Thursday, January 4, 2018

MLM and Appeal to Consequences Fallacy

Today's blog post is about a frequently used piece of rhetoric by MLMers, "If MLM is illegal, then why hasn't it been shut down?". This line falls under the category of the appeal to consequences fallacy, which suggests something must be legitimate if it hasn't been abolished. This type of logic assumes an undefined conclusion is causation for the current state in which something operates, which can be true, but usually needs to be supported by other conditions. In other words, this type of logic can only be used as support for a position and not as definitive proof.

An example of the failure in this logic would be the case of Bernie Madoff. He operated an illegal Ponzi scheme for decades, but by this logic, it was deemed legitimate until he was shut down. This is problematic, because the fallacy suggests his "business" was not a problem until law enforcement got involved, which is inherently untrue as things don't transform from legitimate to illegitimate because of a lawsuit. A lawsuit is designed as a means to determine if the "business" has been legitimate or not, and then passes a judgment based on the findings.

MLMs have regularly been in the crosshairs of the FTC, and many have been successfully shut down. This presents a second issue with the logic, because MLMs that have had legal action brought against them, have had some sort of consequence from each judgment. A recent example is "Herbalife", which was investigated by the FTC and had to settle the case by paying a $200 million dollar fine. The idea that a company would be legitimate, and have to pay a substantial fine to victims, creates a problematic situation for this logic. If "Herbalife" had been operating legitimately, then the case would not have produced this type of result, and "Herbalife" would have continued to operate the same way. However, "Herbalife" was found to have significant issues within the compensation plan and was forced to restructure in the United States.

Here is what former FTC chair, Edith Ramirez, had to say about Herbalife:

“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Ramirez said. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”

Some of the other MLMs that have been shut down are, "Burnlounge", "WakeUpNow", "Fortune Hi-Tech Marketing", "Monavie", "Five Star Auto Club", "ZeekRewards", and many many more.

The idea that a particular MLM is operating legitimately, specifically because it hasn't been shut down, is more about luck, and less about operating within the guidelines of the law. Unfortunately, the FTC has yet to make a case against all "businesses" operating as MLMs, but that isn't to say it won't happen in the future. As of now, any MLM that has had litigation brought against them, has either settled or been shut down.




  1. It is absolutely a logical fallacy. Illegal drug cartels are dangerous but are alive and well today. There are many pockets of illegal gambling that exist today. It's against the law to steal or murder but people who have committed these kinds of crimes are still walking the street.

    A good example is indeed Herbalife. Their US sales have dropped significantly ever since they have been required to show that they have "actual" customers. I'm going to keep an eye on them as the story unfolds.

    1. Joe --

      Those are some great examples. This fallacy has been spreading around the internet fairly recently, and it is frustrating because it can sound convincing to the uninformed. Yet, when we take a few seconds to think about the implications of this logic, it becomes astoundingly clear that it holds no weight. To suggest that anything can be determined by the result is overly simplified, and to act as though things are only bad if they have been to litigation, or shut down, is preposterous.

      I haven't followed the issues with "Herbalife" lately, but I'm sure there will be more litigation brought against them in the near future. The whole premise is flawed, therefore, any slight adjustment to a compensation plan will not have the overall desired effect. Even though it is sad that more people will continue to get conned, it is a huge step in the right direction for toppling this house of cards.

  2. Another example of this "appeal to consequences" fallacy is the question you sometimes get from an opponent: "If you're so smart, why aren't you rich?"

    It's a completely illogical statement, since it assumes that anyone who is intelligent will be sure to use his intelligence to enrich himself financially.

    1. Anonymous --

      That is a great example! This reminds me of correlation not directly relating to causation. Sure, there may be more smart rich people than dumb rich people, but there are plenty of examples to suggest being smart does not equal being rich.

      There are many examples in which this argument spirals. In the most basic sense, there are many different levels of "smart" and "rich", therefore to make the blanket statement "If you're so smart, why aren't you rich?" is inherently flawed. To assume all people that aren't rich are stupid, is also an extremely intellectually lazy perspective.

      Just because someone is "smart" in one category does not mean that translates well to other categories. We see this problem in various professions. A doctor may not be a savvy financial investor, would we say the doctor is stupid? A chess expert may not make as much as a professional football player, would we say the professional football player is smarter?

      Your point is great as well. Some people may not have an interest in money, and they find a much more fulfilled life in a profession that does not pay well. Everyone's value systems are different, and in some societies, money is not something people care about. Would those societies have zero "smart" people?

  3. It's a peculiarly American trait to believe that high intelligence will always translate into financial success. There are various historical and religious reasons for this American habit of thought, but it would take a great deal of time and space to explore them thoroughly.

    Let me boil it down to a simple proposition: An American is supremely happy when he knows himself to be deeply virtuous, but also filthy rich at the same time.