The Wealth Gap in America: A Closer Look

Drive into the Whole Foods parking lot, and you’ll see the latest BMWs, Mercedes, Audis, Porsches, and Volvos. More relevant than what the 1% are paying is the widening gap between the 1% and the rest of their countrymen who are struggling to pay the food bills at Walmart.

So writes Elliot Schiff of Wilmette, Ill in the letters section of the Wall Street Journal (December 5, 2024; December 6 print edition.) As you can tell, I’m catching up on this month’s Wall Street Journals.

What is Schiff’s implicit assumption? That people who are driving the latest BMWs, Mercedes, Audis, Porsches, and Volvos are wealthy. The odds are that many of them are wealthy; the odds are also that many of them are not. You don’t generally build wealth by buying assets that depreciate quickly. New luxury cars tend to depreciate quickly. Schiff would do well to read The Millionaire Next Door. I posted about it here. In response to a question from commenter TMC on that post, I got the book from the library and enjoyed rereading some of the stories and facts.

Here’s one that directly relates to Schiff’s point. It’s from Table 4.1 of the book. 46.3% of millionaires had cars that were current year’s or last year’s model. But 37.6% had cars that were 3 years old or older. And 18.9% had cars that were 5 years old or older. Of course, you would want to know what % of the luxury cars Schiff names are owned by millionaires and the book’s data don’t tell us that. Remember also that $1 million when the authors were writing in 1996 would be just over $2 million today. Using the personal consumption expenditures index, which is a more accurate measure of inflation, the $1 million in 1996 translates to $1.77 million today.

So a reasonable question is: What percent of the luxury cars in the lot that Schiff observed are owned by people with a net worth of at least $1.77 million. I would give even odds that it’s fewer than 60%, and a 40% probability that it’s fewer than 50%.