Diminishing Marginal Returns

Diminishing marginal return is the idea that you get less for the same input as you accumulate more of the return.  You can use any tool you want to measure the return but you will always get the same result.  Jay Leno will not get the same joy from his next classic car purchase as he did from his first. On a hot day, a cold beer will be welcome, but the fifth will not.  Same beer, different payback.

Diminishing marginal returns are a problem for bureaucracies, unions, big businesses and even individuals.  Society in North America has cured most of the big problems. There is little left to be accomplished on a society wide scale for working conditions, pay rates, product safety and civil rights.  Not to say there are no bad examples, just no systemically bad examples.  The money expended to deal with mostly solved problems must become greater to have any noticeable effect at all.  That part is increasing marginal costs.

Experience shows that if you can solve 80% of a new problem for $N, then it will cost $2N to solve 80% of what is left. And that doubling process continues as you try to solve even more.  That problems are never completely resolved is troubling for some and costly for the rest of us.

You will notice the political rhetoric today deals with individuals and small groups. Nothing society wide.  That is how you notice that problems are mostly solved. When is it time to leave well enough alone?

I suggest that it is time now. As we use as much money as is available to resolve trivial anomalies in otherwise solved problems, we have too little money available to resolve any new problem that could arise.  What if we have a pandemic? What if climate change ideas turn out to wrong? What if terrorism becomes more than an occasional threat? What if the economy is really built on invalid assumptions? What if the producers stop producing because of the vast societal overhead?

Having too little money is just part of the problem of misdirected attention. The regulatory overreach reduces the ability of those that produce to do so.  Most will go elsewhere and if any nation state welcomes them, they leave.  Even if they give up a huge share of their wealth to do so.

Being practical requires that the most important problems be addressed and the greatest opportunities be encouraged.  Focus on issues like fairness and social justice tends to cause problems. The deep attitudinal problems will go away in time regardless of the effort. Immediate attention will not make it better. The problem will remain, just deeper. I am reminded of a doctor who when telling me my options in respect to a case of laryngitis said, “We can treat it and it will be gone in 7 days.  If we don’t treat it, it will take a week. You decide.”

It appears from here that there are not many practical governors on the rush to cure every problem immediately.

There should be more practical and less ideology. 

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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