Entrepreneurship, Risk, ‘Moral Hazard' and Music

My husband and I are on the verge of losing the house he bought in 1983. We are musicians by profession, with all the financial ups and downs that go with our job, but until a few years ago, we were able to make the 'up' times last us through the 'down' times. Due to a particularly long
'down time' we refinanced our home, and ended up with a predatory loan. We were told that if we accepted a very high rate for a year and paid on time, at the end of that year we would be able to get a more affordable loan. Of course, this did not happen. Now we are fighting an uphill battle to keep the house. There are many people that say we deserve what we get for taking the predatory loan. I can see their point, but I would also like to present my views on this subject.

It’s easy to sit back smugly, point one’s finger and say, “You should never have taken out that loan. You don’t deserve to own a home.” But I think this is part of a bigger question, and this question involves the role of entrepreneurship and risk, and how these are viewed in our society, both socially and legally.

What is the ultimate rationale for allowing unlimited profits to businesses? What is the reason we lower taxes on the wealthiest? What is the philosophical underpinning of American capitalism itself? Ask any self-styled ‘free-market capitalist’ and he will say “To reward risk.” To do away with that precept is nothing but the foulest, vilest, nanny-statest socialism. What he means by that is that to limit the amount of profit that a person or a business can make is to make that person or business unwilling to take the risks that need to be taken in order to be successful.

Regulation in business, likewise, is frowned upon by those who would promote the prevailing view of ‘free-market capitalism.’ They argue that this is what makes America great - to start with nothing but your own two hands and by investing one’s capital, be it only one’s physical labor, to gain returns from that investment. Now, to ‘invest’ is different than to be ‘employed’. Employment is a contract between employer and employee where the employee is guaranteed payment in exchange for labor. Investment, on the other hand, is guaranteed no such thing. An investment can fail. But when an investment pays off, the payoff for the investor will be larger than what would have been earned through simple employment, thus ‘creating wealth.’ This is the very core of the American Dream, and supposedly what sets us above and apart from all other nations (American exceptionalism).

Those who engender great profits from investing - risk-taking - are lauded in our society, regardless of the means used to reap these gains. And great care is taken legally to ensure that investors and entrepreneurs are richly rewarded for their willingness to risk their capital. The idea is to reward initiative and risk, and to put caps on what can be earned through initiative and risk is to thwart the incentive to take those risks.

This, by the way, is the same rationale used to justify multi-million-dollar bonuses to the CEOs of the biggest banks and investment firms. In this instance, their ‘capital’ is their experience with being CEOs of banks and investment firms. Heaven forbid, if they are not paid gazillions of dollars, they might be reluctant to take the helms of these corporations, and do the magnificent jobs that they have been doing so far.

So I think it is fair to say that our current system is set up to reward risk in order to ‘create wealth.’ And those who take risks and become wealthy are held up and touted as an example of what America is all about. But there is risk, and there is risk.

In the world of big business, most risk is taken with OPM - other people’s money. There are very few entrepreneurs at the upper levels of business who actually ‘risk’ their own ability to buy food and have a roof over their head, or medical care should they become sick. And if they fail in their risk-taking, it is the people at the bottom of the chain who pay the price; who lose their pensions, lose their jobs, lose their homes. When a big company is failing, the first thing to be done is to lay off employees - who have not signed up for risk-taking, but have done their jobs in the expectation that they would be paid for their work, and that the money set aside from their paychecks to fund their retirement would be intact.

Even when these ‘big cheeses’ fail (like Donald Trump), over and over, they are admired for their willingness to take risks. And I would  bet that Donald Trump has never had a day where he could not buy groceries for his kids, or had to sleep in his car, no matter how many millions or billions of dollars he loses in investments, and is given the credit to do it all over again.

Now, let’s talk about capital. Every person possesses capital - whether it be tangible or intangible. It could be financial, or it could be a physical or mental skill-set. It could be education, appearance, or connections. And that capital can either be exchanged or invested.

My husband and I are entrepreneurs, and our ‘capital’ is our music. This capital has been gained through great risk. Every artist who develops their art to a degree which makes it competitive in the market has done so with absolutely no guarantee that it will ever pay off financially. To a certain extent you can say that about anyone who invests in their education, but most skill-sets that one gains through a college education has a specific application that can be counted on to bring in a certain amount of money through the exchange of employment.

An artist has no such guarantee. Yet, everyone listens to music; buys CDs (or mp3s), goes to the movies, goes to concerts, watches television, reads books, has paintings or photographs on their walls. They go to the ballet, to the opera; they go to baseball games, football games, basketball games, monster-truck pulls, NASCAR races. Entertainers are often dismissed as frivolous and unneccesary, but can you, for one minute, imagine your life without any form of entertainment?

I am serious as a heart attack. Do it right now.

Just picture your day. No music of any kind, no TV to watch, no art to look at, no books to read, no movie to see, no game to go to. To the people who belittle my choice of career, or my right to live like other working people because I have chosen to be an artist, I want to say to them, “Where do you live? I’m coming to your house and I am going to take away all your CDs. I’m taking the pictures off of your walls. I’m taking the TV. I’m taking the books off of your shelves. These are not things that you have put any value upon, so you don’t need them.”

Every artist, no matter how successful right now, began their career with no guarantee that they would ever make a dime from their art. But to truly develop their art to a level which is, as I said before, ‘competitive in the market’, it takes a commitment that consumes 100% of your time and passion. (And please don’t bother giving me examples of people who just ‘happened to make it’  accidentally, or without much effort on their part, or who became famous while just doing their thing on weekends, or whatever - the ‘American Idol’ phenomenon. These examples, while high-profile, are anomalies.) Everyone is eager to embrace the art and the artist once they are ‘successful’ but don’t give much thought to what it took to get there. Do they just think all this art that they profess to love so much, and that they depend on for emotional sustenance (and don’t say you don’t, unless you don’t ever listen to music, watch TV, read, go to movies or concerts or sporting events) just dropped out of the sky? The people who make art have sacrificed much of the security that most other people take for granted - that if you work, you will get money in return.

I believe that being a musician is one of the most noble callings on this earth, and I take the responsibility of this gift we have been given very seriously. Every single CD you listen to, each and every book you read, every picture you look at, was created by someone who was consumed by the love of their art, and the dedication to give it everything they have. And, no - it’s not an ‘easy’ life. Nothing worth doing is ‘easy’. But the rest of the public gets to enjoy it without having to go through what these artists (famous or unknown) went through to get where they are. So it’s easy to be smug about what an irresponsible job choice it is. Irresponsible? We are a conduit for the emotions, the love, the hurt, the passion of the world; we connect hearts; we are translators of the soul. I think that is a very serious responsibility indeed.

As a nation, we have gradually devalued the importance of art, and of art education. When Reagan came into office, one of the first things he did (besides union-busting) was to slash art from the budget. Yet there is still a market and a deep need for art in our lives - I would posit more than ever, given the economic circumstances we face right now. During the Great Depression, people flocked to entertainment to give them some solace and distraction from the dire straits they were in. And to say that artists should be able to create great art as a side hobby is ridiculously unrealistic and shows complete ignorance of what Art really entails.

Am I saying that artists do not need to be responsible for themselves and their expenses? Absolutely not. And most artists have chosen to live as small as possible, foregoing many of the comforts that most people expect out of their lives, in order to devote themselves to their art. But the life of an artist is a series of ups and downs - much like Big Business.

This brings us back to entrepreneurship.

In the world of Big Business, great care is taken to ensure that risk-takers are rewarded. Although lip-service is paid to the ‘free market’, in reality, these big businesses are able to take these huge investment risks because they know they have a safety net - the American taxpayer. And, as we have seen, the results of these policies is to ‘privatize the profits and socialize the losses’. Otherwise, there would be no ‘wealth creation’! These businesses need the incentive of limitless wealth in order to take the risks to create it. And even when they do fail so spectacularly, you will not find these people who actually created the collapse without food, without a roof over their heads. They will just move on to the next company they can ransack, all while living a suitably lavish lifestyle - perhaps they’ll have to sell a plane, but they won’t be going without food, shelter or medical care.

The theory is that this sort of incentive is necessary to promote entrepreneurship, and without it there will be no innovation - that entrepreneurs will say “Why should I bother busting my ass to create a business or develop a product if my rewards are going to be limited?” This theory is flawed.

The truth is, you and I know that the entrepreneurial personality will take risks and gamble no matter what - it’s built into their DNA. If they’re in prison they’ll wheel and deal for cigarettes. A true entrepreneur innovates for the sheer challenge of it and will do it regardless of the circumstances, just like an artist creates art from that same deep need.

When regular people take financial risks, expecting to be bailed out if they fail, this is called ‘moral hazard’. Notice the word ‘moral’. There is a metaphor that many people carry around in their subconscious that says “wealth=morality”. This is ‘what’s the matter with Kansas’. This is why poor grandmas on welfare will donate their Social Security money to wealthy televangelists, and why they don’t resent the trappings of success that these TV preachers have - in fact, it is just the opposite. When they see the planes, the mansions, the lavish church buildings, they feel that these people must be being rewarded by God for being morally superior. And even people who are non-religious still see the wealthiest among us as being morally superior - harder-working,  smarter, more virtuous - even if the reality is that they have engendered this wealth through no effort of their own or by less-than-honorable means. This is not a conscious revelation - if asked, very few people will say, “Yes, they’re better people than I am because they’re rich” but subconsciously this is a powerful metaphor. And the corollary to this, of course, is “poverty=immorality”. This translates into “The reason you’re poor is because you are lazy, dishonest, irresponsible and greedy.”

My husband and I did not get into the music business to get rich. We are musicians because we have the ‘have-to’ that drives creative people, and we have worked hard all our lives to develop our talents and skills. There have been times in our careers that we have been extremely well-rewarded financially, and there are times that we have not. We are aware that the ‘up’ times do not make us more worthy, and the ‘down’ times do not make us less worthy.We know that great art often goes unnoticed and unrewarded, and that mediocre art is often rewarded lavishly, and that financial success or failure is not an indication of its intrinsic worth. And we are willing to take the vicissitudes of our business as they come. But we are not willing to lay down and accept being cheated. If I am dealt with in bad faith, it is not being ‘moral’ and ‘responsible’ to let them take my home without a fight. If I am stolen from, it is not immoral to ask for help in taking back what’s been taken from me. And I will not accept the label of ‘moral hazard’ until it applies across the board.

When it comes right down to it, it’s not just people like my husband and me who are the risk-takers. Every single person lives their life with a certain amount of risk. When you have a regular job with a regular paycheck, you are betting that your paycheck will arrive next Friday, that you will still have a job next week. The risk is much less than mine, but the risk is there nevertheless. Ask the people who worked for Enron. People like my husband and me are the canaries in the coal mine. Because of the nature of what we do, we will be the first to suffer losses during times of economic crisis. But this is not just happening to us - it’s happening to people with steady jobs, steady paychecks, who have never been late on a payment. When you’re laid off, how can you be blamed when you can’t meet your financial obligations? Are you suddenly morally deficient? Should you be living in a cardboard box because of the chance that someday you may not be able to afford your home?

And it is the very people who have caused these circumstances through their excessive and illegal risk-taking who have brought this situation about - and they have been bailed out. They have been bailed out by the people who did not take those risks, who did not reap the incredible wealth that came from high-risk investments, and who are now losing the very food from their mouths and roofs over their heads. And I will not accept insult on top of injury from those who feel they are in a position to judge who is ‘responsible’ and who is not.

Maybe we will lose our house. I hope not, but I will not let it go without a fight because The Powers That Be tell me I should be a good little peon. Do I think I’m ‘entitled’ to keep it? No, but was Wall Street ‘entitled’ to a bailout? When these standards are held consistently across the board, then we can talk. But we as a society need to think about what ‘risk’ and ‘entrepreneurship’ really mean, and not only have a safety net for those who are ‘too big to fail’.