Land Rich and Cash Poor

Montana Congressman Denny Rehberg is catching some flak for complaining that he's "struggling like everyone else" despite a net worth in the millions.

Montana Congressman Denny Rehberg is catching some flak for complaining that he’s “struggling like everyone else” despite a net worth in the millions.

“I’m a small businessman. My wife is a small businessman. You know she hasn’t taken a salary in ten years? She has not, as a result of the business, because we are struggling like everyone else… with the economy,” Rehberg said.

“What’s your net worth?” an audience member interjected.

“I am land rich and cash poor; like ranchers, and farmers and small businesses throughout Montana,” Rehberg said. “I have the same struggle. I have no employees. And we have the same struggle because we have the ability to borrow the money but the problem is, in our particular case, if you don’t have the ability to pay back the loan, then you don’t — then what’s the reason to go to the bank and borrow the money?”

Ryan Reilly observes:

It’s certainly possible Rehberg finds himself in cash crunch. But his own most recent financial disclosure form, which covers 2009, shows Rehberg with a self-reported net worth of between $6,598,014 and $56,244,998, according to the Center for Responsive Politics. That made Rehberg the 23rd richest member of Congress (by another count he was 25th richest member of Congress and the 14th richest member of the House). Based on their analysis, Roll Call pegged him as the 23rd richest member of Congress.

A closer look at his disclosure form from calendar year 2009 suggests Rehberg has millions of dollars of equity in the agricultural properties he owns. His farm and ranch land was valued at between $11.5 million and $56.75 million, and his total assets were worth somewhere between $12.2 and $57.5 million.

Steve Benen adds:

I can appreciate his limited cash flow, but what I hope Rehberg — who routinely votes against the interests of the middle class and working families — can understand is that most families in Montana and nationwide don’t have this kind of vast wealth to lean on. They have limited cash flows and they don’t have millions of dollars in land.

As for the notion that Rehberg is “struggling like everyone else,” when your net worth is as high as $56 million, you’re not really struggling, and you’re not really like everyone else.

Matt Yglesias takes it a step further:

I think accepting this kind of principle into our public discourse is a mistake. If you have $2 million in cash in the bank, that makes you rich because with $2 million you can buy $2 million worth of goods and services. If instead of $2 million in cash in the bank you have $2 million worth of Treasury bonds, that makes you rich because you can exchange it for $2 million in cash with which you can buy $2 million worth of goods and services. Or if you have $2 million worth of Apple stock, that makes you rich because you can exchange it for $2 million in cash with which you can buy $2 million worth of goods and services. And by the exact same token, if you own $2 million worth of land, that makes you rich because you can exchange it for $2 million in cash with which you can buy $2 million worth of goods and services.

Since people with progressive political views often live in parts of the country where land is very expensive, I think they sometimes get unduly sympathetic to the view that land wealth somehow doesn’t count. But I promise you that it does! Being “house rich and cash poor” is a way of being, well, rich since unlike an actual poor person you are the owner of a valuable asset that you can exchange for money. That’s what being rich is.

Well . . . no.

Granted, the notion that Rehberg is “struggling” in the same sense as constituents drawing a weekly paycheck–or not drawing a weekly paycheck–is silly. Even if he’s legitimately having problems keeping the bills paid, it doesn’t come off well. But it’s simply not the case that “net worth” directly translates to living standard.

Let’s take three people, each earning $100,000 a year in annual income. One lives in a $200,000 house in Birmingham, Alabama. Another lives in a $1 million condo in midtown Manhattan. The other lives on a $3 million ranch in Missoula, Montana. All three own their property free and clear.  It’s not at all clear that we’ve listed them in increasing order of prosperity.

The first two are at roughly the same place in relation to median home prices where they live. They’re much better off than their same-town cohorts without those real estate assets, since they don’t have rent or mortgage expenses. But, presuming that their income is contingent on them living where they do, they really don’t have assets that they can cash in. So, they’re both in the same current position as against one another. Indeed, the fellow in Birmingham is likely better off in terms of buying power, since taxes and prices are considerably lower than in Manhattan.The Montana rancher is harder to compare. He’s certainly much further ahead of the local median than the other two. But he’s likely to have much more extensive expenses, too, since his homestead doubles as a business.

Matt is of course right that assets can ultimately be translated into money. When they retire, the fellows in Manhattan and Missoula could sell off their places and –assuming they hold present value — move to Birmingham and be in a substantially improved position over the guy who’s lived there all along. But the condo and ranch aren’t the same sort of asset as a T-bill or Apple stock, which are pure investments.  Instead, they’re a home that one lives in and a business that serves as one’s basis for earning a living.

But, yes, belying Rehberg’s case, they’re assets. If he’s having trouble making ends meet on his Congressional salary because the expenses on running his ranch are bleeding him dry — and the ranch is still somehow worth millions of dollars and not leveraged with bad loans — he has the option of selling off the ranch and getting back into the black. The average American salaryman doesn’t have that luxury.

FILED UNDER: *FEATURED, Economics and Business
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Dean says:

    Of course, you’re assuming in this economy the the Montana rancher can actually sell the ranch for close to its value and then find another job to cover living expenses.

  2. Andy says:

    There’s a problem with your scenario though. How is it possible for someone to realistically pay off a 1 million dollar property with $100k income, much less a $3 million dollar property?

  3. Dave Schuler says:

    I think there’s more to complain about than this. I don’t have enough interest to do serious digging but quick digging suggested to me that Cong. Rehberg is receiving appreciable income (indrectly) from USDA farm subsidies. All quite legal and consistent with House standards of ethics. But IMO the very definition of corruption.

  4. Mr. Prosser says:

    There is more than just land value. Timber and grazing leases, haying leases and water rights plus selling off sections as subdivisions make the fifth generation Rehberg ranch a full corporation. He’s no Woodrow Call working a Lonesome Dove ranch.

  5. Rick Almeida says:

    Is this post a long way of saying, “Yes, the Congressman is rich and it’s absurd for him to try to pretend otherwise?” Anything else, really, is just sophistry.

  6. JKB says:

    Well, either ranching is in hard times or the good Senator is a failed rancher living off the hard work of his ancestors. His wife hasn’t taken a salary for 10 years? That is the definition of a Rahman business, one that will keep you in noodles but never let you upgrade to hamburger. Or she takes all her pay as dividend or ROE. Or is it a vanity “business” to keep busy?

    In any case, the Senator needs to decide whether he wants to be a rancher or a politician since he apparently can’t make a go of both concurrently. He reminds me of the poor destitute English aristocracy of the ’60s and ’70s who were had all manner of a great manor and estates but didn’t have the cash flow to pay the taxes. Time to sell to a rich Russian or Hollywood actor, I guess.

  7. Herb says:

    “But the condo and ranch aren’t the same sort of asset as a T-bill or Apple stock, which are pure investments. ”

    If we’re talking net worth, this difference doesn’t mean much. By any standards, Con Rehberg is a wealthy man. (A net worth of $6.5 million on the low end is pretty good for Manhattan, too, ain’t it?)

    I’ll grant him his struggle in these hard economic times though. It’s just when we’re talking about high food prices, we’re talking about his cattle operation rather than his kitchen pantry.

  8. john personna says:

    Use the 3% rule to translate wealth into income equivalent. Basically each million reasonably inveted is worth $30k in perpetual income. $6m is worth $180k. I’d call that rich, though not as off the chart as $60m and 1.8m annual disposable income.

    (The where you earn it thing is a favorite for James, but for someone with wealth it’s really a choice of where to spend it.)

    (Some, endowment funds, etc., risk a 4% rule rather than 3%.)

  9. john personna says:

    Btw, someone can choose to buy a ranch for say $40m that only generates $40k in income. That person is choosing lifestyle over easier income (Apple stock, muni bonds)

    Such a rich man should not whine.

  10. jwest says:

    James,

    You’re taking on an impossible task trying to explain economics to liberals. It’s like trying to explain colors to a blind man.

    Those on the left have a Richie Rich comic book outlook on people with assets. They believe that people with net worth’s in the millions have large vaults filled with cash (that they have somehow stolen from the poor) to draw from at any time. In reality, even substantial fortunes are normally tied up in assets. This is even more pronounced in businesses such as manufacturing.

    Consider a family business with 3 small factories, 140 employees that is debt-free and running at break-even or a small loss. Due to reinvesting profits from previous years into expansion and job creation, there is no great well of cash to draw from. The owner is faced with the option of using the totality of his assets to secure financing or to sell a portion or all of the business at a substantial loss to cover what could be temporary operating losses. On paper, this individual would seem pretty wealthy to those who don’t understand the details, but in reality he is just getting by.

    If you ask people how much owners make of even the smallest businesses like dry cleaners or florist shops, they will normally vastly overestimate it. On top of that, if you ask the general public about years when the businesses lose money, they will say the owner can “just write that off” from some mysterious horde of cash they have hidden somewhere.

    If it were possible to educate the left on what the realities of business, risk/reward, and profit/loss were, there would be far less arguments on policy.

  11. john personna says:

    You’ve just made the “mental accounting” error, jwest.

    That is actually an economic fallacy, well established.

  12. PD Shaw says:

    I can’t speak to the realities of Montana ranching, but around Central Illinois, there can be a significant disconnect between the value of the property and the income reasonably expected to be obtained by it. That’s because the highest price for farmland is typically for non-agricultural use, such as residential subdivisions or hunting cabins for professional sports athletes.

    Land values have doubled in the last eight years or so, reaching around $6,000 per acre.

  13. Brian says:

    When I read his claim I thought of the whole Graeme Frost granite counter tops fandango. (For those who don’t recall, Graeme Frost was a twelve year old who spoke out that SCHIP – when it was in danger of being cut – helped his family w/medical expenses after a car accident. Some commentators – I seem to recall Malkin in the lead – got pics/looked in the family’s windows and noted they had what seemed to be granite counter tops. Ergo, they had money, ergo, they didn’t need SCHIP in the first place.) Wonder what their reaction to these comments would be.

  14. Rick Almeida says:

    Jwest,

    Your made up example is full of holes. As someone who comes from a family business background, which I ran for a time, your hypothetical raises many questions.

    1. What salary and benefits is this hypothetical family drawing from the business? With 3 factories and 140 employees, it won’t be run as a DBA, so the principals of the corporation are surely drawing a salary and benefits. In my own case, my family’s business supported my grandfather, father, and uncle, along with 2 other employees. Even if the business were not particularly profitable at some points, it created substantial wealth for my family.

    2. Why is “[t]he owner…faced with the option of using the totality of his assets to secure financing or to sell a portion or all of the business at a substantial loss to cover what could be temporary operating losses”? Financing for what? Why the totality of his assets? There are a lot of ways to remedy a short term operating loss. If you have a business background, you may be aware of some of them.

    3. What is the value of the corporation’s assets? No matter how you slice it and pretend otherwise, assets are wealth, and people who possess substantial assets are wealthy, even if that wealth is not liquid.

    We need better trolls, the ones we have don’t even try. Our current troll population is down to a drug-addled felon, this guy, and the occasional drive-by from the Palinite horde.

  15. john personna says:

    I can’t speak to the realities of Montana ranching, but around Central Illinois, there can be a significant disconnect between the value of the property and the income reasonably expected to be obtained by it.

    As I understand it, Montana has a 2-tier society, with fly-in millionaires owning the big ranches, as showplaces, and the local pop providing “services.”

    In such a case the cost of a Montana ranch is set by the other millionaires wanting to see themselves in the saddle.

  16. jwest says:

    John,

    Mental accounting is the basis for most entrepreneurial activities. If people didn’t frame the transactions they anticipated subjectively, we wouldn’t have many start-ups.

  17. john personna says:

    That is an interesting theory jwest, that entrepreneurial depends not on understanding of economics, but blindness to it.

    … I heard once, this was back before the big chains took over, that all pizza restaurants lost money. How could that be, I asked? Well, a family buys a restaurant which is showing a slight profit, and hopes to improve it. They try, for a few years, but eek out a small loss each year. When they can bear it no more, they clean up the books a bit, and sell it to the next family. That family hopes to ….

    Repeat ad-infinitum.

    I don’t recommend that for would-be capitalists, nor as the best way to run a productive economy.

  18. jwest says:

    Rick,

    I’m happy that your family business provided you with “substantial wealth”. If I had your extensive business background, perhaps I would have the necessary knowledge to arrange short term financing for temporary losses – if I knew what the definition of “short term” was and exactly how long “temporary” is.

    The value of any corporation or asset is what a willing and able buyer will pay a willing seller. This can vary from day to day. As to what constitutes wealth, until it is converted to something fungible, an asset is just an asset.

    In manufacturing, you can have rows of machines that cost you hundreds of thousands each, but if you’re not running them productively, what is the value? You could sell those machines, but if no one is buying what are they worth? This is relatively easy because we’re speaking of hard assets.

    What if the true value of your business is in soft assets? What if the most valuable asset is knowledge and relationships? Hard to value, even harder to finance.

    I’m certain I speak for all of the commentators here that have disappointed you in the past by saying we’ll redouble our efforts to live up to higher standards. We were unaware we were writing for such a knowledgeable and successful an audience.

  19. jwest says:

    John,

    What I’m speaking of is understanding the economics, but believing the set of numbers that confirms your feelings.

    It would be wonderful if there truly was a way to project accurately what each investment will return. Life would be simple and only successful businesses would be created. However, until someone comes up with a crystal ball, there will still be people who will think that people will flock to their pizza as opposed to the last guy’s. 99% will be wrong, 1% will be right.

  20. michael reynolds says:

    Non of you have really homed in on the essential flaw in James’ post:

    move to Birmingham and be in a substantially improved position

    I’ve been to Birmingham. Over what, exactly, would Birmingham be an improvement?

  21. john personna says:

    It would be wonderful if there truly was a way to project accurately what each investment will return. Life would be simple and only successful businesses would be created. However, until someone comes up with a crystal ball, there will still be people who will think that people will flock to their pizza as opposed to the last guy’s. 99% will be wrong, 1% will be right.

    You’ve touched on the “strength” of capitalism. No one has to be smart. Everyone can try every stupid idea. 90% will fail. And the 10% who succeed will think themselves geniuses.

  22. jwest says:

    James,

    To translate Michael’s comment for you, if you’re not in LA or Manhattan, you’re a hillbilly.

  23. Brian says:

    @Mike Reynolds: Um, bad timing on B’ham comments, given the tornadoes?

  24. Brian says:

    And don’t get me wrong – I live in Alabama and am fully aware of its issues. But, still…

  25. jwest says:

    John,

    Actually, that is the strength of capitalism. However, most successful people do credit some modicum of luck in with their genius.

    To take the pizza analogy further, one person could have purchased a fantastic new meatball pizza recipe from a woman that he thoroughly market tested, he has a brilliant marketing plan, great financial backing and a staff filled with Harvard grads and Nobel Prize winners. Across town, there is a lone person who thinks his tofu pizza tastes pretty good and maybe someone would buy it.

    Both go into business on the same day, with the meatball pizza lining people up around the block. The tofu pizza joint only sells two – one to his mother and another to guy who thought he was at the meatball pizza place.

    The next day on all the major networks, an 800 pound man suffering from a massive bowel obstruction is being lifted by crane out of his house for transport to the hospital. His mother explains through tears that he was once of normal weight, but he started eating her meatball pizzas.

    Two weeks later, the tofu pizza guy sells out to General Mills for 150 million and the meatball pizza guy folds.

    Luck. It always factors in.

  26. Raoul says:

    We have reach the lowest level of absurd, dada territory, when individuals worth fifty million dollars are not viewed as wealthy.

  27. john personna says:

    Agreed Raoul. “My cattle ranch is worth millions, but I feel poor … (whine)”

  28. Hey Norm says:

    White suburban republican lucky enough to be born into wealth votes to abolish Medicare and medicaid, with no regard for the sick or the poor or the old, while continuing to draw farm subsidies and a 6 figure congressional salary. Then whines. What more needs discussing?

  29. PD Shaw says:

    I think the phrase we’re looking for is that he’s worth more leaving the ranching business than staying in it.

  30. steve says:

    This is just one more wealthy person trying to claim that he is middle class. As is so often the case, he is apparently taking government money while complaining about government spending. Since he inherited his ranch, sounds like another guy born on third base who thinks he hit a triple.

    Steve

  31. michael reynolds says:

    Brian:

    Nah, I don’t think so. Obviously I’m sorry hear about their trouble.

  32. michael reynolds says:

    You keep trying, jwest, and keep failing. Among the places I’ve lived in my life: Niceville, FL, Newport News, VA, Urbandale, IA, Ocean City, MD, Richmond, VA, Johnson City, TN. I’ve never lived in Manhattan. Have lived in the LA area.

  33. Dave Schuler says:

    I read a study not long ago about self-identification of socio-economic status. Not terribly surprisingly everyone thinks he or she is in the middle–both the very poorest and the very richest think they’re closer to the middle than they actually are.

  34. jwest says:

    Michael,

    That’s the sad part.

    Even though you’re loyal to the cause, based on where you live, in the hierarchy of leftists you’re a hillbilly too. However, I do remember a special dispensation clause for eccentric writers that allowed them to live in less-than-sophisticated areas and still retain some semblance of liberal credibility.

    I’ll check the rule book and get back to you.

  35. michael reynolds says:

    jwest:

    I live in Irvine, CA. Not sure how that fits into your loony vision.

    Before that I lived in Tuscany.

    Before that, Chapel Hill.

    Next I’m moving to Marin County.

    I’m really kind of morbidly curious now to see how you make your next pronouncement.

  36. Andy says:

    jwest,

    What you say is true, but only in some circumstances. For my family, which has a long history in the construction business, it certainly is true. The value of the business (currently run by my brother) resides in the relationships my brother and Dad built over the years as well as the skilled craftsmen they employ (which are very hard to find these days). The material assets of the business do not amount to a whole lot.

    However, none of that is relevant to this specific Senator and his specific claims. This Senator is rich my any measure and is no danger of dropping down the social ladder to the middle class. He might be forced to sell some assets and become somewhat less wealthy because of the current economic conditions, but the notion that he is “struggling” in any way similar to the vast majority of Americans in the bottom quintiles is sophistry.

  37. James Joyner says:

    @Dave Schuler: Agree if he’s taking farm subsidies, it’s an ethical problem.

    @Mr. Prosser, @Rick Almeida, @John Personna, and others: I’m making a very narrow argument that owning a large amount of land doesn’t by itself make one rich. Net worth that can’t be converted to cash without upending one’s lifestyle isn’t worth much at all until the point of sale. If the congressman is making oodles of money off the land, that’s an entirely separate issue.

    @michael reynolds: I very much like parts of Birmingham and its tonier suburbs but the caveat occurred to me when I was writing it. A Manhattanite’s purchasing power would increase tremendously by taking his nestegg to Birmingham and lowering his housing, tax, and other bills. If he just wants a nice home, a nice car, and to watch satellite TV on his big screen television, he’s much better off. If he wants to routinely see Broadway shows, take in world class museums, eat in fine restaurants, and the like, he’s off course worse off in that his access has been removed.

  38. michael reynolds says:

    James:

    It’s very much like my dilemma with California. I could be in TN or FL or WA and save 10% of my income by avoiding CA state taxes.

    Then, I go to work with my laptop in my back yard in, say, January, wearing a t-shirt and sweat pants. And I realize: 10%? Yeah, I’ll pay that.

  39. Scott O. says:

    I think this is the Senator. He got some subsidies but not much, $8k over 15 years

    http://farm.ewg.org/persondetail.php?custnumber=A08282045&summlevel=address

  40. ponce says:

    This Republican is trying to signal how wealthy he is by showing how out of touch he is with the concerns of average Americans.

    The ancient Greeks and Romans would recognize this bragging for what it is.

  41. jwest says:

    Ponce,

    Maybe he’s bragging, or maybe he’s got $20 million in land, not enough income coming in to break even on the operations and a property tax bill coming up that is more than his congressional salary.

    On a related note, why do we pay our representatives, senators, VP and president so poorly? Why not pay a living wage and allow people who aren’t independently wealthy to run for office?

  42. SJ Reidhead says:

    Try selling land in this economy.

    SJR
    The Pink Flamingo

  43. An Interested Party says:

    This sad Congressman…we all weep for him and his struggles…perhaps jwest and others of his ilk could take up a collection for this poor “land rich and cash poor” soul…better still, Rehberg can become the poster child for why people in his income bracket need more tax cuts, after all, I’m sure many of them are “struggling”…

  44. john personna says:

    I’m making a very narrow argument that owning a large amount of land doesn’t by itself make one rich. Net worth that can’t be converted to cash without upending one’s lifestyle isn’t worth much at all until the point of sale. If the congressman is making oodles of money off the land, that’s an entirely separate issue.

    Shouldn’t have gone there.

    I think if I buy a private island, and just eat fish and coconuts, I’m rich. Fanciful arguments that you can’t sell land now notwithstanding.

    I wouldn’t whine that all I have are fish and coconuts.

  45. Hey Norm says:

    Bin laden is dead…America…f*** yeah!!!!

  46. Barry says:

    PD Shaw says:

    “I think the phrase we’re looking for is that he’s worth more leaving the ranching business than staying in it.”

    And that’s rich – when you can cash out at any time, that puts you above 95-99% of Americans.

    James: “@Dave Schuler: Agree if he’s taking farm subsidies, it’s an ethical problem.”

    It’s an ethical problem that’s widely shared. And if he’s got between 6 and 56 million $ in agricultural wealth, what’s the odds that he’s *not* taking massive subsidies (suitably disguised under various corporate entities, if needed)?

    Andy: “However, none of that is relevant to this specific Senator and his specific claims. This Senator is rich my any measure and is no danger of dropping down the social ladder to the middle class. He might be forced to sell some assets and become somewhat less wealthy because of the current economic conditions, but the notion that he is “struggling” in any way similar to the vast majority of Americans in the bottom quintiles is sophistry.”

    Agreed. And that’s before we add in the value of a Congressional pension, and the value of his ‘consulting advice’ to various parties after he leaves Congress.

  47. Tlaloc says:

    @Mr. Prosser, @Rick Almeida, @John Personna, and others: I’m making a very narrow argument that owning a large amount of land doesn’t by itself make one rich. Net worth that can’t be converted to cash without upending one’s lifestyle isn’t worth much at all until the point of sale.

    Maybe, but does it really qualify as struggling? if the guy had said “I have lots of wealth tied up in assets so I’m not very liquid” I don’t think anyone would object. but saying your struggling when you have tens of millions of dollars of wealth you can tap into (and almpst certainly that you could borrow against at a moment’s notice) is just plain asinine. More so given the economic conditions.

    The single biggest way that congress fails to be representative is not a matter of gender or race but of wealth. Congress, as well as the presidency and cabinet, is made up almost entirely by the rich, and yet only a tiny fraction of americans are really rich. It’s no wonder we have congressmen who say these things, or Obama remembering what it was like to pump gas, and pretending they have any insight into how we live. They don’t, and they govern in that manner.

  48. Rbuley says:

    I’m the guy who asked him the question and I know about ranchland in MT. First, it’s not ranchland. It’s a huge subdivision. Secondly, Rehberg has sold almost all the lots, at least 90 of them. The average selling price was $50,000 per lot. That’s $4.5 million in income. Third, Rehberg paid exactly $0 for the land, he inherited it. Fourth, Rehberg said his wife (the president of their land corporation) hasn’t taken a salary in 10 years. Obviously, they don’t need the money. But, also, as most people know, as an LLC, you don’t want to take a salary and pay all those taxes. Rather, you want capital gains and dividends, which tax at only 15%, the Bush tax scheme.

  49. Rbuley says:

    Other little known facts are that when the 815 acre subdivision was first developed, it was marketed as a golf community (it actually still is marketed that way see:http://www.rehbergranch.com/master.php). There is, however, no golf course because there’s no water. He also promised hiking on state land next door. Rehberg, however, kept a 10 foot strip of land between the subdivision and the leased state land and then denied access across the strip of land. (http://helenair.com/news/state-and-regional/article_021a24c0-0c90-55c0-a9d1-ce1146352810.html).http://www.mtstandard.com/article_c7b742ec-68e9-11df-ad39-001cc4c002e0.html The state land is leased by rehberg as grazing land but he presently has no livestock. Although he states he’s a rancher with 500 cattle and 600 goats, they were all sold off a few years ago.

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