Earlier this month obituaries for author Thomas J. Stanley and his creation The Millionaire Next Door appeared in a number of media outlets. A number of commentators, including LA Times columnist Michael Hiltzik, used Stanley’s death in a car accident on Feb. 28 to note that it is now far harder for average Americans to become millionaires through discipline, thrift, and hard work.
Stanley was a marketing professor at Georgia State University, who made an interesting discovery while researching the wealthy in the 1980s. Stanley found that many of the millionaires he interviewed were cheapskates working in boring professions who lived decidedly lackluster middle class lives. The researcher was astounded to discover that the typical millionaire was more likely to be a purveyor of plumbing supplies that drove a five-year-old Buick and lived in a nice ranch house in a middle class neighborhood than a jet setter who drove a Ferrari and lived in Beverly Hills.
He also identified a pattern of behavior that many millionaires displayed. That pattern included hard work, thrift, strong self-discipline, a tendency to save, a reluctance to spend, and avoidance of the traditional trappings of wealth and luxury. Stanley parlayed this information into a series of bestselling books, including The Millionaire Next Door and its sequel, The Millionaire Mind, which made him a very rich man.
Why The Millionaire Next Door Was Wrong
Stanley’s thesis was that the secret to wealth was a combination of business savvy, hard work, self-discipline, and neo-Victorian values. Since then a number of observers, including the great thinker Nassim Nicholas Taleb, have pointed out that there are some fallacies in Stanley’s thinking.
In his brilliant book Fooled by Randomness, Taleb noted that Stanley only studied successful people who met his criteria. Stanley ignored both unsuccessful people that displayed such habits and millionaires with behaviors he found distasteful. In the books, he seemed to only praise those millionaires who kept their working class lifestyles.
By ignoring the obvious truth that the vast majority of businesses fail, Stanley and his coauthor William Danko were able to skew the samples to fit their thesis, Taleb pointed out. Taleb also noted correctly that they ignored what is most possibly the most potent factor in wealth creation: plain old fashioned luck.
Strong Values or Luck
The economic, cultural, and political environment of mid to late 20th Century America favored millionaires next door and wealth creation. After World War II the GI Bill effectively underwrote many families’ entry into the middle class by providing low-cost education and mortgages. The post-war economy with its factory jobs with good salaries and generous benefits nurtured both middle class values and a consumer culture that stimulated wealth creation.
The incredible growth of the U.S. economy between World War II and 2000 provided numerous opportunities for wealth creation. Inflation and the lousy real estate and stock markets in the 1970s made it real easy for people with money to pick up assets at a real low price. The Millionaires Next Door had the good luck to be in the right place at the right time rather than to have the proper set of values.
Is the Millionaire Dream Dead?
Hiltzik and The Baffler’s Helaine Olen pointed out that some of those conditions no longer exist. Today’s would-be Millionaire Next Door would likely graduate from college with a mountain of student loan debt, leaving him with little extra money to start a business and a strong incentive to stay in the cubicle farms. Low inflation, a booming stock market, and high real estate values also make it difficult for working stiffs to accumulate income earning assets.
Related to this are falling wages for working people and growing income inequality. Many of the factory and similar jobs that gave Millionaires Next Door their starts no longer exist. Accumulating capital can be difficult these days, even if starting a business is easier than ever. Income inequality and the nature of today’s economy also means that there are far fewer middle class consumers to generate wealth for the next generation of millionaires to accumulate.
Hiltzik also noted that many of today’s youth and even middle aged people lack the kind of Depression-instilled values that shaped the Greatest Generation and their children, the Baby Boomers. Many of the traits Stanley praised, such as saving, risk avoidance, and delayed gratification, can be traced to the Depression, which provided brutal lessons in such qualities by using the effective teaching tool known as poverty.
Those that grew up in the consumer cornucopia of modern America are not likely to learn such traits. Although, growing income inequality and the economic chaos of the last decade will undoubtedly instill such values in many Americans.
The big question that we need to answer here is, are Hiltzik and Olen right? Is the millionaire dream dead, or did Mr. Stanley simply get it wrong? My answer to this is that Stanley got it partially right. Certain behavior patterns and traits do make it likelier for certain individuals to accumulate wealth.
What Stanley got wrong was ignoring the role luck played and certain other behavioral traits. A tendency to take risks and pursue opportunities certainly plays a role. The intelligence to identify opportunities is also vital. Creativity and the willingness to defy convention, two traits Stanley gave short shrift to, also play a role. An even more important trait can be plain old fashioned stubbornness—not giving up despite adversity and trying again and again until you succeed.
Stubbornness combined with luck could be the real key to success. Most of the millionaires next door succeed not because they are smarter or more ethical but because they simply keep plugging away. That increases their chances of getting lucky because they put themselves in the path of opportunity. That of course is not what people obsessed with ethics, traditions and family values like the late Mr. Stanley was want to hear.
The Millionaire Next Door is far from dead, but his children are going to have a far harder time repeating his success in today’s America. Despite that, many people will still get rich through hard work, tenacity, luck and capitalizing on opportunities.