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Madoff, Two-Party Systems, and Ponzi Schemes

by Adam Trope // Published July 22, 2009
The Hidden Parallels Between the Biggest Investment Fraud of All Time and the United States' Current Voting System

On June 29th, a Federal judge sentenced Bernard Madoff to 150 years in jail amid the shouts of joy and tears of relief of some of the hundreds of victims of the largest investment scandal in history. Madoff was the mastermind behind a scheme which robbed thousands of people who invested in his firm of at least $12 billion (with some projections as high as over $50 billion). He used something called a "Ponzi scheme." A Ponzi scheme promises investors unusually high returns and pays those investors off using the money of other investors rather than any actual profits from investments. The perpetrator of the scheme then needs to find more and more investors and gain an ever-increasing sum of money in order to finance the operation without defaulting on a payment to an investor. Eventually, the flow of resources stops coming in and the Ponzi scheme falls apart, causing many investors to be robbed of all their funds since the money they invested was never actually invested, but given away to other investors. This is what happened to Madoff last December as his operation spanning over three decades fell apart, causing many of his investors enormous amounts of money and in many cases their life savings. Ouch.

"But what does all of this have to do with electoral systems?" Excellent question. It occurred to me that the current two-party system acts in a way as a Ponzi scheme to some in the American electorate. Obviously, the American electoral system is not stealing thousands of innocent victims' life savings, but it is leaving them bereft of something else that is invaluable to a functional democracy: their influence on elections.

Under the current election system in America, anybody who votes for a third party candidate is putting an investment of their vote and political free will into that candidate. While many people who join a third party may know that their party has little chance to ever gain substantive power in government in the near future, many of them feel that at least the presence of the party draws attention to certain imperative, core issues that the two dominant parties will be compelled to address. People who back third party candidates are essentially "investing" in principles that they feel they are helping support by interjecting another voice into discussion, even if it's a faint one.

Unfortunately, in most instances reality is far different. Everybody with political ideologies that are off the beaten path is practically ignored by the Democrats and Republicans. This is not Democrats' or Republicans' fault, however. It is simply a consequence of having a system in which the only thing that matters is beating the next closest opponent by a single vote. Shifting campaign stances or promises due to a small cohort of people whose beliefs are incongruent with the average voter in the voting jurisdiction is not only impractical, it is simply bad strategy.

Thus, for the millions of Americans who vote for third party candidates, their votes for a candidate with no real relevance in the election can seem wasted. However, in a few uncommon but notable instances, those voting for a third party candidate actually can cause a "spoiler effect." By voting for their preferred (but politically unviable) candidate instead of using the "lesser of two evils" approach and voting for the mainstream candidate whose views are less objectionable, those who vote for these third parties actually withhold votes from the mainstream candidate their beliefs are most congruent with and hand the election to the candidate they diametrically oppose. The poster example for this is the 2000 presidential election where Al Gore lost Florida and the national election by 538 votes to George W. Bush as liberal Green Party candidate Ralph Nader gained over 90,000 votes in the state.

In instances such as the 2000 presidential election, those who vote for a third party can wind up propelling the ideology they most strongly oppose to a position of power. Thus, just like in Bernie Madoff's Ponzi scheme, voters are left with the very result to which they are most diametrically opposed. At least with the Ponzi scheme lots of investors make money off their fake investment until the scheme comes crashing down. With third party voters, there is little to no more benefit than the intrinsic knowledge they have found a way to rebel against the mainstream and evade the chokehold the two party system has on American politics. The only problem is that, too often, they haven't.

I believe that every voter should have a right to vote for whomever they want to without having to worry if they are hindering their own political cause and becoming essentially disenfranchised. Instant runoff voting (IRV) would allow people to be able to express their political beliefs and vote for whomever they want to without having to fear that their vote is actually going to come back to haunt them since their second choice is taken into account. Thus, it is time that America adopts an election system that does not limit people's choices and voice, but rather emboldens people by giving them the freedom to vote based on their conscience.