that that change setups the stage for this kind of wealth creation for the three million homes individuals in the country yeah so in the in the 80s if you started in 1980 the typical business in America is a sea corporation so most public companies are sea corporations and they face the corporate tax and if they pay it out to investors then individual investors will have to pay a dividend tax and at the time tax individual tax rates are quite high Reagan was president and he had a history before he was president and before he was governor of california as a kind of be list movie actor and he really didn't like facing the very high marginal tax rates in the period after world war two to where he was before he entered politics and and so he had this kind of strong inclination to lower individual rates and there are other like-minded people like senator bill Bradley from New Jersey who was an NBA player before he became a senator who's a Democrat and they kind of found a common cause to say you know we need to bring individual rates down so in 1986 well earlier in the 80s they also were bringing rates down but in 1986 there was the tax reform act of 1986 and that for the first time brought individual rates down enough to where it was lower than the traditional corporate tax rate so all of a sudden you have people who want to own businesses or start new businesses realizing that it's much more attractive to do this pass through form rather than a traditional corporation because you didn't have to face the higher corporate tax rate and the dividend tax on top of it you could just have this much lower individual rate and so after the 80s anterior 86th particular there was this big revolution in how business was structured in america and now the majority of profits the vast majority of businesses are all passed through form in the US it's fascinating to me because when I think of the Forbes 400 I'm thinking about the appreciation of the original asset the new business that was created right so it's an appreciation capital appreciation story what you're talking about obviously the net worth of those individuals went up and you do some valuations of their businesses in the book but it's a cash flow story. They created businesses that. day-to-day make money, pay bills, employ people, and make those individuals the three million wealthier and wealthier. Through this tax reform, they got to keep more of it. Just for a second, what do you think would have happened had we not had this tax reform in 1986? Have you thought about it? So I think, right, so yeah, it's very much like these operating businesses, they're not growing in the same way that SpaceX or Tesla purports to grow, even if it was not necessarily always growing that way. And so the value in those businesses is very much like the expected future profits should we colonize Mars, and that's where the increase in the net worth through Elon comes from primarily, right? For these operating businesses that we're talking about, car dealers or dental practices or bid market manufacturers, it's not about future profits, they're growing some, but it's very much like they're currently profitable. And they're cash flowing right now, and some of that's getting reinvested and some of that's going back to the owners. But to your question, what would have happened if '86 didn't happen? Yes, so these businesses would, new businesses elect to be sea quarks, sort of like the pre-86 world, they would be leaving money in the firm if they're generating cash flows. They would be consuming more through the firm like what we had in the '60s, '70s, '80s, the company car, spousal retreats, the vacations, all of these kinds of things that were happening in the firm as a kind of tax shelter because it was so expensive to pull money out of the firm. And they wouldn't pay more tax, so they would have been taking less after tax out. So the values those businesses would be lower because, you know, if Uncle Sam has a larger stake in those businesses, their private market valuation is smaller. So an important part of the rise in their value is the lower tax burden that they face now than they faced in the '80s. Another driver of rising valuations across the economy has been the fall in interest rates, although in this moment we seem to be seeing a minor reversal in that, we'll see how long it lasts. But that has an effect on both public and private companies in terms of the value of future cash flows, right? But especially those public companies where the cash flows are way out in the future, it has a much bigger effect. So that's my counterfactual world. But on the appreciation point, it's not like there hasn't been great appreciation of these businesses. So if you look at data on various proposals to tax unrealized capital gains or just look at who has a lot of unrealized capital gains in the economy, you focus on sent-to-millionaires and above. So people with $100 million, two-thirds of that is in private business owners because they often hold it for decades and decades. And so even if they're cash-failing businesses, what they got it at and what it's marked at is very different than what it's worth today. And so there's a ton of wealth and unrealized gains there. So it's not like there's none of that either, I guess, that's what I'm trying to say. Now that's so it's a two-engine kind of story and where you have both the cash flows that they get to keep like Eric mentioned and as you mentioned, Owen, that those assets have appreciated those businesses grew. You know, it makes me pause and think since 1986, it sounds like also an entrepreneurial success story too. And I don't know if the incentives were improved because of this tax reform that people had more appetite for risk to start businesses, grow businesses, reinvesting those businesses. Have you thought about that? That it created this massive way of wealth creation, but also, you know, just business success. Way beyond technology globalization, a lot of the businesses we'll talk about, they're actually fairly local. And I mean, I don't want to say old school, but you know, old school for lack of a better way to describe it. We call them unglamorous a lot of ways. So sort of like, you know, you're running an HVAC, you know, it's a repair shop with a bunch of trucks around town. Yeah, that's not going to be the center point of a cocktail party conversation, right? But you might be very happy to, you know, with your back statement. But yeah, so I don't know what do you think about this one? Kind of a chicken and egg. Did we have this entrepreneurial wave because of the tax reform? This wave would have happened anyway. It became bigger because of that tax. I was thinking a lot about reading your book because you're observing something that has happened, three million households, 13 times as rich as the Forbes 400, people we don't talk about, you know, some of the names you mentioned in the book, but many are pseudonyms as well. Never know who they are. I mean, there's a huge phenomenon that happened to us as economists, I studied economics at school. I'm just fascinated by what you guys found. Yeah. So my sense is, you know, so we do a pretty systematic analysis of entrepreneurs because of this data set, we were able to put together the first data set of every single person who started a business, there's 10 million of them in America since 2000. And the monetary payoffs don't seem to be as first order to me. You know, if you're going to make a lot of money as an entrepreneur, if you're going to make 80% of that in terms of take on pay or 70% of that, I think it's still like a pretty sizable thing. What really mattered more was your early labor market experience and getting people exposure to the types of businesses that put you on a path to after working in the industry for 10 years. You're able to, you know, start one yourself or somebody's retiring and you can get some financing and buy it from them. And that's really a key part of success. And so, you know, my view is there's a little bit more action there than like how much money people have when they're about to start something or what the specific tax rate is because, you know, it's really about exposure and experience and rolling up your sleeves. So, that's why I take on that question. Yeah. And then think about why, you know, maybe they've gotten richer than similar types of founders back in the 1970s. There are some economic tailwinds that have been quite important. So, globalization has both increased market access, relatives of what was available back then. You think about, you know, the fall of the Soviet Union opening a bunch of markets. You think about, you know, China's accession into the World Trade Organization opening input markets for even, it's not just big multi-nationals that are able to take advantage of low-cost manufacturing, right? We tell a story of a $5 electric toothbrush manufacturer. The guy starts his business in the late 1990s and uses sort of low-cost spec manufacturing from China to enter with like, you know, less than 10 people in the shop, sells that business for hundreds of millions of dollars in.com, which is an amazing story. That's the story of John Oshar. But those kinds of tailwinds are really important. Then with the better taxes that keep more of the fruit, you know, of that growth, a similar tailwind that's happening more domestically is you have a wave of deregulation, allowing, you know, cross state competition and entry, allowing businesses to kind of grow through acquisition across borders. That's not just a strategy of private equity, it's also a strategy of some of these everywhere millionaires to sort of buy up, you know, a beer distributor buys up another beer distributor when that person's retiring and doesn't have a successor to take it over. So those forces, I think, are helping kind of fill the sales as these folks kind of ride off into the sunset. It's fascinating to me. I was telling Owen before we got started how when I travel in the U.S. coast to coast and I'm a public market investor, I know the publicly listed companies, but when I travel across the country, I see so much of economic activity that doesn't belong to any of the companies that I know. And there's definitely something happening, you know, products that are offered, services are offered, some businesses are clearly very successful. Some of the names I've never heard of and probably when I cross the state line, I'll never see this name again. You take us on this road trip across the country. How does this help tell this story? And you kind of hinted on it, but maybe you can have a story or two from the book that you could share of the individuals we get to meet. Yes, I'll start with this one. I mean, it's pretty fun. I think because, you know, so many people who we want to read the book, you know, are probably thinking about the economy, sitting where they're sitting, and I just like haven't thought about, you know, taking a road trip or sort of looking in some of these other places across the country, just how much diversity there is in flyover country. You know, I live in Chicago, which is, I guess, adjacent, but it's a big city also. You know, we found this guy through having a really nice house, so we looked at like property tax kind of records, which are publicly information to find who has big houses in some of these markets that are, you know, off the beaten path. So this is in Natchez, Mississippi, I think. It's an old sort of pre-civil war house. The guy bought it because he and his wife are kind of passionate about. you know, old houses or something, it's a several million dollar house there. We looked up, who is this guy? Oh, he started a seamless gutter manufacturer. His name's A.B. Walters. We went and found that the manufacturer's private company of Ace in Texas called Xenox. And on the website, they say, "Seamless gutters, "that's what we do, that's all we do." If it's about seamless gutters, we're rather doing it, thinking about doing it, planning to do it, or something like this. And it's like, the most amazing, a little bit of his background, he got a computer science degree, but it was like, you know, allured into like becoming a gutter manufacturer, but you know, working at Sears and not liking the quality of the product. So he's just like a great example of like somebody quite wealthy, you never think to look for, never think to find. We found him that way. Then we take the road trip a little further down the path, maybe own and tell you another one. Yeah, so that we end the road trip in Silicon Valley and the story that we tell is kind of contrite to the move fast and break things, you're gonna get insanely rich in five minutes by building an app. That's just not the model. Instead, we tell the story of Nancy Mueller, who's the queen of Keesh, and she used to have Christmas parties and she used to freeze Keesh, and they were quite popular. And she decided to slowly expand it and make more Keesh at scale. And essentially over a few decades, she hired someone to wash spinach and washer and dryer and solve the problem of getting spinach to be dry for making Keesh at scale by using washer dryer to do it. You know, but just really, and it took a really long time for her to feel comfortable with how the scale she needed to sell it, but she ended up selling it and buying a super yacht. I think it's called the Andiamo, which is an Italian. It's like, okay, we've been messing around. Let's go. It's what Andiamo means. And, you know, I think the lesson from her story is, you know, you should move slow and make things. That's another path to make a lot of money and that we don't really think about it in the economy when we just have this intense focus on a handful of billionaires that are monopolizing all the attention. - Yeah, so we found these people, right? Like from Mississippi to California and in between and Oklahoma City, we're in like suburban Fort Worth, we're in Salt Lake, you know, we're in Boulder, we're in like all these different like towns. There's just tons of these people there and we kind of also quantify how many they're there that we don't get to tell their stories 'cause there's just too many, too many stories to fill in. - It's such a good point that the handful of billionaires monopolize our attention, but they don't monopolize the wealth and the income as you share in the book. When you were looking at all those businesses and there's so many ways to make money clearly reading your book and having done the work that I do, but what are some of the most surprisingly lucrative businesses that you came across that nobody would have ever guessed that you can make money this way? - So we have a kid's book version of this question, which is fun 'cause we have a little kids at home and it's like we're, you know, thinking of the book as a lost leader to make a children's book called, you know, the ABCs of getting rich. A is for auto dealers, B is for beer distributors and C is for contractors, you know, the auto dealers so that A is like one of the more surprising characters that shows up in the book 'cause when you add up top point 1%, they pass through business income like who's there near like the top of the list in terms of like collectively generating tons and tons of profits, the auto dealers pop out and you're like what's going on? Like why are there so many rich auto dealers and why are they so rich? And so we tell a bunch of auto dealer stories in the book because it's like a fascinating vantage into this broader class with, you know, specific elements to the way auto dealers are protected in local markets from competition by franchise laws and so on and they also put a little bit of light onto this idea of how these everywhere millionaires also translate their economic power into political power which is maybe something that your listeners would be less interested in but it's also kind of a fun story. - But, you know, there's just so many, we have a spreadsheet from when we are initially trying to put together some of these stories and the vast majority we were unable to tell but there's like a repo guy who just repossesses cars in Nevada. There's a guy who was someone we talked to for the book who distributes supplies for bathrooms of restaurants so like they make sure that they're soap and toilet paper. There's another guy who sells trash bag liners and he became a literal treasure hunter from selling his trash bag company for $350 million. You know, every time we basically love asking who's the richest person from your hometown or from your high school that you know and you'll hear, "Oh, it's the guy who makes windows for drive-thrues" or, "Oh, it's the person who puts the plastic around two laces." Or, "Oh, it's the pedal man," you know, you name the obscure quirky thing and you know, in some town that's the person who's really got in rich and owns the big house or the nice boat and it's really the story of how people are actually getting rich in America. It's much more of a road map than, "Oh, you should just be like Elon Musk or Jeff Bezos which isn't quite attainable or inspirational in my view." - It's much more encouraging and inspiring on so many levels. One of them is that you don't have to be the next Elon Musk. It can be a very unexciting business but very successful that other people can't do or you do better or whatever advantage you have and you don't have to be a CEO of a publicly traded company. There's just a handful of slots available and there are a lot more people that are making a lot more money doing what you mentioned in the book. We were talking about entrepreneurship and in the book you mentioned that it's not really about the initial capital about the initial money and I think it's both a question for, you know, potential entrepreneurs but also probably for policymakers. How do you have more entrepreneurs? What have you learned from those stories that it's not really about the initial capital? Is something else that gets things done and launches those businesses? - So one of the most inspiring stories we tell on the book is this person, Karen Bentleyj, who started a series of tanning bed or tanning salons and then waxing salons and she got her start. I mean, she was not coming from a family of great wealth at all and she didn't have a lot of money to put into the business initially. She got her start sort of, got a job working for somebody who had some management experience that she could learn how to kind of run things a little bit, see that person, get some mentorship from that person. He was a business school grad, I think. And then pretty quickly sort of learned about this new tanning trend. So picked up kind of a consumer trend. Oh, this is like a new market that's kind of opening up and started kind of working as a salesperson selling, distributing basically these tanning beds and thought, oh, well, maybe instead of just taking a salary or a little commission on this, I should like save up some money from this work that I'm doing to buy one of these and partner with somebody and put them in the back of a salon and then we'll split the profits from when somebody goes into the tanning bed. And so she's like took a little bit of savings, right? But she wasn't like starting out with a nest egg in any way. But pretty quickly turned from sort of like a kind of salary or sort of low equity job into like, I'm gonna own a little chunk of something and see if this works as a business. So take a little bit of risk but also see if I can turn a profit. And before she knew, she's like, this is incredibly profitable. Like there's like bags of money already coming in from having a couple of these tanning beds in the back of the salon. She's like, I'm gonna scale this thing up. I'm gonna start opening my own. And she's making hand money, hand over a fist. Her mom still wants her to go to nursing school, I think, because she's like worried about the risk. And she's like, Mom, I'm gonna be rich. This is not the way, this is not the way to get rich is to go to nursing school. It's like, you know, gotta do this entrepreneurship thing. And so I think that story is like learning a little bit, running, you know, escalating experiments, kind of trying to pay attention to market trends. You know, a second act in her career was sort of pivoting from tanning to waxing salons because she sort of saw consumer preferences as concerns about kind of the health effects of tanning became more salient. She sort of switched to this kind of beauty type service that had a little bit less of those side effects. So again, pivoting, but at the same time, using what she learned before. So again, that early labor market experience, accumulating, accumulating, putting it to work taking equity, not taking on too much debt so that you've got some flexibility to pivot. These are some of the lessons, I think I merged over and over in these stories. And they look like a successful entrepreneur that looked like lessons or a blueprint, as I said, for somebody wanting to do it today. - Finding that kind of opportunity and just pursuing it and, It's more about persistence and grit than the capital what I was reading through between the lines in your book. I'm curious about the childhood background. You hint on it in the book here and there. Can you share what you found out the individuals you got to meet and learn more about who becomes a mainstream millionaire? Can we tell from their childhood experience that somebody is set up better or worse for that? Yeah, so I'll tell one of my favorite stories that we tell in the book and then the systematic data behind how many people are like him. So my favorite story and we also wrote an excerpt of the book that you can see in the Wall Street Journal where he they had this amazing picture of him right on the cover. So if you take a look it's called the American Dream is a live and it's minting a lot of millionaires or something like that. So the story is of Dick Portillo and when we talked to him you know he talked about his upbringing. He grew up in the housing projects the Cabrini Greens of Chicago and he didn't know he didn't go to college. He went to the Marines and he didn't know how to make a hot dog or steam a hot dog bun before he started a little shack in the suburbs of Chicago to sell hot dogs and it didn't have running water. He basically got $1,100 from himself got some money from his brother and was handing out little flyers on cars all around. He knew that hot dogs were popular in the city but the suburbs hadn't really been hit and he eventually grew that business to being able to get running water and getting a second one a third one and he was absolutely relentless like you said he you know worked his tail off and like the images that are still like in my mind from you know from his story or when they didn't have running water he'd bring the dishes home back to his family home and rinse all the plates and dishes in his family bathtub and there's like mustard and mustard and ketchup on the family bathtub just stained there from all the hard work of cleaning everything every day and to jump forward he ended up selling the business several decades later for a billion dollars and sailing off in his yacht called the top dog which is a great name for a yacht for someone with that story. So like more systematically right we see folks from you know rich backgrounds are more likely to become business owners and successful founders than folks from poor backgrounds in terms of like their families. So we like to say the odds are not even that you know if you lose the birth lottery that you're going to be a successful one but I think the more optimistic take on it is the typical person who does rise to the top is not from one of those rich backgrounds so there are far more of these successful stories from folks in the bottom 50 than there are in the top 1% so there are a lot of stories like Portillo who started out the housing project growing up as a child of immigrants to rise up. Immigrant populations are just more likely to generate entrepreneurs which is an interesting and interesting story something about the immigrant experience something about maybe opportunities that are available in the traditional sort of corporate ladder or the traditional like create this like desire and need for those folks to go become entrepreneurs a lot of successful entrepreneurs and in our book look like that um so I think you know there's like a glasses half full reading of it is there's room for improvements is socially we could have even more successful entrepreneurs from some of these disadvantaged upper you know backgrounds but you don't have to be a rich kid to do it like Portillo or Karen Batledge or so on um you do have to be kind of like a bit of a troublemaker a bit of a grinder a bit obsessed like both Karen and Dick were in terms of like being willing to kind of you know defend yourself being willing to be underestimated by folks that you're competing with and so on there is a personality type that we see emerged especially in these founder backgrounds the sort of worth reflecting on you know what is it within us that we could take to provide the kind of resilience needed to grow these businesses like they're not going to succeed immediately it could take a quite a long time so there's like a lot of stress along that path so just like a certain personality type for sure um but you know just having having the trust fund is not going to do it it's almost that you need the hardship to create the fire to keep going you need to have enough of a runway to succeed which you mentioned sometimes it takes a lot longer to see the results and I mean at the end of it I was thinking that probably we can't manufacture entrepreneurs they they create themselves we can't just assemble them based on a checklist or a blueprint maybe we can create a you know setup or stage or framework that allows more of them to flourish and succeed because of a longer runway for the ideas that they have that's what I was thinking reading your book I work with families that many of them have had wealth over multiple generations or they're set up right now to have that kind of wealth for many generations to come so inherited wealth comes is part of the conversation and in your book you talk about inheritance in this topic specifically has that played a big role in the kinds of businesses you're looking at a lot of them are founders driven or acquired in the lifetime of the owner they're not necessarily inherited businesses yeah so we we like I like to say the easiest way to get rich is to be born rich so I recommend it if you can do it and and it is definitely the case that there are a lot of inherited businesses multi-generational family businesses in this everywhere millionaire class but the typical one is a self self-made sort of either started a business or bought and grew one about you know 25 to 30 percent we estimate of those in these every millionaire categories are going to be more of this like multi-generational family business type and we try to explore the nuances of you know coming up in that kind of a family where you're expected to take over the family business what does it look like when it goes well what does it look like when it goes poorly because operating that kind of asset is not the same thing as just collecting the coupons from the stock and bond portfolio that your parents left you and so passing on wealth in the form of an operating business like this it's quite a bit quite challenging so we kind of like tell you stories to try and show what it looks like and it's I mean I think it's a pretty fun part of the book is some of those stories I don't know like oh you might like touch on a sum of some of them I mean I mean you know you can read you can read the book for the full story but the you know the more optimistic one some of the highlights are the father really taking the son under his wing having him work you know through most parts of the business really grinding on several aspects of it and then being really opportunistic during COVID when the valuation of the business was quite low to hand over some of it so that it was beneficial for for tax reasons to transfer things when the value of the business was much lower than what it ended up being typically before COVID and after COVID after the recovery on the downside you know there was a story of some brothers who had a pretty attractive business but many of them were treating it like a family bank account rather than the family business and you know some of the problems that it ensued and the story of you know how that was overcome and some of the pitfalls and struggles you know something that we we talk about in a in a colorful way there in that chapter as well right that they draw the distinction between is a business run by a family or a family business and sort of like you know in some of these cases the kids sort of treat the businesses like the checking account in a way that's not great for the operation of the business of the long term stability of it it's opportunity for entrance to compete with those those stories it's interesting how many of those businesses you write about and you know statistically speaking they are the founders still around or somebody acquired a business in some of the cases and how hard it is to actually pass the business along to the next generation and the story that you mentioned of you know son being truly or the next generation being truly involved in it and having a passion for it to like some of those businesses I feel like you need to have a passion to run those businesses yeah but related to that you talk about caching out in the private equity wave and I think we can't really escape this topic these days a lot of privately held businesses are being acquired it could be a way out for the original owners there are some consequences for the employees communities customers the culture of the business what have you seen what have you learned and you mentioned one example of an acquisition but private equity is definitely probably looking at those businesses oh and you want to go ahead Yeah, and I think there are a lot of different exit options. So one of the people we talked to is Tracy Britt Cool, who was a Warren Buffett protege who decided to leave Berkshire Hathaway to focus on investing in very much these types of businesses. And part of her pitch is that, look, you don't have to lose the legacy of your business. I'm going to be a long-term investor. I'm not going to chop it up and fire half the employees. And so I think there are enough exit options, where there are some people who really do understand. In fact, a couple of them have even sent me their books. I'm just like, I can't remember the name of the top of my head, but it's like long-term capital or like the permanent fund. I can't remember the specific names of sorry for not remembering off the top of my head. So there are some of those, which I think helps alleviate that concern. Other people like Kim Jordan of Newcastle Brewing, who we talk about in the book, she gave a stake to her employees. And so if you're really concerned about the well-being of employees, some people turn to eSops and there's definitely trade-offs there. You're not going to get as nearly as much money as if you sold it to private equity. But there are lots of stories of really bringing a lot of people up and giving a broader set of their workers some equity stake. And so there are a range of options, but I do think private equity gets a bad rap in that it is an attractive way to say, look, like if my kids don't want to run this, here's a way to get some professional management and organization and maybe revitalize the business, it doesn't always have to be like the horror story of chopping it up for parts and selling it. That's not always what happens. And you asked about sort of what are some of the factors that have caused these people to get so rich that everywhere millionaires, the growth of private capital markets, sort of like the flood of capital into private equity, for example, in the U.S. specifically from less than a billion dollars allocated in the 1980s to like trillions of dollars now going into private capital markets today because the returns are so much more attractive. This is increased valuations, but created these exit ramps that are kind of unique in the U.S. relative to a lot of countries, I think, where there's a transfer of ownership and a transfer of vision. And in some cases, the private equity investor shares the vision of the founders or the family, in other cases, the private equity investor has other ideas, and we talk through some of those, too, what does it look like when the private equity investor no longer wants to use the premium ingredients in the restaurant, but wants to use the generic ingredients in the restaurant, or what does it look like when private equity sees a lot of money in skilled services. Like we're looking in our data, there's a ton of rich doctors making tons of money. Healthcare is huge and growing part of the economy. Private equity is like, oh, interesting, maybe I could get some of that. They're trying to figure out models where they can buy up doctors' practices and apply the private equity model to that. It's not the same thing as applying a mid-market manufacturer and applying the private equity model because so much of the value is wrapped up in those doctors, right? So it's tricky, but it's a very active area right now in private equity, sort of the shift into the skilled services, but I think it's sort of because they've recognized other of these everywhere millionaires looking to exit or retire, maybe we could do something with that. It's fascinating how it's all connected. You read about private equity buying up all those businesses, but nobody ever says what kind of businesses, who owns those businesses, how come we have those businesses, and how come there are so many of those businesses, right, like how rich of a market it is. We have only that many thousand publicly traded companies, but we're talking about millions of actual operating businesses out there across the whole country. We're talking about economic power that this group acquired clearly in the last few decades, maybe it's a longer journey from any of them. That there's also political power that follows. You talk about it as well, and curious, what should we know about that group as a political power? They definitely don't get the media attention than the Forbes 400, but I have a feeling that they have some influence on how things play out. So you asked us about surprises, and this was one of the surprises that I think led us to, oh, we need to write a book for a broader audience because there's a story here that's much more than academic about the rise of this group of people and how they're influencing society. So we had from RoCES this 2017 tax reform through some of the advising work we were doing at the time to see, okay, here's some ideas for good policy that academics have. And then here it's like some ideas for making policy that policymakers have. They're quite different. Why are they different? Oh, it turns out that if you want to write the tax code, you look at who's on the ways it means committee of Congress, that's the tax writing committee in the House. There are three auto dealers there. A quarter of that committee are private business owners. You compare that to the general population, right? That's like an order of magnitude more in terms of representation of private business owners in that committee and in Congress brought more broadly. And so the idea of who's representing us in elected office, looking at those people in their backgrounds, their business owners all over the place. And that's a fascinating story that I think is very, very undertold that we try and explore in the book. And I'll let Owen, you know, add some color. Yeah, another reason why we call the book the Everywhere Millionaire. A second version of it is that there are these millionaires in every congressional district. And so unlike some strong coastal forces, you know, you need a lot of members of Congress for things to pass. And if you think about who's playing golf with the senator, who's playing, you know, who's employing a lot of people at the local Congressperson's district. It's a lot of these folks. And if they're not themselves, the member of Congress, you know, they're pretty involved with raising money or getting votes or getting popular support. And so they really do have a lot of influence shaping things. I mean, every all successful people try to bend things to their favor. And this group is particularly influential. And so you see it when you look at different histories of regulation and protections for certain groups or for the evolution of the tax code. And sometimes these things, you know, aren't unreasonable at first, but then they kind of grow life into their own and maybe they need to be trimmed because the initial justification while it might have made sense really doesn't make sense in the economy where it is now. And there are a lot of very big businesses that are kind of hiding behind the mantle of small business. That's a very powerful image and how those businesses are so spread out across the country. They matter for a lot of elected officials and now what kind of role they play. You know, watching TV, what, listening to the news, you might think that we're living in the second-gilded age, right, Forbes 400 comes to mind, but you push back on that idea. So what's different about today's age of millionaires borrowing from the title of your book that we're witnessing? What's different that you wouldn't call it a second-gilded age? So we open the book with a $60 million wedding where the family flew the guests of France. They rented out Versailles. They had Adam Levine from Maroon 5, seeing the first dance on. And the wedding was more expensive than Jeff Bezos's recent second wedding. But you know, the source of that wealth was not tech or finance. These were not monopolistic, industrialists operating at massive scale, such as, you know, Carnegie or Rockefeller, like in the gilded age, those are the images that come to mind. These were third-generation car dealers from Coral Gables, Florida, you know, not even in the top 20, I think, in terms of flight volume of car sold. And so if you, you know, zoom out, widen the aperture from this fisheye lens we've been using to look at who's really rich in America. You realize there's this abundance of wealth and affluence, millions of people with like, just extraordinary fortunes all over the place. So we call it the age of billionaires because we think, you know, they're really the ones that are walking around everywhere. And they have far more wealth and far more power than people appreciate. And I think the gilded age creates the wrong image because it says, you know, this is like a small group of people that, you know, are running these huge mega industries that are like where all the power and all the prosperity is, and that's just not the economy that we really see. Yeah, I mean, there are similarities, of course, like if you look at the top point, 1% wealth share, it doesn't go far enough back to all the way to the gilded age. The, you know, income tax started, I mean, there's history of raising money in different wars, but, you know, 1913. And so the sum of the data started, I think, in 1913, another series starts in 1916. And we're kind of back to those early levels and there's this famous U shape. So that's one thing that might make it seem similar. The second is this conspicuous consumption that you saw, especially the kind of, the underbuilds and others who weren't the first generation, but the second generation or third generation, you know, buying these amazing mansions or building these amazing mansions or doing having these crazy yachts or big, lavish parties. I think there are clearly similarities, but you know, we're much more of a service economy now where you don't need as much capital as you did if you're going to go and build a railroad or refine oil. You can make a ton of money with a laptop and a few lawyers. I mean, it's amazing how many lawyers there are across the country. Some of them are making $5 million a year in income and you know, that is just not like what the guilty age is really about, like really rich lawyers in every town in America. And so that's one another aspect in addition to what Eric was mentioning. It's a much broader success story. And as you mentioned, the American Dream is very much a life. It's showing up in places that we haven't looked about. Your book allows us to look. Before we wrap it up, I kind of want to ask an open-ended question. You know, somebody reading your book, I read your book, people put it down, think about it. How would you want them to act differently as entrepreneurs, investors, citizens after reading your book? And kind of take away inspiration you want them to have. So I think of like three audiences for the book or like ways that people might enjoy it. And I want to be clear that we spent a lot of time writing this book so that people wouldn't just buy it but also and collect it but actually read it and enjoy it. The stories are quite colorful and there's a lot of wordplay. Like we sort of like, you know, we try to make it kind of fun. So if you're aspiring to a prosperous life, you know, or maybe for your kids, so you want to be an entrepreneur or something like that or grow that way, you know, I want people to think about, you know, are you solving a problem or using something that came from your prior experience, putting that asset to work in starting this venture, sort of how are you solving the problem that you think you've identified? And then, you know, be patient, focus on profitability. You don't have to get there tomorrow. And you're going to learn a lot from like sort of running the series of escalating experiments as you go to market as you develop a business. So keep trying to escalate. But, you know, I think folks are really impatient right now. Kind of like the, you know, the social media and the phones and everything just causes to sort of want to get there tomorrow. And I think a lot of the success stories have this move slow and make things feel that I hope people, hope people really kind of take away from it. You know, if you don't want to be a successful entrepreneur, but you just want to see the economy, broader society as they really are. So look around you and really understand things better. I think that's another audience that we think is quite important for the book. Yeah, I mean, one hope that we have is that if you kind of broaden your focus, it makes things seem a lot more attainable and might spark ideas of, oh, you know, this guy is actually retiring or I, you know, that my family friend is running this thing. It's a pretty successful business. They've got a nice lake house. I wonder what he does. You know, it can hopefully spark conversations and put people in a place where, you know, they might be on the path to become one of these everywhere millionaires. It's such an inspiring read. It not only allowed me to see a certain blind spot that I definitely had and I think many of the readers have, but also just to open your eyes to there's so many ways to be financially successful in America. And some of them you might have never fought off or heard off unless you have a neighbor like the ones you feature in the book, but reading your book, I think at any age, it just opens your eyes and you realize, huh, what an incredible country we have and how much is possible here. The book is called the Everywhere Millionaire, who's really rich in America and how they got there. Thank you so much. What a wonderful conversation. I highly recommend your book and I'm so grateful you spend the time in the basement of the IRS writing this book. Thanks for having us. That's great. Before you go, just a quick reminder, if you want to check out Fiscal AI and see how it can upgrade your research process, subscribe using the link in the show notes to get a free two week trial plus 15% off. You enjoyed the show. Please take a moment and follow, subscribe, rate, and share with friends and family. We rely on word of mouth to promote the show. One click for you means the world to us. Thank you. Until next time, your host, Bookmill Baranowski.