Why does the government let a company like Herbalife stay in business?
latimes.com
latimes.com
https://opportunity.herbalife.com/Content/en-US/pdf/business...
In 2011, in the US ~351,000 people were on the roles as individual sellers. The pdf even acknowledges "Single-level Distributors benefit from buying Herbalife products at a preferred price for their consumption and that of their families, and for many this is the only benefit they seek."
Those 351,000 people are the product for the "Supervisors"
Here's another one for 2013: https://opportunity.herbalife.com/Content/en-US/pdf/business...
400,000 people who earned nothing at all from herbalife as individual sellers (they could potentially profit from selling product, but that's quite rare, it looks like 50,000 people bought more than the minimum [see footnote in pdf]).
Next, 43,000 people who could potentially earn money from their downline (see the 400,000 chumps above); but only 2,300 actually did earn anything at all.
Next, the actual winners in the pyramid: 73,000 people at the top. But wait, 18 percent earned $0 and another 56% earned $250 on average. So how many people in the pyramid earn above minimum wage? Something like 2,600 people.
It would be much worse for society if most of the "individual sellers" were buying large quantities of the useless product, intending to sell it on but never being able to.
What proportion of people in the distribution/consumption pyramid for Coke earn above minimum wage from distributing or consuming Coke? Surely a lot fewer.
That's one interpretation. The other interpretation is that herbalife has reached a saturation point where there aren't any suckers to sign up anymore, and all the "customers aren't taking part in the 'pyramid scheme'" are just the bag holders.
But when it was founded 4 decades ago...there weren't any products like it on the market. It basically created the market, and it's had 4 decades to expand internationally into countries where there is similarly little to no competition. It's basically the McDonalds of protein shakes.
Herbalife stays in business because most of the "distributors" (in the US) are just end customers who buy in bulk at the "distributor" discount, which is why so many of them don't try to sell it on to others. And that was pretty much what the FTC concluded when they investigated Herbalife. (But note: Herbalife was determined to have operated as a pyramid scheme in several Latin American countries, and was forced to reorganize its operations in those countries.)
Nonsense.
There have been vitamins and protein drinks sold in stores for over 50 years. Every drug store and most grocery stores carried vitamins since the 1940s. The One-A-Day multivitamin brand appeared in 1943. My parents were born in the 1940s and they took vitamins as children. I was born in the 1960s and I took Flintstones Kids vitamins, which ere introduced in 1968.
Protein powders started showing up in drug and health food stores in the 1950s with the advent of body building becoming popular. GNC was started in the 1930s and was in every major mall across America in the 1970s, and they sold protein drinks, both liquid and powder. Remember Charles Atlas? Probably not. There have been multiple health food fads throughout American history.
Herbalife stays in business because people are gullible. The multi-level marketing business model appeals to our greed and fear of missing a good deal. None of the products offered by Tupperware, Avon, Mary Kay, Fuller Brush, Amway, and Primerica are unique in anyway and the only people getting rich are towards the top of the pyramid.
People have written an enormous amount on why HLF is/isn't a pyramid scheme. Yet it hasn't gone to zero yet. At the same time, it looks and smells fishy and people seem to agree the products are commodities. So how can it not be a scam?
It seems to me like the logical inference is that there is something hidden below the surface and that even with all the time Ackman and others put into researching it, there's something not public sustaining it.
Even if it's just a pyramid scheme, the mystery deepens, because some people who don't seem to be shills have written an unbelievable amount defending it.
Pyramid scheme = an MLM in which most income at any level is from sales that end with lower-levels rather than ultimately ending with actual customers.
The FTC investigated Herbalife in 2016, concluding in 2018, and determined that more than 80% of ultimate product sales were to individuals outside of their distributor network...even though their distributor figures were inflated by "distributors" that were just customers purchasing product for personal use at the highly-discounted distributor rate.
Herbalife is an MLM, but it's not legally a pyramid scheme, and the agency that investigates this (the FTC) said as much in 2018. (It did, however, fine Herbalife $$$ for practices that would have resulted in Herbalife being a pyramid scheme if the majority of its product didn't actually get sold to non-distributors.)
So I'm saying, yes, at some level it checked out for him and the FTC, but I'm still left wondering if it is what it seems, ironically due to reading the long defense and feeling it had gaps.
Thus, 40 years ago (i.e., 1980), using protein powder for weight loss/body composition wasn't a big market. Herbalife created that market. GNC and others started selling protein powders for weight loss and bodybuilding after Herbalife proved the viability of the niche. (Note: protein powder is the cheapest form of protein...today. It wasn't back then. It was comparatively quite expensive. In the 80s, beef and chicken were far cheaper than protein powder.)
If you want to debate exercise history you will want to pick a fight with someone who doesn't have GNC and other health companies as clients...
The glory days for Charles Atlas was the 1920s to 1940s; he died in 1972. He had sponsorship deals for dietary supplements.
>Thus, 40 years ago (i.e., 1980), using protein powder for weight loss/body composition wasn't a big market.
It was a large market by the by the 1960s. Many famous bodybuilders from the 1920s through 1950s started advocating protein drinks made with dehydrated and pulverized beef, egg, and milk. All the fitness, bodybuilding, and martial arts magazines were filled with protein drink advertising in the 1960s and 1970s. Hell, even Chuck Norris was hawking this stuff in the 70s. You could walk into any GNC in the 1960s and buy this product.
The only thing HerbalLife added was marketing, finding suckers to sell their products.
Herbalife (and Casinos) for that matter feed off that sickness as well. It’s hard to rationalize banning one and not ban the others and from my ignorant perspective, American society is not in a place where it can collectively come to a consensus to end industries that feed off of the intellectual, emotional and psychological deficiencies of people. The machine is just too big.
The biggest problem I have with Herbalife and similar companies is that they're dishonest and deceitful. It's not even a gamble, it's just a fraud.
I noticed other firms doing the same thing, with the convenience store guy telling me that the building in total spent over 100k on lottery tickets within a week or so.
Moreover, the lottery isn't a fraud. The mechanisms and payouts are all known, much like roulette or blackjack. We have a word for it, and it's called gambling (not fraud).
I was asked to buy $120 worth of tickets in 94ish and not one damn winning number showed up on any of the tickets. It was requested I never buy for the group again.
Hah! Obviously they should have sent you to buy the tickets, scoured them all for missing numbers, and then sent someone else to buy those.
I would guess that buying $120 of tickets and not matching even a single number is extremely improbable! You were the golden goose, just inverted.
It’s still problematic, but the real argument for keeping the lottery is that without it, organized crime would start running more of their own numbers games again.
At the same time, it's pretty sickening to see the normalization of dangling a pipedream in front of people trapped in lives of 'quiet desperation.'
It's a 60% best solution, where the next best solution is 20% best.
I even remember hearing ads on radio encouraging folks to "pay-it-forward" by buying more lottery tickets and framing gambling as charitable giving.
"For the children" indeed.
How many people were playing the lottery weekly?
How many people were playing the lottery with the mentality it was the only way to achieve financial freedom?
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Do you really not see the difference between poor people gambling daily and well-off people joining in on it as a spectacle?
In case you need it spelled out... it's no surprise the poorest populations consistently end up putting the most into the lottery because of weaker educations, lower financial literacy, bleaker financial outlooks
https://cnsmaryland.org/gambling/lottery/lottery.html
https://madison.com/wsj/news/local/govt-and-politics/wiscons...
https://southsideweekly.com/illinois-lottery-exacerbates-ine...
The story is the same all over the country. It's easy to sit back from a comfortable place on here and say "well the odds are right there, can't they see how low they are??" but it certainly doesn't show strong social awarenesses...
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The worst part is the most vulnerable people aren't getting out nearly what they put in between a lack of social safety nets and the fact these groups tend to be the most underrepresented in their governments.
https://www.bloomberg.com/news/articles/2017-02-21/where-cas...
> “In almost every case states either earmark the funds for education but then decrease the general fund appropriations for education by a similar amount, or, in more cases, they simply put the money in the general fund,” says Denise Runge, a dean at the University of Alaska Anchorage and editor of Resorting to Casinos: The Mississippi Gambling Industry.
In fact in some cases, these lottery are literally taking from the poor and giving to the middle and upper classes.
There's the merit-based scholarship example in the article, but even cases where funds end up being used on things like "historical preservation"... historical preservation is great, but feeding the hungry and giving the homeless places to sleep feel like much better investments in our populations. There are tons of "feel good" initiatives in a similar vein
It's a good point, and many economists are against regressive taxation.
But people want to gamble and you're not going to change their behavior by eliminating the lottery. Before state run lotteries, numbers games were very popular and run by organized crime.
The government has much less power to change people's behavior that many assume. After all, the drug war has been a historic failure, just like prohibition before it.
You might as well make these kinds of activities legal in order to reduce violence and disempower organized crime.
People are gonna do what they want to do and ultimately, they are responsible for those (possibly poor) decisions. You can't protect people from themselves, only try and give them the tools to make decisions that maximize happiness over their life-time.
But there is so much that could be done to try and limit the damage it's doing to poorer populations, and increase the good it's doing for those populations at the same time.
Bans and restrictions on advertising lotteries, limiting points of sale per sq. mi., actually using the funds as claimed when instated, focusing on the types of gambling and their effect on addiction rates (https://www.psychologytoday.com/us/blog/in-excess/202003/pro...), changes to the actual act of playing the lottery (even things as simple as purchasing process can have profound effects on how people get their "hit" from gambling).
Look at cigarettes, they're still legal, yet through policy America has gone from a country where the vast majority of adults smoked (almost 70%), to one where less than 15% of the population does.
Now this being HN I need to put the disclaimer that I'm not saying every piece of tobacco legislation maps perfectly to gambling if you Ctrl+F replace... but it shows how truly vast the gully between banning something and letting it proliferate is.
If there was truly interest in helping these people there are countless levers that could be used to try and balance the scale. But there's the perverse combination of financial incentive to do nothing, and political disincentive to do anything as long as politicians can get away with their treatment of these people.
Under what other circumstances would be possibility tolerate that low level of efficacy?
Using the profits for education, etc.
You get to pick #2 or #3.
Herbalife (and other MLM) are just straight fraud. Pyramid schemes are illegal in most countries, but companies like Herbalife manage to squeak by. My guess would be it's because of money, but really I have no idea how they get away with it.
The seller structure is definitely a pyramid scheme, but I’m not convinced that alone is reason enough for it to be illegal. It’s mindbogglingly stupid, of course. But consenting adults should be free to be as stupid as they want, provided they’re not harming anyone else or doing irreparable damage to themselves.
I think the lottery and MLM both tap into the same dreams, but a key difference is that the lotto ends at the cheap thrill, while MLM is a spiral that sucks you down forever.
The lottery is tolerated because it raises revenue without raising taxes. Here in California, ending the lotto means cutting public school funding. I would welcome higher taxes to end the lotto, but politics is politics.
People tip-toe around calling MLM what it is, specifically a scam using psychological tactics of a cult. For example, Dave Ramsey (host of a highly popular financial radio show and podcast) condemns credit cards in fiery rants, but uses carefully measured terms when talking about MLM. "Most people lose money, but a few can be very successful..."
Something about MLM gets people scared to tell the truth. I think that everyone knows a friend or family member in MLM, and don't want to risk that relationship. Of course that's what MLM preys on.
Of course it didn't help that Carl Icahn was on the other side of the trade. Herbalife's stock has done really well for a company that sells no real product and has no real value.
http://brontecapital.blogspot.com/2015/06/herbalife-very-lon...
As a token example - https://en.wikipedia.org/wiki/Betsy_DeVos
There are also legitimate home based businesses. Government regulations tend to not be very good at telling the difference between legitimate operations and those which are sketchy, but not outright fraud.
Individual behavior: As little as is demonstrably necessary.
Corporate behavior: Every bit that shapes capitalism into being benign & overtly beneficial - including police intervention for those on the receiving end of law-changing campaign donations.
Like payday loans. They're horrible and predatory, but they'll only take your car, not break your kneecaps if you can't pay.
Addressing market failure in the United States is more damage control and harm reduction than anything. Our Chesterton's fences are in the form of duct tape on top of duct tape.
Herbalife is in this spectrum of product: the government is mostly financially a-moral not moral or imorral and so prostitution income is not untaxable even if prostitution is. Herbalife has to get closer to the ponzi end of the spectrum to fall afoul of the law. Right now, it's only appealing to greed.
If herbalife and flyer miles points cards predate willful stupidity then the government needs a strong drive to legislate because in the end it too is conflicted.
Its a long bow libertarian position I dont agree with BTW, I think the role of government is to protect the innocent dupes. But there are thin-end-of-the-wedge arguments a-plenty here.
If I were king, I'd ban herbalife. If I needed a kings tax income I might not.
Are you talking about interest for carrying a balance, or the various fees you get hit with if you screw up (eg. late fees, returned payment fees)?
Carrying a balance and paying card interest rate when secured and unsecured loan rates are several if not ten or more percentage points lower (card interest was 20-23% in 2019 when bank loans were under 10% in my economy) provides the profits which allow richer card holders to avoid costs. This still feels like predatory behaviour to me.
His "i got the points be like me" is herbalife marketing of the gilt edged lifestyle which attracts the chumps who pay the cost of his fee free rewards. Its not implicit, it is explicitly why they offer him and his income bracket the deal.
As one case in point, most of American Express' flagship products don't even allow you to carry a balance (and thus pay interest).
Source: work in the industry
Issuers tend to specialize, too. For instance, banks like Barclays, Chase and Amex only (intentionally) target prime customers. Chase has been known to fire customers that suddenly start carrying significant balances on their cards, for instance.
On the other hand, banks like Capital One and Credit One explicitly target subprime customers and make the vast majority of their income from interest. Whereas Amex makes 90% of their card income from annual fees/interchange, for C1 it's more like 90% interest/10% interchange. Chase is like 65/35 Interchange/interest, for comparison.
For Amex, the simplest rule is that any card named after a color (Amex Gold, Amex Green, Amex Platinum etc) doesn't charge interest.
Oh - and the Amex charge cards don't actually have no limit. They do have a line, it's just hidden (and somewhat larger than most credit limits). Amex actually has a 'check my spending power' tool on their website where you can plug in a hypothetical purchase and it'll tell you if they would (hypothetically) approve it.
Do you think people should be able to buy in to Ponzi schemes, or give money to people running three card monte games on the roadside too?
They are an inefficient allocation of resources for the person investing their time and money, but the same could be said of many, many other endeavors.
I’d rather resource be spent to teach people how to properly calculate ROI and IRR.
There is zero upside to society for people to be parted from their money (further, for scammers to receive that money) because they don't know about every single scam or because they were unable to do adequate research. Btw, Herbalife points to the fact that it's not shut down as evidence that it's legit. And its onboarding process is 100% high-pressure sales wringer to make you feel like you're about to make big money.
This crap is even more in-the-open here in Mexico, the same country with homeopathy "pharmacies" on every block staffed by people in white lab coats ready to sell you a vial of water that will cure your cancer.
The main activity of Herbalife is recruiting. A Herbalife job posting may talk about selling supplements. But if you work for Herbalife, your real job is to find more people to work for Herbalife. The supplement sales are only a cover.
The reason these companies should be put out of business is that they are pyramid scams, frauds to their very core.
Why does it stay in business? Because there is nothing wrong with a company that exploits the greed of individuals. Yes, some people are compelled due to desperate situations. But the solution here is raising the education level high enough to not succumb to their inner greed. The solution isn't reactively outlawing knives that cut more people than others.
But there is a certain cruelty in doing business by deceiving people, and where the remedy is ex post facto “raising your education level” to become less deceivable.
Mental decline happens to everyone. Not necessarily to a severe level that would make one incapable of living independently, but enough to make them less sharp. You may be young enough to spot a scam from miles away, but your senses will most likely dull over time. In a couple of decades, you may be just as likely to be featured in a news piece about victims of a scam as the ones you are calling uneducated and greedy now.
There's certainly plenty wrong with it; perhaps you meant to say it's not illegal.
It may seem intuitively obvious to you that there are not moral facts (it seemed intuitively obvious that the opposite was true to people even as recently as 150 years ago) but the debate is hardly settled by any intervening scientific or cultural or philosophical advancement.
I guess read J.L. Mackie's "Ethics" for an introduction to the subject.