|
The Economics of an Arkansas State Lottery The Case Against Legalized Gambling: ECONOMICS 101 By Larry
L. Page, Executive Director There are several contexts in which one can examine the issue of gambling. Certainly, gambling as it relates to personal morality is one of the more significant contexts. For many people that can be the overriding factor. However, for purposes here I will address legalized gambling outside of the moral considerations, even though those are quite significant to me personally. This treatment of gambling will be within the confines of the economic implications of casino and lottery gambling. I can find no better premise upon which to build the economic case against gambling than the definitive statement by Paul Samuelson, the Nobel Prize-winning economist. He said, "There ... is a substantial economic case to be made against gambling ... it involves simply sterile transfers of money or goods between individuals, creating no new money or goods.... gambling subtracts from the national income." To conduct a study of the effects of gambling without looking at the costs to the economy and society is simple-minded at best and deceptive at worst. Yet, that is precisely what the gambling industry and its apologists do. They finance study after study which invariably present the rosy, but scandalously inaccurate, scenario for the economic panacea they tout -- casinos, lottery gambling or a combination of those. Robert Goodman, a Lemelson Professor of Environmental Design and Planning at Hampshire College and a former columnist for the Boston Globe has done the most objective, serious and scholarly work in this issue over the course of the last several years. As a result of his extensive research, he has found the following: In the course of all this work, I was consistently struck by how much misleading information is routinely used by decision makers and people in the media to estimate the economic benefits that new gambling enterprises will bring. The research to support these claims was almost always underwritten by the gambling industry itself, carried out by paid consultants, and trumpeted by legislators who were already committed to the projects. The result is that critical public policy decisions have been made on the basis of completely biased projections. (Robert Goodman, The Luck Business, Martin Kessler Books, New York, 1995, p. ix.) In addition, he found that in the fourteen such studies he analyzed, claims of economic benefits were exaggerated, while costs were understated. Most of the studies could not be considered objective descriptions of economic benefits and costs. (Robert Goodman, Legalized Gambling as a Strategy for Economic Development, Center for Economic Development, University of Massachusetts at Amherst, 1994, p.16.) The case -- the objective case -- against gambling is really quite damaging to the gambling interests who are seeking to expand their operations in America. What follows is a brief summary of the case against legalized gambling as viewed through the economic prism. The New York Times made the following observations: But even as the $30 billion-a-year gambling juggernaut gains momentum, economists and regional planners are predicting that it will chew up more income than it creates.... Compulsive gambling, bred by easy access, reduces labor productivity, and has been linked to increases in white collar crime -- embezzlement, fraud and the like. Late-night gambling adds to the cost of policing traffic, not to mention the toll from drunk driving and other alcohol-related violence.... these externalities equal roughly half the revenues of casino gambling -- and these costs, ultimately borne by Government, are far more than the direct and indirect taxes on the industry. (Peter Passell, "The False Promise of Development by Casino," The New York Times, June 12, 1994.) Research highlighted in that article also found that the amount of taxes collected by a state on gross casino receipts per person was forty dollars. That, however, appears to be a poor tax revenue source when one considers that the cost per person is two hundred dollars. These costs "include regulatory oversight, legal services linked with criminal activity, and lost job productivity associated with addicted gamblers." (Passell, The New York Times.) Professor John Kindt of the University of Illinois concludes that for every dollar of gambling revenue received by the state, taxpayers must put up a minimum of three dollars to cover expenses created by gambling. He found these costs include infrastructure expenditures, regulatory costs, expenses related to the criminal justice system and large social-welfare costs. (John Kindt, Statement before a hearing of the U.S. House of Representatives Committee on Small Business, September 21, 1994.) Connecticut conducted a study of its 1991 gambling industry. Its findings were nothing short of shocking. The state generated $362 million through gambling revenue, but at a whopping cost of $554 million. (Earl Grinols, "Bluff or Winning Hand? Riverboat Gambling and Regional "Employment and Unemployment," Illinois Business Review, University of Illinois at Urbana-Champaign, Spring 1994, Volume 51, Number 1, p. 8.) Maryland, a state that does not have casino gambling, but does permit lottery, horse racing, slot machines and bingo, did a two-year study of its gambling operations. The state found that its gambling activities costs its taxpayers $1.5 billion annually in lost work productivity, unpaid taxes, bankruptcies, gambling-related criminal activity and other considerations. (Maryland Department of Health and Mental Hygiene, Alcohol and Drug Abuse Administration, "Final Report: Task Force on Gambling Addiction in Maryland," 1990, p. 2.) In his study conducted for the Ford Foundation, Robert Goodman refers often to the "cannibalization" of non-gambling businesses, a term which he uses to describe the substantial declines in both jobs and revenues experienced by many nearby enterprises. Money for gambling is usually diverted from people's discretionary expenditures. Not only are dollars diverted from other products and services, but governments often lose sales taxes which would have been spent on those products and services. (Goodman, Legalized Gambling, p. 51.) In addition to boasting about the huge boon to state revenue that comes with gambling, the promoters of gambling make wildly exaggerated promises of new, good-paying jobs as a result of gambling expansion. These promises soon prove to be empty. University of Illinois economist Earl Grinols made a study of ten Illinois counties in which casinos were opened between 1990 and 1993. He concluded that the net effect of gambling was that roughly one job was lost for each gambling job created. (Earl Grinols, Testimony before a hearing of the U.S. House of Representatives Committee on Small Business, September 21, 1994.) In 1993, Boston Globe reporters Mitchell Zuckoff and Doug Bailey reported that gambling operations generally offer "low-paid service jobs that provide no transferable skills." (Doug Bailey and Mitchell Zuckoff, "Cities Weigh Quick Cash vs. Social Costs," Boston Globe, September 30, 1993, p. 1.) They found that casino promoters often inflate the average wages of gambling workers by including the salaries of a few highly compensated executives. A 1995 Arkansas Law Review article authored by John Kindt pointed out that "legalized gambling is not a 'painless tax.'" It went on to state: ... gambling is definitely not painless, especially to that 10% of the population who will become problem economic gamblers (PEGS) or the 1.5% to 5% who will become compulsive economic gamblers (CEGS). A guaranteed 10% of practically any U.S. population base will redirect proportionately large amounts of consumer dollars away from the preexisting economy and transform those dollars into gambling dollars once gambling is legalized by the state government (i.e., the 'acceptability factor'). (John Kindt, "Legalized Gambling Activities as Subsidized by Taxpayers," Arkansas Law Review, Volume 48, Number 4, 1995, p. 896.) Robert Goodman concludes in his study what should be obvious to everyone. There is "a direct increase in the numbers of people with pathological gambling problems as a result of increases in legalization." (Goodman, Legalized Gambling, p. 9.) Howard Shaffer, head of the Harvard Medical School's Center for Addiction Studies, estimates that between 3.5 to 5% of those exposed to gambling will develop into pathological gamblers; the percentages are even higher for adolescents and young adults. (Stephen Simurda, "When Gambling Comes to Town," Columbia Journalism Review, January/February 1994, pp. 36-38.) The chair of the research committee for the National Council on Problem Gambling, Rachel Volberg, has determined that the annual cost to the public of the average pathological gambler is $13,600. That figure is arrived at by considering lost income due to gambling behavior, prosecution and incarceration costs for gambling-related crimes and "bailout costs" -- money given by others to meet financial needs created by gambling losses. (Goodman, Legalized Gambling, pp. 61-63.) Other experts have put the figure as high as $52,000. (John Kindt, "The Economic Impacts of Legalized Gambling Activities," Drake Law Review, volume 43, 1994.) Estimates of the extent of the pathological gambling problem suggest that as many as ten percent of American adults may be afflicted. ("Relying on Gambling is Taking a Long Chance," USA Today, April 6, 1994, p. 12A.) In 1994 Gamblers Anonymous estimated that there were as many as 10 million compulsive gamblers in the country. That was an increase of seven million from 1986. (Earl Eldridge, "Nation's Steamy Love Affair with Gambling Still Growing," Gannett News Service, May 19, 1994.) By every indicia, the plight of the compulsive gambler and the circumstances of the members of the gambler's family are desperate indeed. One of five pathological gamblers attempts suicide. The spouse of a male compulsive gambler is three times more likely to attempt suicide than her counterpart in the general population. Stress-related physical illnesses in the spouse of a male compulsive gambler are eight times more common than in the general population. (The National Council on Problem and Pathological Gambling, Inc.,"The Need for a National Policy on Problem and Pathological Gambling in America", 1993.) Children of pathological gamblers do worse in school than their peers, are more apt to have alcohol, drug, gambling or eating disorder problems, and are more likely to be depressed and attempt suicide twice as often as their classmates. Two of three pathological gamblers eventually commit illegal acts to pay gambling debts. A study of gamblers in recovery found that 47% of them had engaged in insurance fraud or thefts in which insurance companies had to pay the victims. (The National Council on Problem and Pathological Gambling, Inc.) The serious problems associated with compulsive gambling affect more than the gamblers and their families; society has to pay a staggering amount as a result of that irresponsible behavior. Henry Lesieur, who chairs the department of criminal justice at Illinois State University, has found that compulsive gamblers engage in an estimated $1.3 billion in insurance-related fraud each year. (Henry Lesieur, "Compulsive Gambling," Society, May/June 1992, p. 45.) In terms of the costs that would be associated with a two billion dollar casino proposed for the city of Chicago, Professor John Kindt calculated that the increased criminal justice costs for the complex would have exceeded one billion dollars. That sum would represent a 40 to 50% increase in the costs of the state's criminal justice system. (John Kindt, "Increased Crime and Legalizing Gambling Operations: The Impact on the Socio-Economics of Business and Government," Criminal Law Bulletin, November/December 1994, pp. 552-554.) Perhaps some focus ought to be brought to bear on the lottery. In some ways, the lottery can be described as the most insidious form of gambling. Two features of the lottery justify that description. First, the regressivity of the lottery as a tax is such an established fact that even the most clever economists hired by the lottery proponents can not convincingly refute it. Second, since the state, not a private sector entity, operates the lottery with the knowledge of the toll it takes on the economically disadvantaged, it is a case of the state acting as an economic predator of its weakest citizens. The studies that demonstrate the inefficiency and counterproductive nature of the lottery are numerous. Thomas Jones and John Amalfitano in their book America's Gamble highlighted a study of the equity of state lotteries that was conducted by the Sociology Department of the University of Connecticut. "The report concluded that the Connecticut lottery primarily attracts poor, unemployed, and less educated players. The study recommended the discontinuance of the lottery, claiming that it is a regressive means of raising state revenue." (John Amalfitano and Thomas Jones, America's Gamble: Public School Finance and State Lotteries, Technomic Publishing Co., Inc., Lancaster, 1994, p. 55.) Two other important findings by Jones and Amalfitano have to do with the inefficiency of the lottery and the poor revenue source that it represents. They stated, "As a fund-raising device, the state lottery is also criticized as being deplorably inefficient.... Inefficiency in taxation suggests excess costs to the taxpayer and taxing jurisdiction." (Amalfitano and Jones, p. 61.) They discovered that on average lottery states spend 40 cents to raise one dollar through the lottery. "Viewed as a tax, lotteries are incredibly costly to administer." (Amalfitano and Jones, p. 62.) But doesn't the lottery provide desperately needed resources to education, making it attractive to states that lack sufficient assets to fund their obligations to provide public education? That is the marketing ploy that is invariably employed by the lottery proponents. Lotteries do contribute millions to elementary and secondary education. This is indisputable. But the lottery funds are used in place of other funding. Some work suggests that funds for basic programs are actually eroded overall as lottery revenues become the norm. If using lotteries for education does not result in significant fiscal enhancement, then lotteries produce no education benefits. This assumption has important implications for education policy. The gamble that lotteries actually would improve America's public schools or their funding is a gamble we can surely say is already lost. (Amalfitano and Jones, pp. 149-150.) A very thorough and extremely accurate research study was performed by Mary Borg, Paul Mason and Stephen Shapiro. They compiled their findings in the book The Economic Consequences of State Lotteries. The conclusions they reached are not good news for those seeking voters' approval of lottery initiatives. Borg, Mason and Shapiro found, among other things, that the lottery is "not an equitable way of raising state revenues." (Mary Borg, Paul Mason and Stephen Shapiro, The Economic Consequences of State Lotteries, Praeger, New York, 1991, p. 32.) They stated, "...there is consensus from most economists that earmarking lottery funds does not work. Most studies conclude that lottery funds only supplant funds from the general revenue for their designated beneficiary." (Borg, Mason and Shapiro, p. 14.) They went on to say: As a result in all regards, lotteries have likely increased the inefficiency of state government revenues and have probably done the same to expenditure policies indirectly. Therefore, even while ignoring the equity implications of state lotteries, which are also quite negative, state lotteries are a bad deal for state governments and their constituencies. (Borg, Mason, and Shapiro, p. 48.) The authors concluded with this statement," ... the lotteries have done much more to harm education in the states that employ them than they have done to help." (Borg, Mason and Shapiro, p. 47.) Knowing that, why would a state give any serious consideration to instituting a lottery? Robert Goodman makes some astute statements and asks some penetrating questions in the preface to his book, The Luck Business. I think it fitting to close with his thoughts and questions -- questions that we in Arkansas must answer. I trust we will have the good sense to examine this issue fully before reaching the important decisions. Professor Goodman proposes the following: As new gambling ventures drain potential investment capital for other businesses, as existing businesses lose more of their consumer dollars to gambling ventures, more businesses are being pushed closer to decline and failure, more workers are being laid off, and enormous public and private costs are incurred to deal with a growing sector of the population afflicted with serious gambling problems.... do we really want our governments so dependent on gambling that they are forced actively to promote an activity that takes disproportionately from those who can afford it least, does great damage to existing economies, and can be highly addictive? If governments are going into business, couldn't they find alternatives that create less trouble and offer more real long-term economic and social value? (Goodman, Luck, pp. xiii-xiv.) The case against
casino and lottery gambling is solid, compelling and persuasive.
Arkansas can do better than what the gambling promoters have to
offer. The "gamble" they offer is a loser -- a bad bet
indeed. |
 |