Financial Inequality

by Richard Duffee


The Law of Diminishing Returns is the single law of economics that reveals the most about inequality. The basic idea of the law is that the more one has, the less benefit one gets per unit, while the less one has, the less one benefits per unit. In concrete terms everyone knows this: if you’re very thirsty, the first gulp is extremely satisfying, better than the second, and much better than the tenth, let alone the hundredth. But most of us are reluctant to see that what is true of such immediate examples is just as true of everything else, including money, because there is strong pressure on us not to extend our perceptions in this direction. The law implies that wealth is wasted on the rich and most beneficial for the poor. This flies in the face of the entire structure of our society, which siphons wealth to a few people who derive very little actual benefit for it, but merely use it to dominate the rest of us, destroying our hopes for democracy, and glorifying waste.

But the law does not merely give reason to abhor the conspicuously wealthy who deny billions what they need to live. The law has direct implications for the morality of how each of us lives. Most importantly, it implies that one must assume that every person who has less access to resources than we have ourselves also has more need of wealth and can derive more benefit from access to it than we can ourselves. This is easy to grasp but difficult to keep in mind. Living by the obvious implications—that any transfer from a wealthier person to a poorer person increases the probable benefit derived from a good or service, while any transfer from a poor person to a rich one reduces benefit—requires radically changing the way one lives. The changes one must make, moreover, must be made in defiance of social norms and what the majority, trained to believe what it is in the interests of the rich for them to believe, falsely and destructively regard as common sense.

Richard Duffee is a former candidate for Congress in CT's 4th District