Explaining WHY is Social Security NOT a Ponzi scheme

When a business is suspected to be a Ponzi scheme, there are two general lines of defense, which goes like this:

Approach 1

A: Biz X is a Ponzi because of X, Y, and Z.
B: BizX is not a Ponzi because of R, S, and T.

Approach 2

A: Biz X is a Ponzi because of ____, ____, and ____.
B: Ponzi you say? No big deal. Social security is a Ponzi scheme. It's still here.

The problem with Approach 2 is it's an application of "so is everything else" defense, which is a variant of the "Tu Quoque" fallacy (which is a red herring).

However, I am going to address this specific fallacy, that Social Security is a Ponzi scheme. Actually, I am not. I am going to let a famous author, who basically wrote *the* book on Ponzi schemes, to bust this myth.

Subjective Validation, or Why you see more than you should

General evaluation scale.
Do you ever evaluate yourself fairly?
Or are you tricking yourself into believing
whatever you yourself believe in?
(Photo credit: billsoPHOTO)

Subjective validation is a variant of confirmation bias, and it's nothing new.

Few if any people are capable of proper self evaluation. When exposed to statements possibly describing oneself, one's mind started to make associations for validation, and often such associations turned out to be completely bogus. Basically, one's mind looks for meaning that may not be there.

This fact had been exploited by the Oracle of Delphi, and every psychic and guru (such as Nostradamus) ever since. They issue extremely vague prophecies and people reading their own meanings into it.

People who wish to change your mind (for better or for worse) are exploiting this mental bias. Self-help people from Dr. Phil to Joel Olsteen use the messages to compel you to improve parts or your life, and less scrupulous people are using the same mental bias to compel you to do some things that may not be good for you.

Patent on Network Marketing, really?

United States Patent and Trademark Office seal (Photo credit: Wikipedia)

An HYIP online, JustBeenPaid, claims to be the only MLM covered by a patent. On their website, you will find the following words:

JustBeenPaid! (JBP) and its related programs operate in accordance with United States Patent 6,578,010 (now public domain)

However, if you look up the patent  http://www.google.com/patents/US6578010  you will find it's actually about having a single computer system managing multiple HYIP-type funds without co-mingling, and allow each group manage their own membership, rules, contributions, cash outs, accruals, and so on.

It is basically a well designed HYIP script that can handle multiple HYIP funds. (HYIP is just a fancy name for Internet Ponzi scheme)

And there is NO PROOF ANYWHERE that this patent is now public domain. It was issued in 2003, so it could not have expired yet.

So why would an Internet Ponzi scheme, already under investigation in Italy, claim to be somehow associated with the USPTO?

The "you know nothing" tactic and "I dare you" tactic

MLMers who ran out of coherent and logical arguments will often fall back to the "you know nothing" tactic. Usually, it goes like this.

A: BizX is very likely a scam because of _____, ______, and _____.
B: You know nothing / know very little / are wrong about BizX. 

There's a variant I call "I dare you" tactic:

A: BizX is very likely a scam because of _____, ______, and _____.
B: I dare you to join and learn the "truth". 

Both replies are completely irrelevant. Instead of counter the premise with their own evidence, or to defeat the logic presented, the opponent basically issues a personal opinion, the latter was a 'dare'.

Cognitive Bias: "appeal to authority" fallacy

Who are real experts in Multi-level marketing?
(Photo credit: Wikipedia)

A common sales technique is to cite some experts. The question is... are they really experts in what they say they are in?

MLMers often cite so-called leaders, who had been in the industry for a decade or two, and have mastered many sales techniques. They got a bit of name recognition, so when they endorse a particular opportunity or product, people think that product / opportunity must be good, instead of looking at the actual merits of the product/opportunity itself. This is sometimes called "name-dropping", but the real name is "appeal to authority" or "argument from authority". It is best demonstrated as follows.

A: X is true
B: Why?
A: Because Y said so. 

Y could be anybody... your brother, the church leader, expert witness, your parents, your teacher... your upline, etc. etc. It's someone who you consider to be important enough to be an "authority".

How Ponzi Schemes disguise themselves

Ponzi in 1920 (Photo credit: Wikipedia)

Ponzi schemes have plagued human existence for nearly 100 years, and it proliferated ever since due to better communications. They have managed to survive due to disguises they adopted thus avoiding detection until it's too late for the victims.

Just in April 2012, the self-proclaimed "youngest black CEO in publicly traded company", Ephren Taylor III, was charged by SEC as peddling a ponzi scheme to black churches and black investors.

And who can forget Bernard Madoff's "largest Ponzi in US history", involving 170 BILLION dollars over 20+ years.

Every day you hear about even more Ponzis, from small ones (a couple guys got cheated out of a few hundred thousand) to big ones like Alan Stanford who may have bribed an entire island.

What makes Ponzi schemes so resistent to detection?

Read more >>>

Cognitive bias: the "anecdotal" fallacy

Kobe Bryant subs out vs the Washington Wizards (Photo credit: Wikipedia)
If he endorsed a car, does the
car perform any better? No! 

MLMers are very fond of the "anecdotal fallacy", where they use either personal experience, or a single (or a few) instance(s) to "prove" that their "opportunity" is great.

Very often, this is used in conjunction with the "it paid me" argument, as testimonials. In other instances, it's to "prove" the prowess of whatever product or service the MLM is pushing. For example:

This product really works! I have been taking it for a month and I feel much better! I lost 20 pounds and my allergies are gone! I recommend this to all my friends! 

Not an actual comment, but you have all read or heard things like that. You probably see it on TV or hear it on radio every day. It is a normal propaganda technique.

The person advertising the item should not change the value of the item. If Kobe Bryant (NBA basketball star) or any other professional sports star (except race car drivers) is endorsing a car, it does not make it perform any better than without his endorsement.

(NOTE: This is DIFFERENT from "authority", where an expert like Kobe Bryant endorse a pair of basketball shoes,  he would be considered an expert on such shoes so his claim would count more. We will discuss "authority" or "expert testimony" later)

Same with a business opportunity. Just because one person say it's great doesn't mean it's great for EVERYBODY. There is no proof that you can replicate their "success", or their success is not an exception to the rule. You need a far larger sample size than "one" or "several" to prove anything. There can be a LOT of factors that affect the outcome.