The Millionaire Next Door The Wall Street Journal Tuesday Nov 12 (Section B) had a summary/review of the book "The Millionaire Next Door" by Thomas J Stanley and William Danko. It presents much interesting and perhaps surprising information about the American rich, based on an in-depth survey of 1,000 rich people. The number of rich is growing rapidly. The IRS estimated 1.3 million millionaires in 1989, and Stanley thinks there are 3.5 million of them today. My review of the book is now on my web page. I think this relates to the issue of income mobility, the point of disagreement I have with economist Paul Krugman. Read my review of his PEDDLING PROSPERITY, and the "Stratification" and "Income Mobility" files on my web page. How Old are the "RICH"?? In the discussion of my review of "The MILLIONAIRE Next Door", the issue arose as to how representative is the sample that the book results are based on. jim blair wrote: Both C Post and Mason Clark point out that the sampling may not be representative. Jose Fernando Camoes Mendonca Oliveira Silva Organization: Massachusetts Institute of Technology Newsgroups: sci.econ >There are several books on analysing self-selected samples, mostly >because questionnaires always create these. In fact, other than cases >with 100% response rate (a set of measure zero, I'm confident), all >surveys are suspect. ..... Since the average age of those surveyed is "only" 54.4, this brought the following from C Post: >The self-selection bias indicated by that number alone is enough to >discredit the whole study. _Every_ reputable study of wealth has shown >it varies strongly with age. A claim that the average US millionaire is >under 60 is simply laughable. MY REPLY: TIME'S 52 "TOP 50". Just last night I came across the September 15, 1997 issue of TIME. Devoted mostly to Princess Diane, it had an insert that bears on this topic. TIME lists what they call the Cyber Elite: 50 people who have made a big impact (and made a lot of money) using computers. There is a short biography of each, and it includes their age. Billed as the Digital Worlds Top 50 Shakers, it actually lists 53 names (three from Microsoft, and two from Broadcom Corp count as only "two" in the TIME system). Since one (woman :-) does not list an age, there are 52 ages. Since the group is not "self selected", it may be more representative than the Stanley and Danko sample in the book. Of course it IS small, but there are ways to deal with the uncertainty in a small but random sample. At any rate, the TIME group cannot be dismissed as mere "middle class millionaires"; the wealth values are typically from tens of million of dollars to billions. It does include some names I did not associate primarily with computers, namely Steven Spielberg and George Lucas that I think of as "movies" and Rupert Murdoch, that I associate with newspapers. But I guess they also use computers to make their money. At any rate, they range from 23 to 72 Years old. The distribution of ages is : 2* (under 30) = 3 3* (30 to 40) = 7 4* (40 to 50) =18 5* (50 to 60) =16 6* (60 to 70) = 6 70+ = 2 The group's mean age is 48.5 years. Comments? ,,,,,,, ____________________ooo__(_O O_)__ooo_________________________ (_) Jim Blair (jeblair@facstaff.wisc.edu) University of Wisconsin, Madison(USA). "This message is brought to you using biodegradable binary bits and 100 % recycled bandwidth." The Rich: How do they do it? The issue: do the "rich" in the US get rich by stealing from the rest, or do they "earn" their money by work and by doing things that benefit the public? I offered "The Millionaire Next Door" as a study which tends to confirm the latter view; it is reviewed at: http://www.geocities.com/capitolhill/4834/106.txt Critics countered that the book is not representative, and indicated that they knew from personal experience. For example ebus38@uniserve.com wrote: > This book uses the term, "earned" very, very loosely. There is a > difference between "earning" and "acquiring." Almost all of the rich > _acquired_ their wealth primarily by one or more of > > 1. Inheritance jim blair: If only 20% came from "rich" families, how did "inheritance" become your top method to describe their acquiring wealth? >I didn't intend my list to be in order of frequency (as originally >noted, IMO #3 is most common), but in descending order of obviousness. > 2. Dishonesty, or .... The survey did not find this. How did you discover it? >By working for some of them. It would be rather surprising if the >survey _did_ discover a significant amount of dishonesty, wouldn't it? > (by far the most common) > 3. Private appropriation of publicly created asset values, especially > land values. Again, the book does not list anything related to "land values" (real estate?) as being a major factor. >??? Of course not. The authors were not _looking_ for sources of >unearned wealth, so they didn't find any. > Not by "earning" it. This caused me to think back over the people that I knew who became rich. Not many, and I really don't know just HOW rich they are. But here are the cases I know of. Note that several of them became rich doing things that I could have done, but didn't. HARKEN BLOCKS. When I came to Wisconsin as a graduate student in the summer of 1958, I had never been in a sailboat. But I quickly developed an interest is sailing: the UW has a beautiful shoreline on Lake Mendota and a fleet of sailboats. People around the club all complained about the lack of a good winch system to pull the jib sheets tight on the advanced Inter Lake (IL). It had a single winch on the centerboard housing, and it was broken as often as not. My first instructor for the (IL) boat was Peter Harken. About a decade later I read that he had designed a pulley which served as both a fairlead and a winch: it was simple, durable and effective. They are now used on sailboats all over the world and are called Harken Blocks. Peter and his brother founded Vanguard boats, and make and sell Harken Blocks, as well as various kinds of small sailboats. See http://www.pyacht.com/harken_blocks.htm I was well aware of the problem that the Harken Block solved. But unlike Peter, I didn't DO anything about it. He did, and small boat sailors all over the world are the better for it. ANALYTICAL LABORATORY After getting a PhD in chemistry at Wisconsin, I took a job at Du Pont in New Jersey. I didn't like it there, and worked with a fellow chemist named Bob who did not like it either. I quit after 2 years to teach at Milton College in Wisconsin. I later learned that Bob quit Du Pont a year or so after I did, but he moved to the Chicago area and started a private laboratory to do chemical analysis. Most of his clients were small businesses in the area which had samples they needed to have analyzed for various chemicals, but did not have enough of them to justify maintaining their own laboritory. His business must have done well, because he soon had a second home near Lake Geneva Wisconsin, and a 35 ft sailboat on that lake. But Bob does not see himself as "rich", rather just a "middle class" guy. After all his second home on Lake Geneva is not bigger than other homes there, and his yatch is no bigger than the average one. He often complains about how "the rich" are making too much money. BETTER GUTTERS While teaching at Milton I heard that a friend of my cousin in Cedar Rapids Iowa had made a small fortune by founding a gutter business there. He had noticed that it took two trips by workers to replace the gutters on a house: one to measure for the new gutters, and then have them fabricated in a shop to fit. Then on the second trip they could be brought to the house and installed. He has some skill with tools, and designed a machine that could be taken to a house to fabricate the custom made gutters as the measurments were made, so the entire replacement could be done in one trip. This was much more efficient for the workers and much more convenient for the home owner. BETTER BUSINESS PROGRAMS And my last example is my younger brother. After graduating from Missouri University with a math degree he got a job at International Harvester in accounting. He and and another guy were complaining about how poor the accounting and business programs that IH used were. One of them said "even we could write a better program than this". So they both quit IH and stayed home for a few months and did write a better program. And it WAS better. So they started a company to sell the better program. The company is Cyborg (a name suggested by my wife) and at last report was worth about $30 million. See: http://www.cyborg.com/ In summary: the cases that I know about of people who became rich all match the pattern given in the only large study of the rich: the Millionaire Next Door. All did it by a combination of recognizing an unmet need and by taking action, and some risk, to meet that need. They all made life better (for sailors, companies, or homeowners) as they got rich. ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) evilsamjones@my-deja.com wrote: > Your "build a better mousetrap" mentality is esthetically pleasing, but > I don't see how it will help anyone who isn't rich get richer. Hi, The examples I gave, plus the book, just tell how other people have become "rich" (OK Mason they were just "rich" and not RICH). That may not be of any use to you, because each of them did it in their own way. > > In other words, your apparent assumption that the rich are a bunch of > people who just plain-old had a good idea doesn't show us how to get > richer. Who is "us"?? >...Plus, I doubt it's true. It worked for them. Would it work for you? Who knows? >....And besides that, tell it to the > woman who has 3 kids, no husband, and only a high school education. Note that of my 4 examples, one had a PhD in chemistry (Bob), one graduated from college with a math major (brother), Peter was a student at the UW (don't know if he graduated) and the only one who may not have gone to college was the gutter guy (he may have gone to Iowa, but I don't know). As for the single woman with 3 kids...well do you play chess? When I was learning chess I recorded a game moves and later showed it to a local Master (who could play 30 games at once and evaluate a situation at a glance). When I asked what to do in this position, his reply was: "you won't be a good player until you realize that you don't understand the problem: it is not what to DO in this position. It is how do you avoid getting INTO this position". People often make decisions that paint themselves into a corner, and which limit their future options. > > People need realistic, attainable career and investment advice, not > this drivel. This was not "investment advice". Just information about how rich people in the USA got that way. -- ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) For a good time call http://www.geocities.com/capitolhill/4834 From: Jim Blair Organization: Wisconsin State Laboratory of Hygiene To: Sauron Newsgroups: alt.politics.economics, sci.econ References: 1 , 2 , 3 Sauron wrote: > > I think a point about how rich the rich are > and how they got there might be in order. IMO, > the restructuring of the tax code in the 80's > and a combination of slackening of anti-trust > activity, deregulation, and corporate welfare > has basically acted to shift money around, > from the middle- and lower-class to the upper-middle > and upper class. Hi, I don't see how "corporate welfare" played any role in any of my examples. None of these small companies got any money from the government--even from the Small Business Administration that exists to provide help for small companies to get started. And how does "anti-trust" apply to these small companies? And "shifting money around" implies that these did not create "new wealth" but took wealth from somewhere (or someone) else. Who or where did they take it from? Changes in the tax code that permit people to keep most of what they earn, did help. Is that BAD? >....The share of the nation's > wealth that the top 1% possess has ballooned in > the past 20 years (it is enlightening to realize > that the top 10% of the population controls more > wealth than the bottom 90% *combined*). And did they take this wealth away from someone else (the people at the bottom?). Or did they create wealth that would not have otherwise existed? >... The > skyrocketing of executive salaries and compensation > is part of the answer (I think the average CEO > earns something like $10 million/year now). These are mostly the result of companies paying the CEO with stocks or stock options. > The explosion of the speculative stock market > is another aspect of the answer. Someone mentioned > Dell. That guy has made most of his money from > playing the stock market (I think the ratio of his > stock profits to his profits from actual computer > sales is about 3:1). Yes. Stock options have not been nearly as valuable in Japan for example, where the stock market has been in decline for a decade. > > Jim Blair's examples of home-grown, apple pie and > baseball, all-American millionaires to make us all > proud, actually became "rich" (I assume they > are millionaires, although no figures are provided) ...and I don't know that they are except for Cyborg. But while Mason Clark calls a $30 million guy "middle class", to me when you own a second home and yatch on Lake Geneva Wisconsin as Bob does, that counts as being "rich". > through one common factor: luck. Can we agree that there is really no way to know what role luck played? The only way would be to back History up a few decades and re-run it again (many times) from the same starting point, and see how many of the current rich ended up poor, and how many of the current poor ended up rich. I agree that the lottery winners would be different people on each re-run of History. But would the founders of new companies? Would the stars of the NBA or the NFL? >....If the sailboat > fellow had not lived in Wisconsin, would he still > be a millionaire? Is being a millionaire somehow > discernable and natural at birth? I think not. Maybe not at birth. But at age 20? > They happened to be in the right place and happened > to think of a solution. Jim says the guy who thought > of the pulley solution deserves, even earned, his > millions (or whatever he has). I guess all the > workers and salesman who have worked under Mr. Harken > have made no contribution? Are they all > millionaires too? You raise another point, but you are looking at it backwards. Yes each of these examples created jobs for other people as well. Cyborg now employes about 750 people world wide, and pays them all good wages. Same for Vangard and the analytical laboratory and the gutter company (but I don't know the numbers for them). Are they BAD to hire people? I recall some recent comments from an Indian on the question of why so many people from India come to the US for college when there are many good universities in India. He said the view in India is that universites in India train people for jobs in the government, or to work in big companies. And when the get out of college, they look for such jobs. But in the USA, many people come out of the colleges not to look for jobs, but to create jobs. And that is what India needs most: more people who make jobs, not more people who take jobs. See: http://www.geocities.com/capitolhill/4834/smalbiz.htm >....Perhaps if Mr. Harken made > every pulley and block he has ever made a profit > from, and sold and installed every one, then he > could be entitled to his wealth. Better that he remained a one man speciality pully maker for the few rich yatch owners that could afford his wares than that he provide jobs for many people making his pullys for the large number of small boat sailors that could benefit from them? -- ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) For a good time call http://www.geocities.com/capitolhill/4834