Pyramid schemes in the Spectator

Back from holiday (which is why this is the first blog this month) and catching up on recent blogs, I find the normally well-above-my-head Charles Stewart link to the latest cover article in the Spectator with a single word: "Unbelievable". I'm normally all in favour of contrarian journalism, but this time I agree with Charles: it crosses the line from contrarian to irresponsible. Of course, the Spectator can print whatever it likes, but printing this story is the equivalent of running a big piece on how HIV doesn't cause AIDS. If people read it and believe it, serious harm can be done.

The cover shows a woman in bed, covered only by a sheet, surrounded by wads of cash, with her fingers to her lips. "Don't tell my husband," teases the headline; inside the magazine, the story is run under the heading "Girls just want to have funds". Here's the standfirst:

The government would like to outlaw pyramid selling. Why? Rachel Royce has joined Hearts, the girls-only investment scheme, and finds it good, clean — and profitable — fun.

Yep, that's right, the Spectator has now come out on the side of pyramid (or Ponzi) schemes. It's run a first-person account by a journalist who certainly stands to make more from her article than the £375 ($611) she says she's investing, although one wonders if she might not be telling a few porkies to make the scheme sound more harmless than it actually is. She says at the beginning that the £375 could generate "a return of £6,000", but then later admits that she got "sponsored" to join, which means that she only stands to double her money. Which either means she stands to gain at most a return of £375, or means that she's very bad indeed at sums.

All pyramid schemes work the same way. Basically, I persuade ten people to give me a buck, which means I get $10. Each of those ten people then perusades ten new people to give them a buck, meaning they get $10 too. And so on down the line, until the number of people runs out. Normally the people at the top get a slice of everybody's action, not just those people directly below them, which means that the number of people who actually gain from the scheme is very small, especially since many of the people who invest at the beginning, making money, keep that money in the scheme instead of taking it out. When the scheme collapses – as all pyramid schemes eventually do – even some of the initial investors lose everything.

Rachel Royce knows all this. "One of the scary Internet articles had pointed out that each pyramid must increase by a factor of eight, so for everyone in my line to get their money, we would need 4,096 people," she says. "Another lurid article suggested that for 12 layers of a pyramid you would need eight billion people — more than the population of the planet." Yet still she believes, and still she manages to hold completely contradictory thoughts at the same time. Here she is about halfway through the article:

The government is planning to introduce hefty fines, and even up to six months in prison, for anyone indulging in this sort of pyramid-gambling practice. But new legislation isn’t expected until 2005 as part of a new Gambling Act. At the moment it’s not illegal in this country.

And here she is seven paragraphs later:

I may yet be able to dodge my obligation to part with £375 if the government goes ahead and keeps its promise to ban the scheme. I think the threat of a six-month prison sentence would be a good enough excuse to allow me to back down gracefully and still show my face in the village.

None of this makes sense, of course, which is why it's so jaw-droppingly amazing that the Spectator should put it on the cover. One minute: "It’s an upper-middle-class thing. In my neck of the woods it’s a horsey, upper-middle-class thing. The women sign up, wait and buy a nice new horse." The next: "If you are like me and pathetically poor, then you can opt to buy a smaller share — in my case, an eighth of a heart." And here's a real beaut: "I studied Torli’s chart, which shows all the hearts with names, home and mobile phone numbers. There were quite a few names on the chart that I already knew: my Astanga Yoga teacher, for one. I felt that anyone who regularly meditates on the power of Om couldn’t possibly break a sacred female bond of trust and friendship." Yep, why trust mathematics when you can take financial advice from your yoga teacher?

The key fallacy in that last quotation, of course, is that the pyramid scheme will only collapse if its members "break a sacred female bond of trust and friendship." But there's no ill will necessary for a pyramid scheme to collapse, although Royce's hoping that she might be able to get out of coughing up her £375 would seem to be less than perfectly trusting. All that's necessary is that the members run out of new recruits, and indeed that seems to be what's happening: now that they can't find anybody else to pony up £3,000, they're reduced to finding suckers like Royce who might be able to afford £375. It's like a drug addict crawling the floor looking for any last crumbs to keep the buzz going just that tiniest bit longer.

And the really depressing thing is that the whole save-our-scheme campaign is wrapped up in rhetoric about female empowerment. Here's the relevant bits:

The scheme I’ve invested in is known as Hearts, and it’s for women only. It calls itself a ‘gifting scheme that benefits all women’. Men aren’t allowed in because they’d ruin it with their incessant cynicism and greed. They aren’t even supposed to know about it. That, in a way, is the point.
Rich or poor, however, these women are responsible for their own actions. That in a way is what this little scam is all about: allowing women the responsibility to make financial decisions and giving them the rather glorious feeling of naughty financial independence.
I’m quite looking forward to upgrading my horse for something that doesn’t try to buck me off every time I sit on it. And my boyfriend would never notice — as far as he’s concerned, Hearts isn’t the only pastime that’s strictly for the girls.

"My boyfriend," it turns out, is Rod Liddle, the editor of Radio Four's Today programme, and the father of Royce's two children. Royce herself is a television journalist. Could it be that the whole article is basically an anti-anti-BBC slap at the woman who wants to make pyramid schemes illegal? Note the way that Royce spins the opposition:

Hearts is heartily disapproved of by boyfriends, partners, husbands, and by the government, which wants to ban it. Ministers say that it doesn’t work and women are being conned. They say it’s a form of pyramid selling where those at the top do very well and those at the bottom lose their entire investment. Tessa Jowell, taking a break from attacking the BBC, said a few weeks ago, ‘I feel particularly concerned that many women have lost thousands of pounds of hard-earned savings, and many more may lose out. There is no doubting the misery these schemes can cause, and my advice to women contemplating joining is simple: “Don’t do it.”’

Basically, the government (which hates BBC journalists), along with other killjoys like husbands and boyfriends, wants to deprive women of "the rather glorious feeling of naughty financial independence". How dare they? This is the 21st Century, and women should be ~~making their own mistakes~~ "having a flutter on their friends".

Inevitably, when Hearts collapses, its members will blame the government, for scaring off potential new investors. Many fewer people will blame the Spectator for the inevitable financial catastrophes that will result. But they should.

Posted by Felix at 9:17 EST

Comments

Thankfully, Rod Liddle is the former editor of Today. He got the boot for writing a silly column in The Guardian that seemed incompatible with his Today role. Sadly, he's still a Guardian columnist, given a page in G2 each week to write total drivel.

Posted by: Lance Knobel at 12:24 EST, July 15, 2003

Could the Spectator perhaps be engaging in a new kind of ironic exercise, wherein the editors and the readers know the author is being made into a fool? Do women read the Spectator anyway? It's always seemed to me more of a magazine for the husbands and boyfriends, in which case this piece would amount to a wake-up call.

Posted by: Stefan at 3:47 EST, July 16, 2003

ur comment on salingaros interview was nice,

Posted by: bhy at 9:07 EST, July 16, 2003