Pyramid scheme

From RationalWiki

A pyramid scheme is an economic version of woo. Do the math, folks. It don't add up.

Chain letters such as the infamous "Make Money Fast" emails from the 1990s are an example of a pyramid scheme.

Pyramid schemes in general rely on recruiting new people into the business (or some other entity), who in turn recruit new people into the business, but involve little to no sales to those outside the business. Theoretically each person is supposed to recruit several more people. Doing the math on a theoretical pyramid scheme in which each person recruits seven people, who in turn recruit seven people each, in as few as nine levels the scheme would involve 40,353,607 people. In reality such a scheme would run out of people willing to join well before that point, with most of those who got involved finding they lost money by joining. Pyramid schemes are an unsustainable business model, usually lucrative only for those at the very top levels and ripping off those below who fall for them.

The collapse of several such pyramid schemes in Albania in 1996-97, in which an estimated two thirds of the country's population had participated, led to rioting and a near-collapse of the Albanian government and economy. ^[1]

Multilevel marketing schemes, of which Amway, Shaklee, and Herbalife are among the best known, are legally distinguished from illegal pyramid schemes in that multilevel marketing involves real products and income is (supposedly) derived primarily from sales of that product to outside parties. However, some pyramid schemes will try to pass themselves off as multilevel marketing, with the "product" being sold mainly consisting of information, or mainly sold only to new people recruited into the business. In reality the legal distinction between the two is often a fuzzy one.

In addition, there is a high correlation between those involved in some pyramid schemes, and promoters of pseudolaw, pseudoscience, and quack health nostrums. Pyramid schemes have existed involving the sale of everything from pseudo-legal training in debt elimination and "sovereign citizenship" scams, to non-working "alternative energy" devices purported to run your car on water, to ineffective improve-your-eyesight exercises.

In the early 1990s a "game" called "airplane" was a blatant pyramid scheme, which seven people paying in a thousand dollars each time, with the "captain" getting paid all the money. Four had to be "new", or "passengers". Playing as a passenger entitled one to then play as one of two "crew" members, as soon as four new passengers could be found. Play as a crew member entitled one to then play as "captain". As long as people were willing to keep joining in as passengers, one's three thousand dollar "investment" paid off seven thousand dollars. In highly-charged (red: cocaine fueled), well-paid social circles, this game was considered to be "fun" - people would keep playing. As long as a group kept playing, the money would just change hands between them. The excitement came partly from the ever-present risk that people would stop playing and one could lose a couple thousand dollars.

There is a current-day movement^[2] that claims to be empowering women by a scheme very similar to the airplane game.