We periodically hear about the unraveling of a Ponzi scheme - most recently, think Bernard Madoff and his $65 billion enterprise - and decry those who induce people to invest money, which is then used to pay off other investors, ostensibly as profit but not really. As I understand them, Ponzi schemes rob Peter to pay Paul, making both of them happy in the short run not to mention making the Ponzi perpetrator rich.
Ponzi schemes are named after Charles Ponzi (1882-1949), who did not invent them but was one of the first individuals in the United States to profit greatly from them, at least for a while. Ponzi schemes fall apart when the money coming in does not match the money going out. (Any parallels with the contemporary United States are purely coincidental, I am sure.) Even before collapse, one can suspect a Ponzi scheme is at work when short-term returns are unusually high or unusually consistent.
As the sayings go, there are no free lunches, and if it seems too good to be true, then it probably isn't.
Except that sometimes there are free lunches, at least metaphorical ones, and sometimes very good things are very true. My argument in this blog entry - somewhat tongue-in-check, somewhat not - is that the basic idea of a Ponzi scheme is sound when deployed outside the arena of money and specifically in terms of one's own psychological well-being.
Suppose I tell you that if you invest your time and concern in other people, you will benefit greatly. You will be healthier and happier, wealthier (maybe) and wiser. Research makes it pretty clear that these are reasonable promises.
Suppose I also tell you that at a later point in time, after your initial investment, you will get back more than what you invested in terms of the time and concern of the people to whom you have mattered. Again, research makes it pretty clear that these are reasonable promises.
Positive psychologists sometimes write about psychological capital, meaning intellectual, emotional and social resources that we can build up and later draw upon when times are tough. Dubbing these resources "capital" is catchy but misleading. Real capital - money - can indeed run out. Psychological capital cannot. It is not a finite thing that goes away when given away. Living the good life is like having your own mint. The psychologically rich simply get richer, and there are no laws against being fulfilled and content.
Charles Ponzi was eventually convicted on multiple charges of mail fraud and larceny. He served several stretches in prison and was later deported from the United States. He spent his final years in poverty and poor health. In one of the last interviews he ever gave, he commented: "I gave them the best show that was ever staged in their territory [Massachusetts] since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over."
Too bad Charles Ponzi's scheme did not entail what really matters. If it had, perhaps today he would be considered one of positive psychology's founders, and perhaps today we would use the label "Ponzi scheme" to describe a sound strategy for achieving and sustaining the good life.
Happy New Year!
