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Pyramid schemes - Arvind Narayanan's journal [entries|archive|friends|userinfo]

Pyramid schemes [Feb. 1st, 2005|06:24 pm]
Arvind Narayanan
I'm sure everyone has encountered free ipod spam lately. Pyramid schemes are illegal in many (most?) countries, although this particular scheme barely manages to stay legal. My question is, what's the libertarian position on pyramid schemes? Is it the business of the government to protect us from our own stupidity? Don't get me wrong - some pyramid schemes involve fraud, and I have no problem with those being illegal. But as long as the customer is clearly told what they're getting into, I think they should have the right to do whatever they want.

A related, and more controversial question is what do you think about Ponzi schemes. I think they should be legal as long as they state that return on investment is subject to the continued inflow of new investors. The Greater Fool investment strategy, which is the phenomenon that drives up share prices to insane levels on some IPOs, is almost identical to a Ponzi scheme except for the fact that overblown returns are imagined by investors rather than promised by the company. So, I think Ponzi schemes that don't make explicit promises but rather leave its investors to imagine bombastic returns should be legal.

x-posted to libertarianism.