How do you make money in a pyramid scheme?

Answer 1

If I email ten people and ask that they each send me one dollar, I'll receive ten. And I tell them not to worry, because they can forward the email to ten friends who will each send them a dollar. And they don't need to worry because they can each forward it to ten...well, do the math.

Very quickly there are not enough people in the group, and everyone is forwarding the email to everyone else. Or it dies as the majority of people know better. The only person who wins is the person who finds people silly enough to fall for it at the start. (And it's typically arranged so that there is a cut that he always gets anyway.)

This can be done on a mass scale, with a lot of bells and whistles to pretty it up.

Take a nation that wants to provide for it's citizen's retirement, but doesn't want to have to pay for it.

So they withdraw a dollar from each of the workers and give it to the lesser number of retirees. But that's okay, because when those workers retire, they'll take more money from the next generation of workers and give it to them. And that's okay because they'll take from the generation after that...trouble is, it takes more and more people to pay for it, just like the email scheme.

Eventually the number of people who wish money sent to them is more than the number of current workers can afford to send money to. (And if the person running it is spending it on other things, as in the case I'm speaking of they are, then it runs out all the faster.)

In America, this is called "Social Security", and if you ever wondered why the government lets new immigrants in, while raising the age at which you can collect it, that's why. Sure no one actually wants an influx of immigrants, but they can all have their dollars collected and sent to the retired - after the government takes it's cut. And sure no one wants the retirement age to go up, but if it does, they have to pay out for less years than usual, as those to be paid die off before they can collect.