On Wealth and Happiness

A most interesting opinion piece in today’s New York Times entitled,  “The Rich Are Not Who We Think They Are. And Happiness Is Not What We Think It Is, Either,” written by Seth Stephens-Davidowitz .

The author suggests:

1. Of the top 0.1 percent of wage earners in America – those earning $1.48 million per year, most of them draw income from owning a regional supply business like an auto dealership or a beverage distribution company. Yes, there are celebrities, actors and athletes who make piles of money given their talent and notoriety, but three times as many affluent taxpayers make the majority of their income from business ownership. Salaries don’t make people rich nearly as often as equity does.
2. The nature of those businesses tends to be dull and boring including: auto repair shops, gas stations, business equipment contractors, etc. Their businesses tend to endure because they  provide goods and services that meet long term needs and demands.  This tends contrasts “sexy” businesses like salons, cosmetic stores, record stores, and clothing stores. These “sexy”  businesses have a limited life expectancy. On average, they typically fold after 2½ – 4 years.
3. Another important feature of their businesses is their ability to avoid ruthless price competition – either through a monopoly or a regional advantage, etc. For instance, more than 20 percent of auto dealerships in America have an owner making more than $1.58 million per year. Those dealerships have legal protections; state franchising laws that 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.

His findings are not unlike the conclusions drawn by Thomas Stanley, author of the 1990s classic, “The Millionaire Next Door.”

The advantages of business equity isn’t lost on the owners. Most of them are happy to maintain the status quo. Turnover is minimal (i.e. don’t be looking to purchase one of these businesses at a discount anytime soon).

The author then asks, “If pop culture is right in suggesting getting rich is a path to happiness?” I’ll examine that in a subsequent blog. For now, I’m going to see if I can find a cheap distribution business.

About the Author:

Seth Stephens-Davidowitz graduated from Harvard in 2013 with a PhD in Economics. His work has focused on using big data sources to research behaviours and attitudes. Using “big data” sources, his essay explores who are the rich in America and what relationship wealth plays in happiness (not for the faint of heart).