I saw this going viral The Rich Are Not Who We Think They Are. And Happiness Is Not What We Think It Is, Either.
First, rich people own. Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage. Salaries don’t make people rich nearly as often as equity does.
Second, rich people tend to own unsexy businesses. A different study, by the statisticians Tian Luo and Philip B. Stark, examined which businesses were most likely to fold fastest. The kind most likely to go out of business most quickly is a record store. The average record store lasts just 2.5 years. (For comparison, the average dentist’s office lasts more than 19.5 years.) Other businesses that fold quickly include toy stores (3.25 years), clothing stores (3.75 years) and cosmetics stores (4.0 years).
There are, however, plenty of unsexy businesses from which a few people are getting rich. These include auto repair shops, gas stations and business equipment contractors.
Of course what is ignored are all the failed businesses. Major survivorship bias here. Your odds of making a lot of money are highest, still, with the college-to-tech or finance route/pipeline + investing & saving (‘Fat Fire’ style). Also, one must take into account the high failure rates of entrepreneur wealth, so probably many of these people in the top .1% in HVAC, cars, or construction are not going to stay there for too long. Meanwhile, people in tech seem to retain their wealth longer, without being as vulnerable to economic or other fluctuations.
Not uncommonly this ‘unsexy’ wealth is based on leverage, as was common during the 2000s housing boom, in which people who were millionaires were suddenly ruined due to this leverage. Restaurants have a lot of macro sensitivity, probably more so than a software company , as was demonstrably obvious during the Covid, during which stores and restaurants were forcibly shut down, and many never recovered. Meanwhile, tech businesses boomed. Margins are thin and expenses are high. A downturn can mean layoffs, closures, and evaporation of personal wealth unless you sell it before the downturn. I can recall a handful of stories on Reddit of average-IQ people who in the early 2000s suddenly became rich with real estate, only to lose it all just as quickly when the market crashed in 2006-2008.
For average-IQ people, it’s ‘riches to rags’ or ‘rags to riches and back to rags'(it almost always ends in rags), but for smart people, it’s more like rags to riches, to even more riches. Compares Bill Gates’, Bezos, or Buffett’s wealth over the past decade to that of your average Saudi or Russian oil or steel tycoon. Bill Gates and Buffett have occupied on top slots of Forbes 400 list forever and keep getting richer with each passing year. The Google founders have been on it for a long time too and are not going anywhere. Same for Musk and Bezos, who are not going anywhere either. The richest Arab is ‘Prince Alwaleed Bin Talal Bin Abdul-Aziz Al-Saud’ (you can be sure I did not type that) with a net worth of $16 billion, which is still just a fraction of one of the founders of Google and is not even enough to crack the top 80. All these people in tech or finance doing FIRE are not going to blow their savings, unlike some average-IQ guy who happens upon a small fortune and then blows it all on crypto gambling or a lifted truck.
Right now there are probably hundreds of people on YouTube making 6 or even 7 figures with just math videos, and such videos not uncommonly get hundreds of thousands or even million of views (like videos by the channel 3Blue1Brown). Other are making tons of money with interview formats, such as Lex Fridman. CPM rates are crazy high, as well as product placement like VPNs. Advertisers are paying so much money for video ads, whether it’s credit card companies, WordPress hosting, Grammarly, or speech-to-text software. Unlike labor and capital intensive physical businesses, YouTube videos offer much higher profit margins, scale better, and need far fewer employees.
Auto dealerships have legal protections; state franchising laws often give auto dealers exclusive rights to sell cars in a territory. Same for many beverage distributors, which act as middlemen between alcohol companies and stores and supermarkets. Beverage distributors have long been protected by a system set up after prohibition that prevents beverage companies from distributing their products themselves.
Except that this is offset by the high initial costs (such as purchasing the lot) and the competitiveness of the industry, in general.
‘Unsexy’ businesses tend to be saturated and have a lot of competition, unlike coding, which is a skill that has higher intellectual barriers to entry. Unsexy businesses cannot take advantage of intellectual property moats, winner-take-all network effects, and do not scale as well. Yeah, there are some huge exceptions, notably McDonald’s or Walmart, but I’m more interested in the median, not the outliers which skew the mean. The average net worth of one individual who wins $100 million in the Powerball, plus 9 people who didn’t, is $10 million/person, but the median is zero. That is an extreme example of the importance of mean vs. median.
If you’re making a solid 6-figures in tech, finance, or some other professional job, and then making 20% annual returns on top of that with investing (since 2009, including the recent 2022 selloff, the Nasdaq has posted an average annual return of >20%) and or home ownership, does it matter if you own your own business or not, if you can earn more money with less risk working for someone else (combined with investing)? The post-2009 era of trillion-dollar tech companies, the huge bull market in stocks and real estate, low borrowing rates (although, finally, after a decade borrowing rates are going up a lot), as well as the post-2010 ‘professional job boom‘ (such as the college wage premium), means that non-entrepreneurial paths to wealth are more lucrative than ever before.
He debunked a popular myth that there is no effect of money on happiness beyond $75,000 per year, but he did confirm a law of diminishing returns to money. In the end, Dr. Killingsworth found, the effects of money level off: You need to keep doubling your income to get the same happiness boost.
No kidding. Like most of social science research, it was bullshit. Something is popular or becomes a meme not because it’s true, but because people want to believe it’s true. Like ‘grit’, ‘10,000 hours’, or that money does make people happy, etc.
Regarding power, wealth and power are not mutually inclusive things though. Plenty of people who aren’t wealthy are powerful, such as influential journalists, academics, and politicians, and plenty of wealthy people are not that powerful or influential outside of business. (Who is the #344 on the Forbes 400 list? Thought so.) I think you easily need more than a $1 billion to become powerful through wealth alone, maybe more like $10-50 billion, even then it may not be enough. Even Mike Bloomberg spent a billion during his 2020 campaign and didn’t move the needle much.
It also depends on how you define power. I don’t think donating a lot of money to political cause is a significant expression of power. George Soros is powerful in the sense of funding certain causes and organizations (funding BLM, as it’s commonly said), but if he were to die, it’s not like BLM would be mortally wounded: BLM has many other sources of money. I think in terms of overall power and influence, someone like Ron Desantis or Greg Abbott rank way higher than probably any billionaire, save for Musk, Bezos, and a few others.