Ponzi Schemes: What's the Big Deal?
By Bryan Caplan
At last night’s paternalism debate, David Balan repeatedly returned to the example of the Ponzi scheme. Later, I found myself reflecting: What’s so bad about Ponzi schemes? By definition, Ponzi schemes have an expected rate of return of 0% minus transactions costs. How is that worse than the payoff of casino gambling?
Is the problem that the initiators of the Ponzi scheme know they’ll benefit? Well, they know they’ll benefit if the Ponzi scheme gets off the ground, but that’s far from a sure thing. And in any case, don’t casinos know with near-certainty that they’ll benefit over the course of any given day?
My point is not, of course, that you should invest in Ponzi schemes. Rather my point is that they are no worse than lots of things that are uncontroversially legal.