moneyFYI
Financial Freedom Is Merely Organized Common Sense
The Mindless Pursuit Of Perfection
Perfection is a costly objective. Perhaps it is time to accept good enough.
Suppose I suggested that you could solve 80% of any problem for a given amount of money. Call it $1,000,000. If you want to go farther, the cost to solve the next 80% of what remains will cost double $2,000,000. So for $3,000,000 total you can solve 80% plus 80% of what’s left – 16%, 96% solved. To solve 80% of the remaining 4% will cost $4,000,000. 99.2% solved for $7,000,000. 99.8% for $15,000,000, 99.96% for $31,000,000. We can come arbitrarily close to 100% but never reach it. Each step remaining has a huge incremental cost.
If we are to remain solvent as a society, it would behoove us to decide “how solved” we need a given problem. If someone tells me that I can solve 99.2% of a serious problem for $7,000,000 I doubt I would spend another $24,000,000 to get to 99.96%.
If the government spends that last $24,000,000, it came from something else. Maybe your vacation is gone because of higher taxes, or maybe some business did not expand. There is nothing for free.
There are two things wrong with with government problem solving:
- When the politicians introduce the problem and the solution, they tend to use the $1,000,000 estimate. Maybe the $3,000,000 if they are being responsible.
- Once implementation starts, they create a bureaucracy. That bureaucracy has a vested interest in the 100% solution and there is little to stop them from trying to achieve it. The cost for 100% approaches infinity.
Air quality is interesting. I love clean air. I especially love air that is invisible. When it come to vehicle emissions, I wonder if legislation has already solved most of the problem. According to the EPA in the US, since the legislation came into force in 1970, the actual amount of carbon monoxide and nitrogen dioxide emission has fallen by 75% and 61% respectively. In the same period the number of miles driven and the number of vehicles has more than doubled. This problem looks under control.
Given that newer vehicles are more efficient than older ones and the older ones eventually disappear, maybe we do not require more spending on new techniques to reduce emissions. Maybe the problem is substantially solved.
We need a discussion about what constitutes solution. We cannot afford perfection but we can afford excellent. We need to draw a line.
In a similar vein we might need to consider how much we will spend on regulation to protect life. Presumably there is some amount that is the most we would, as a society, spend to save a human life. I have no idea what society might agree upon, but I suppose it is a big number. Maybe $10,000,000, maybe even $100,000,000. I doubt it is a billion.
Cost per Life-Year of various interventions is an old study, 1994, from the University of California at Santa Barbara. I must admit that I have no idea how good it is (it is well outside my area of expertise) but I found it interesting nonetheless. It studied more than 500 interventions and estimated the cost of the intervention in terms of dollars per year of life saved. There are some interesting results in the appendix. Many interventions are clearly beneficial, some are actually cheaper than the old way. Defibrillators in ambulances cost $39 per life year. About $1,000 for 25 years of life. Good deal. I would be okay with ulcer therapy versus surgery at $6,600 per life year. $165,000 for 25 years.
I might quibble about $34,000,000 per life year for trichloroethylene at 2.7 micrograms per liter in drinking water when compared to an 11 microgram standard. Somehow 30 years of life for a billion dollars seems too expensive.
The pursuit of perfection is a failing strategy. We need to convince politicians and various interveners of all kinds that as a society, we will pay a reasonable price but no more.
Time for the debate about how much is too much.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com
moneyFYI 
Great article describing the law of diminishing returns. The concept is especially important when it involves the allocation of capital. There is a point at which perfection erodes the ability to maximize the return, and in some cases, (remaining invested in something over-priced), fixating on perfection can get you hurt.
Good point and one I had not thought about before. Thanks. If you have not seen this post https://moneyfyi.wordpress.com/2013/01/02/stewardship-as-an-element-of-estate-planning/
it will display another form of imperfection that results from meeting the accepted standard.