MLMs (PYRAMID SCHEMES)  fueled the rise of the Republican Party

Higher order volume meant bulk discounts; buy at least $15,000 and you became a “key agent” and got a check for one-quarter of whatever your downline was buying.
If someone in your downline reached key agent status, you got 2% of what they got.

Critically, unlike traditional direct-selling companies, Nutrilite distributors would not be required to sell anything—only to buy it.
“Mytinger & Casselberry had solved the problem Rehnborg had been struggling with for years regarding Nutrilite, which is that no one wanted to buy it or sell it,” the Author observes.
“The incentive in their new system was to sell to other distributors; the customer, and any actual demand for vitamins, was an afterthought.”

That basic system persists to this day.
 And MLMs fueled the rise of the Republican Party and its anti-regulatory, anti-government ideology.

MLMs claim “sales” figures in the $40 billion range, but that number is solely based on products bought by their distributors;
nobody, including the companies themselves, has any idea how many products are actually sold.

Throughout the book, the Author shows American regulators constantly struggling to arrest the cancer-like growth of MLMs, and the industry fighting back with heavy lobbying.

“The money siphoned from the millions of Americans churning in and out of Amway, by the Andels and the DeVoses, had helped fund the New Right political revolution that successfully made big government bad and greed good,” the Author writes.

"Not a Pyramid Scheme" - judge rules blindly

During the New Deal era from the 1930s to the ’70s, when the power and legitimacy of the administrative state was at its height,
the Federal Trade Commission put up a serious fight.
Shipments of bunk products were confiscated, and the most openly scammy MLMs were shut down or sued out of business.

But in the late 1970s, the agency lost a critical legal battle.
It sued Amway in these years for allegedly running a pyramid scheme.
At the same time, it was attempting to crack down on deceptive “KidVid” advertising to children, particularly of sugary cereal.
Reactionaries, supported by MLMs and other industries that had run afoul of the FTC, like car dealers and real estate agents, spied an opportunity.
They attacked the “KidVid” proposal as nanny-state overreach, and put the FTC on the back foot.

In 1978, administrative law Judge James P. Timony agreed with the FTC that Amway had engaged in price-fixing and restraint of trade,
but not that it was a pyramid scheme.
He accepted the company’s claims, which became a set of rules to avoid violating the law:

The following year, an open ally of MLMs won the presidency:
Ronald Reagan gave the keynote address at the 1980 Amway convention,
right after Jay Van Andel took over as chairman of the U.S. Chamber of Commerce.

Ignoring the Law pays off

For the next 12 years, the FTC did not bring a single case against an MLM.

The 1978 Timony ruling was buttressed by the fact that Amway persisted over time.
A normal pyramid scheme should collapse within weeks or months, so surely it didn’t qualify ?

Yet sophisticated analyses of pyramid schemes show that they can last indefinitely so long as they don’t grow too fast—and modern MLMs have tremendous churn, with up to 75% turnover per year.
So long as the scheme sheds enough people who are replaced with constant supply of fresh victims, a pyramid can persist.
And without regulatory enforcement getting in the way, that growth is unencumbered by legal risk.

As the Author notes, what studies have been done on MLMs show a near-total lack of legitimate business activity.
MLMs, including Amway itself, have been caught repeatedly violating the Amway guidelines, only to face minor fines.

No Income just Debt

Sucked into Mary Kay and ended up in debt

The Author illustrates the MLM dynamic with a story told in short segments throughout the book about Monique, an Air Force veteran who got sucked into Mary Kay back in 2013.
The vignettes show why so many people—overwhelmingly women these days—find MLMs appealing:

Monique’s story also shows why people can stick with an MLM.
Mary Kay has stiff incentives that relentlessly pressure members to buy more product and, especially, recruit more members into their downlines, packaged with constant propaganda asserting that anyone can make it if they try hard enough.
Buy enough and you make it to higher ranks, and are celebrated with special jackets at lavish ceremonies.
The social pressure to stay and keep grinding is very strong.

Inevitably, Monique ended up buying most of the products with her own money, telling herself she’d sell them later.
Eight years later, having spent more than $75,000 on Mary Kay junk, Monique ended up deeply in debt with a house full of makeup that she can’t even use, as it gives her a rash.
All available evidence suggests that is roughly the average MLM experience.

A CENTRAL LESSON OF ECONOMIC HISTORY

is that Capitalism cannot work without regulations.
Indeed, without property law and corporate law, plus police and courts to enforce those laws, it couldn’t even get off the ground.
But more protections are necessary to preserve the integrity of the market and protect the public.
Without strong government oversight, any market will eventually be overrun by lies and fraud, and implode in financial panic, as seen in 1857, 1873, 1893, 1907, 1929, 1987, and 2008.

In all the legal disputes mentioned above, a central question was lost:
What is the point of allowing MLMs to exist?
The industry is plainly abusive and deceptive, and it’s not as though Americans are lacking for retail shopping opportunities.
But as the propaganda:- that regulations are bad until proven otherwise, took hold, that question was ignored.

Under the Biden administration, things seemed to be turning around.
The FTC got its most aggressive leader in decades, Lina Khan, who set in motion and strengthened several new regulations aimed at MLMs.
These were in progress until the last days of the Biden administration.
Alas, the book was finished before the presidential election, so the note of tentative hope on which the Author ends is a sour one.

If an MLM could somehow be distilled into a single human being, it would be Donald Trump.

This is a man who, despite inheriting hundreds of millions of dollars almost tax-free, failed at every legitimate business he ever tried.
His real estate empire collapsed ( 4 bankruptcies ).
He couldn’t even turn a profit with a casino.

His one true talent, which made him billions, was selling the illusion of business acumen, through the press in the 1980s and ’90s and on The Apprentice.
That allowed him to license his name and likeness to all kinds of products made by others, to

Without

 Trump would never have become president.

And now we are seeing an MLM president in action.
Trump is ramping down the agencies designed to protect the American public and the market.
He fired Alvaro Bedoya and Rebecca Kelly Slaughter, the other Democratic commissioners at the FTC, after Khan stepped down.
The Consumer Financial Protection Bureau is being torn to shreds,
and even the Consumer Product Safety Commission is under threat.

Trump’s FTC actually did recently file a lawsuit in Nevada against one particularly egregious MLM called IYOVIA, which markets investment training services and allegedly ripped off customers for $1.2 billion.
But one-off lawsuits against the worst of the worst — ( where 21 international agencies had warned about IYOVIA )
 — pale in comparison to stronger rules that could take down the entire industry, as Khan’s FTC was doing.
     --- (The lawsuit also makes clear the investigative work was done when Khan ran the agency.)

Every day, more and more of the national income produced by legitimate work and businesses disappears into the black hole of innumerable
 scams and grifts, from phishing emails --to-- scam texts and calls --to-- phone hacks --to-- crypto rug pulls --to-- MLMs.
Trump, naturally, has his own meme crypto coin, and publicly advertises that the largest bribes will get you access to the White House.
Now he has inflicted perhaps the most crack-brained economic policy in world history on the American public.

One would think that actual capitalists running real businesses would realize the importance of regulation to the functioning of the market,
and turn against Trump.
But if the Author’s book is any guide, they will not.
Someone else will have to wage the scorched-earth campaign against dishonest dealing necessary to preserve the American economy.

Ryan Cooper  is the Prospect’s managing editor, and author of
‘How Are You Going to Pay for That?: Smart Answers to the Dumbest Question in Politics.’
He was previously a national correspondent for The Week.