“I don’t think the income of the sales people in pyramid scheme, even if it is legal one, should be included in the GDP,” I said to my boss.
Back a couple of months, we were having a conversation about pyramid schemes and how some sales people on top of the pyramid made it real big. I have often look at them with disgust. Whatever obscene amount they earned are not due to the value they contribute to the society, but merely shifting the resources from the new gullible recruits to the people on top.
“That is not exactly true,” responded my boss. “Some pyramid schemes or multilevel marketing do offer actual products.”
“Yeah, but the products they offered are just a facade to make it seem like the activity has actual value to the society. However those products, such as Lamp Berger, has no intrinsic value. Its purpose is to have them move around so that large amount of money can be transferred from one sucker to another. The last sucker obviously would derive no value for the actual amount paid,” I protested.
“In some sense you are right. But think it through properly. Are the pyramid scheme con men very much different from us? Would you say our earnings should not be included in the GDP?”
I was shocked by the statement. How could he possibly link us financial traders to the people I abhor? Then it hit me.
Financial markets are quite similar to pyramid scheme. The winners are the ones who first got into the trade. The losers are the last few who could not find further suckers to dump their worthless stuff to.
In financial markets, whoever first bought a stock will see its value climbing as each new sucker express the intention to buy it at higher price. It continues until no sucker left are willing to buy it at such high price.
However, equating financial traders to pyramid scheme sales people is definitely too harsh. A modern economy can thrive without pyramid schemes, but certainly not without financial traders who keep the financial market liquid and efficient.
In some sense, we the financial traders are the necessary evil.
