There’s No Reward Without Risk | 5-Minute Videos

Success comes with risk. Those who take it often reap the biggest rewards. But what happens when government removes risk—freely spending taxpayer money and facing no consequences for failure? Carol Roth, author of You Will Own Nothing, reveals how this “risk-free” approach has left America drowning in debt without much to show for it.

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Transcript:
There’s No Reward Without Risk
Presented by Carol Roth

A cashier at local burger joint may make $20 an hour. But the owner of the burger shop chain may make hundreds of thousands or even millions of dollars.

Is that fair?

Absolutely.

Why?

Because of the concepts of risk and reward.

Risk and reward are fundamental to navigating the world — from economics, business and government to the choices we make in our own lives.

Those choices all depend on how we assess risk and reward.

We understand rewards, but what is risk?

Simply put, it is the likelihood of something turning out worse than expected, plus the chance of that “something worse” actually happening.

When you think of taking a risk, you may think of an activity like jumping out of an airplane.

You must evaluate the amount and scope of risk involved — maybe your parachute doesn’t open — in fact, 1 out of 400,000 making a jump are killed — against the potential benefits: the rush of flying through the open air, the bragging rights afterward, and so on.

Risk versus reward.

Maybe you want to invest in the stock of a company that has developed an exciting new technology. You risk your hard-earned money hoping the stock doubles or triples. But no one knows whether this new technology will catch on. You could easily lose your entire investment.

Risk versus reward.

Say you want to start your own business. You’re willing to put your time and money into this venture to make it work. You may even be willing to mortgage your house to finance start-up costs. That’s taking on a lot of risk—but you love the idea of being your own boss. And if the business succeeds like you hope, you might make a lot of money.

Risk versus reward.

Reaping rewards sounds great.

So, why doesn’t everyone take the risks to get them?

Sometimes the risks don’t justify the payoff.

Other times, people are afraid of taking too many risks or don’t know how to evaluate the risks. It makes them uneasy.

That’s not a criticism, it’s just reality.

Most people, for example, prefer the safety of getting a steady paycheck to the anxiety of making payroll.

Some people are risk-takers. Many people aren’t, at least in certain areas of their lives. Everyone is built differently.

But keep this in mind: if you work for a hamburger shop and you wonder why you aren’t getting paid more, remember that the business owner is taking the risk. You get a paycheck no matter if one customer or one thousand customers come through the door.

But the business owner risks losing everything, and for that risk, he gets the opportunity of reaping any rewards.

Now, what if we take away the cost of failure? What if the payoff is guaranteed?

What if those who take on the “risk” have nothing personally at stake and other people have to bear the costs of their risk taking?

When that happens — and it does — things get out of whack.

Welcome to that funhouse mirror known as big government.

Here, the risk-reward formula totally breaks down.

When members of Congress, the President or other politicians take on debt, engage in wars, or make other legislation, the checks and balances of risk and reward are not there.

The government can spend your tax dollars wastefully, but what is the cost to them? There is none.

And there is no real accountability, either.

If the program fails, the politician suffers no consequence.

If the program doubles or triples in cost, it’s not coming out of their pockets.

This is true up and down all of government.

The only “accountability” is that they might get voted out of office the next time—not much of a downside risk, given the level of risk they can take on our behalf.

And, these politicians often get lucrative lobbying, board member, speaking and other positions after office.

They get the rewards, and you and I are the ones that bear the costs.

So, the next time a hamburger shop worker or other employee complains that the entrepreneur is making too much money, you can remind them about risk versus reward.

If the shop fails, sure the employee might have to find a new shop to work at, but the owner loses all their time and money spent trying to make it successful.

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