The question remains: How much of the current growth is fuelled by the ever increading volume? How will the progress go without the "pyramid" fuel?
There is a possibility that progress can be indeed sustainable, but without escalation of the volume growth. My suspicion is that Bush's advisors intentionally escalated volume growth (with tax cuts, and by letting big buisinesses expand liberally abroad) so to "assure" booming economy throughout his presidency. That is gonna be paid badly at some time.
Sure, there are impressive examples (like Singapoure, South Korea, Ireland, Estonia) of taking the best of the liberalized growth. But some countries (like Argentina or Zambia) suffer precisely because of libertarian recipes. Again, tussle for (assumed) pyramid portions might be a factor in this distribution.
Pyramid schemes are illegal not because they "do not work" (they work marvelously for a few), but because they are deceptive or demonstratively unfair. Even if emerging rather than designed, pyramid schemes should be recognized.
If a crisis comes, some developing countries might fare much better than commanding global players. Lesser exposure to a failing global market might be a blessing then. Many countries need just bits in technology (in medicine, communications), not the whole package with speculative frenzy included. A few developing countries might be making their priorities very wisely.
In a typical multi-level marketing or network marketing arrangement, individuals associate with a parent company as an independent contractor or franchisee and are compensated based on their sales of products or service, as well as the sales achieved by those they bring into the business. This is like many franchise companies where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. In a legitimate MLM company, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ("sign-up fees"). One must analyze the compensation plan to determine whether participants are paid from actual sales to customers and not from money received from new recruits. If participants are paid primarily from money received from new recruits, then the company is an illegal pyramid or Ponzi scheme. Some less legitimate companies produce revenues primarily by attracting new participants with the hope of reward and selling them products or services of dubious value at inflated prices, as opposed to selling products or services consumers would purchase at the given price without regard to the opportunity attached. One must evaluate the products or services and determine if a significant percentage of consumers would continue to purchase them if the participants do not make money from the underlying opportunity. If the products or services have dubious value or if the participants must purchase excessive quantities without reasonable intent to use or resell said items, then the company is likely a thinly veiled illegal pyramid scheme. Multi-level marketing has a recognized image problem due to the fact that it is often difficult to distinguish legitimate MLMs from illegal scams such as pyramid or Ponzi schemes. MLM businesses operate legitimately in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.
And true pyramid schemes usually go bust with the bottom level of the pyramid getting shafted. True there are business cycles in national and world economies, but they are not caused by the same factors that cause pyramid marketing schemes to go bust; everyone gets hurt in a downturn in the business cycle; and business cycles come back as economies recover.
I just don't see this is a good analogy.
The point of analogy is the following: The value of stock market shares (or real estate) is now determined by the flow of newcomers, or more generally, by volume increase. You have millions of Americans, Chinese, East Europeans and others coming into markets, because this is "the way" to get good living, and once they come in, they inevitably buy, regardless of intrinsic market values. Besudes, pension funds are rapidly expanding: as they collect contributions they are effectively obliged to buy, again, regardless of real market values. For an individual contributor, these purchases are excessive, not entirely voluntarily so.
The real market value hardly enters the equation of the price. The price is determined by buyers' competition and expectations. Traded shares are almost certain to be overpriced.
Surely, market shares do not have "dubious value". But mathematically, you may speak of a pyramid scheme (whether designed or emergent) whenever volume increase alone pushes share prices up.
Economic downturns might be different from outright pyramid scams. But while depresion causes remain "mysterious", we cannot say that pyramid effects do not play a significant role. Buisiness cycles might be nothing more but cycles of excessive greed, so to speak.
Surely, market shares do not have "dubious value". But mathematically, you may speak of a pyramid scheme (whether designed or emergent) whenever volume increase alone pushes share prices up..
There is a gray area in between. Very successful buisinesses indeed risk to run into pyramid modes. Investors have to make good judgements themselves.
I do not suggest to draw subtle lines in the gray area. I even consider profitting from brief fluxes of speculative interest as healthy. (That is the way to curb speculative interest.) Regulation is hardly possible in the gray area.
But government (or public) may keep an eye on the bubles without reccuring interventions. First of all, playing in stock markets does not have to be made as easy as possible. When people are tempted to make unjustified decisions, it's getting closer to a deception. Participation in the markets must still be free, of course, but it should not become the main way of making living for the masses. Or to put it other way, not only financial talent should be encouraged. People should have good chances to achieve good living standards without necessarily diving into pecularities of stock and real estate markets.
Secondly, when a bubble become more apparent and holds for longer time, public awareness should be raised. What usually happens now, a speculative bubble is disguised by all means possible as long as possible - which is very "fair" to the speculants of the moment, but eventually becomes unfair for a unspecified large group of later buyers.
Only then comes a more interventive stage of bubble management. Here the interesting problem is: how eager buyers should be "convinced" to cool off, or accept limitations.
Speculation, in the narrow sense of financial speculation, involves the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. Speculation or agiotage represents one of three market roles in western financial markets, distinct from hedging, long term investing and arbitrage. Speculators in an asset have no intention to have long term exposure to the asset.[1]
It is not exactly my purpose to enlighten all buisinessmen or economists. I don't care of those who would take more trouble in detecting language formalities than getting the point. What we are discussing is that certain things in market economy walk like a pyramid scheme, quark like a pyramid scheme, and most importantly, expand and collapse like a pyramid scheme.
wchurchill - how exactly is this different to what's happening today?
Given that there's really very little of the technological innovation that you describe happening today - there's a lot of 'cheaper', but comparatively little 'new', I think the pyramid description is a perfectly apt and revealing one.
As to understanding the implications of pyramid marketing, versus speculation, versus "bubbles", there is plenty to read and gain insight. It doesn't matter to me if you and das monde choose to confuse them.
On the other hand, the Russian GKO bonds are often given as an example of a pyramid scheme, though they were traded within the stock market structure. If we call this case a "created pyramid structure" in the stock market, then it makes compatable to speak about "emergent pyramid schemes" in stock markets. That is what I am talking about.
For most consistency, the cases of Ponzi & pyramid scams, matrix schemes, and created/emergent pyramid schemes in stock markets should be grouped to one term. You may come up with a better English word combination, but here is a formal definition, as general as I can:
Entrant growth - a trading structure where profit margins of beneficiaries come predominantly from new entrants.
The special case of entrant growth in stock markets can be called... bubble growth!?! Unless there are objections from bubble specialists, we may offer a mechanism how the bubbles grow in economy, or even quantify them perhaps!
