I see from Torsten Slok that yesterday Owen Zidar and Eric Zwick published their book * The Everywhere Millionaire: Who Is Really Rich in America and How They Got There*.
Torsten Slok: The Zip Codes That Don't Make the News <[https://www.apollo.com/wealth/insights-news/insights/daily-spark/the-zip-codes-that-do-not-make-the-news]>: ‘The 400 wealthiest Americans on the annual Forbes list hold about $4 trillion in combined wealth, while the far larger group of private business owners with at least $10 million in net worth holds $46.7 trillion…. Most top-end wealth in the US does not sit with a few household names but with millions of business owners in towns and mid-size cities across the country…
And, indeed, at today’s Berkeley Economics Department faculty lunch, Danny Yagan, Jon Steinsson, and I fell into a discussion of Owen and Eric’s great new book. Thus it is on my mind.
My take: I have been waiting for someone to write this book for nearly five years, ever since I first read Patrick Wyman’s “American Gentry” piece back in the fall of 2020. This is the measured, quantified, administrative-data-backed portrait of who actually owns America, and it turns out that Patrick Wyman’s historian eyes, Yakima-born nose, and keen intuition had given him a truly key insight.
Wyman grew up in Yakima, Washington—“the self-proclaimed Palm Springs of Washington [State]”. It is a small-sized metro of ninety thousand souls sitting in a sea of orchards on the dry side of the Cascades. He noticed something about his hometown. That something is something that the standard American story about wealth and power simply does not see. The people who ran Yakima were not the international oligarchs of glass-walled penthouses and Hamptons compounds. Instead, they were the families who owned the fruit companies, the cold-storage units, the processing facilities, the commercial-construction firms that paved the roads on which the apples and cherries moved to market.
Their wealth ran into the millions and tens of millions, not the billions. And it derived—this is the crucial thing—not from their salaries but from their *ownership of assets *in the form of businesses that generated profits in the local economy:
Patrick Wyman: American Gentry: Local Power and the Social Order: This kind of elite’s wealth derives not from their salary—this is what separates them from even extremely prosperous members of the professional-managerial class, like doctors and lawyers—but from their ownership of assets. Those assets vary depending on where in the country we’re talking about; they could be a bunch of McDonald’s franchises in Jackson, Mississippi, a beef-processing plant in Lubbock, Texas, a construction company in Billings, Montana, commercial properties in Portland, Maine, or a car dealership in western North Carolina…
Reflecting on his own birthplace:
Yakima is a place I loved dearly… have returned to often… Most of my close classmates in high school… [live] in major metro areas… not our hometown…. The kinds of jobs they were now qualified for didn’t really exist in Yakima…. For a person lucky and accomplished enough to get one of those [few] reasonably affluent professional jobs, Yakima… isn’t a bad place to live…. But… a city… dominated by its wealthy, largely agricultural property-owning class… Commercial agriculture is a lucrative industry, at least for those who own the orchards, cold storage units, processing facilities, and the large businesses that cater to them. They have a trusted and reasonably well-paid cadre of managers and specialists…. There are an enormous number of organizations and institutions dedicated to advancing the interests of this gentry class…. The gentry class can and usually does wield significant power to shape society to their liking…
Wyman did the natural thing and reached for the category that fit. He called them the gentry, analogous to the post-feudal landlords of Britain in the commercial-society 1700s. And he insisted that the gentry are not an American peculiarity but a recurrent structural feature of hierarchical societies with property:
the local civic elites of the Roman Empire,
the landlords of late Han China,
the numerous lower nobility of late medieval France,
the
thegnsof Anglo-Saxon England,the Prussian Junkers,
the planter class of the antebellum South.
Anywhere you get hierarchy plus property, a gentry class precipitates out of the solution. They are, by definition, local élites: not resident in the political center, not holding the great offices of state, not counted among the very richest—but dominant, often crushingly so, in the places where most people actually live their lives.
OK. That is background: Now come Owen Zidar and Eric Zwick with the secret superpower of the economist: counting. The blurb for their book is:
Most people think the path to great wealth runs through Wall Street or Silicon Valley. We’re told you must be a Zuckerberg, a Musk, or a Jamie Dimon to get rich. But this story is wrong. Drawing on unprecedented data… and vivid real-life stories… from a self-made hot-dog stand billionaire to the heirs of an auto dealer… prosperity is more attainable, more widely distributed, and closer to home than we imagine. A multitude of Americans have built staggering fortunes by running often unglamorous businesses far from the spotlight. A quiet revolution in the business world―the rise of “pass-through” firms like S-corporations and partnerships―supercharged this wealth, channeling vast income directly to business owners rather than traditional corporations…
There are perhaps three million business owners outside of and two million households in tech and finance with at least five million dollars, and with a total aggregate wealth of $50 trillion, ten times that of the Forbes 400. Their** **money does not sit quietly in a bank account. It is the valuation of control over largely local highly productive value chains. There is a lovely phrase for them: the “stealthy wealthy”. And it converts itself into cultural and especially political influence, for these Main Street Millionaires are embedded in the places where they live. They sit on the hospital board and in the chamber of commerce. They fund state legislators’ campaigns. They take the mayor to lunch. And they hire the lobbyist who quietly ensures that the licensing rules, the zoning, the tax carve-outs, and the regulatory moats stay right where they are.
This is Mancur Olson’s world of distributional coalitions, rendered in flesh: actors who are simultaneously creating real value—building the businesses, employing the workers, growing the economic pie—and bending the rules of the game to secure a larger and larger slice of it for themselves. Both things are true at once. The discomfort of holding them together is the whole point. The productive entrepreneur and the rent-seeking power broker are, very often, the same person.
What Zidar and Zwick have done is to shine a light on where this gentry class actually comes from, how it accumulated what it has, and how much it takes home. It is not a lottery ticket. It is not, primarily, an inheritance. It is the slow compounding of a profitable, boring, closely-held business over decades. It is the cumulative not-dribbled away returns to skill, to sweat, to local knowledge, and to a defensible market position solidified by local political influence. Read one way, this is bracingly optimistic: the American Dream. You do not need a Stanford CS degree or venture funding to end up rich. You need a good local business, patience, thrift to live within your means, and thirty mostly good years.
The paths to prosperity are more numerous, and more prosaic, than we are trained to think by the business press and by the sheer gravitational pull of celebrity. The archetypal rich person is not a founder-CEO with a stock ticker and an authorized biography. He is a local beer distributor holding a territorial franchise that is, in effect, a small monopoly. He is a commercial HVAC contractor whose trucks you pass on the highway without a second glance. He is a restaurateur with nine locations. Ownership of auto dealerships, waste-hauling routes, insurance brokerages. For every public-company CEO whose compensation package makes the papers, there are more than a thousand private business owners sitting on wealth that is genuinely transformational for their security and lifestyle.
Zidar and Zwick stress the tax story. The rise of the everywhere millionaires was supercharged by a specific institutional change: the migration of American business out of the C-corporation and into the “pass-through” form, the S-corporations and partnerships whose income flows directly to their owners rather than being taxed at the corporate level. Two dates anchor the transformation. In 1986, the Reagan tax reform brought the top personal rate down below the corporate rate, and suddenly it made sense to reorganize your business so that you never paid tax at the business level at all. Then in 2017 the Trump upper-income tax cut delivered the biggest business tax cut in U.S. history, including the twenty-percent deduction for pass-through income. The American gentry’s fortunes, in other words, are in substantial part, a policy artifact. tThe policy that made them keeps being renewed, because the gentry have the local and national political muscle to renew it.
The bottom line: Patrick Wyman’s five-year-old intuition understated the case.
I find this framing very compelling. And to change gears, it gave me insight into the problems of Red America.
One overwhelming factor should make revitalization of America’s left-behind places easy-peasy. Those rich blue-state blue-city core of America’s economy are simply not building at a sufficient rate. There are negative incentives for those without strong knowledge-economy chops to move to prosperous blue territory. Plus there are powerful incentives for those who have their work-professional social networks already in place to move out of the blue-city blue-state core into blueish-purple cities in red states, if not to depressed solid red left-behind areas, where their immense wealth would go even further. Thus it ought to take only a small amount of pushing to create self-sustaining growth poles in places classified as “left-behind”.
But that factor is overwhelmed by: Brain Drain, as talented individuals who leave for education and short-term job opportunities in larger cities do not come back; Political & Cultural Isolation, as politicians and opinion leaders who want to both serve the local gentry class and gain local mass support magnify the cultural alienness of richer, more urban parts of the country; Limited Access to Technology: with the digital divide a major obstacle; Educational Disparities, as education is not a priority for either the red-state or the local non-urban governments, and workforce development for the info-biotech world is nowhere; Infrastructure Challenges in America are everywhere, but the biggest gaps are in the non-urban parts of red-state America; Limited Entrepreneurship & Innovation; as proprietors being people who have it made, and who more fear than think they can take advantage of change; Dependency on Single Industries, which makes prosperity very vulnerable to the “destruction” part of Schumpeter, and, empirically, it is quite hard for even highly productive blue-collar workers in one industrial cluster to find a way to apply their skills and energy elsewhere in the economy; Economic Transition, as it is next to impossible to build up new economic sectors ex nihilo. (This is the big advantage of the Big City, where at least the germ of lots of other industries is always present nearby.) Healthcare Access, a problem squared by the blocking of reproductive health services in red states. In a quarter of America, today, god help you if you start to miscarry late in pregnancy, for the state will treat you like a criminal; Vice Signalling, so if you try to start a growing-sector business in a non Big CIty part of a red state, and lots of people around you will try to find some way to take you down with glee.
Behind much of these blockages is this: A gentry-dominated yuppie-hostile local power structure makes efforts at development especially hazardous. The effectiveness of investments is contingent on meticulous implementation. Misallocation of resources, bureaucratic inefficiencies, and lack of local engagement—those are all but guaranteed in a world in which the local gentry are very comfortable with things as they are. While the economic rationale for investing in left-behind communities is sound, the practical bureaucratic challenges are truly formidable. And the gentry do like it that way. I really do not see a way forward here—any more than there was a way forward for the U.S. south up until the 1960s.
Thus my tentative and gloomy conclusion: a gentry-dominated, yuppie-hostile local power structure makes economic revitalization not just difficult but positively hazardous. The people who own the third-biggest construction company in some red-state metro, or the seventeen McDonald’s franchises in eastern Tennessee, are people who—as I put it then—“have it made, and who more fear than think they can take advantage of change.” Their interest is in the perpetuation of the local order that made them, not in the creative destruction that might unmake them. And politicians who want to serve that gentry class while also winning mass support have every incentive to change the subject from the failures of local economic growth to the cultural alienness of the distant, richer, bluer city. J.D. Vance building a career by attacking the culture of Ohio’s own cities is the type specimen.
Now Zidar and Zwick are careful to hold two truths at once. On the one hand, the existence of our five million-strong gentry class is genuinely good news about the American Dream. If you thought the game was wholly rigged and that there was no path upward except through the credentialed knowledge economy, the data reject that view. On the other hand, more shots at multi-millionairedom is a good thing only if the resulting concentration of local power does not curdle. And in the Red States, boy does it curdle!
So the appreciation I want to register is this. Wyman gave us the eyes to see the gentry—the historian’s recognition that the man with seventeen McDonald’s franchises belongs to the same sociological species as the Anglo-Saxon thegn and the Prussian Junker. Zidar and Zwick have done is the indispensable third thing: they have counted the gentry, traced the plumbing of the tax code that inflated them, and put a fifty-trillion-dollar number on a class that had been hiding in plain sight behind the billionaires.
The energy behind the authoritarian turn in American politics is, on the conventional and probably accurate reading, the rage of the left-behind. But the people who organize and monetize that rage—who translate it into car-dealer-friendly zoning, into transit legislation quietly strangled, into a permanent pass-through deduction paid for by cuts to food stamps—are very often the local gentry, the everywhere millionaires, the stealthy wealthy. You cannot understand the politics of the places that don’t matter until you understand who owns them. Zidar and Zwick have now told us, with numbers. Buy the book. Read it against Wyman.
And then ask the hard questions, centered around this: In principle, revitalizing left-behind places should be easy: wealth stretches further there, and blue-state cores aren’t building fast enough. In practice, a gentry-dominated, yuppie-hostile local power structure makes development positively hazardous. The people who own the seventeen McDonald’s franchises fear the creative destruction that migh…
