Costs vs. benefits of betting
At least 19 states are considering expanding gambling licenses to staunch a flood of red ink. Yet the latest economic research suggests the governors and legislators are being snookered by gambling proponents with their something-for-nothing sales pitch.
Economists have done relatively little research on the economic impact of gambling. But recent papers intimate that gambling pays poorly for state economies - as it does for most gamblers.
Melissa Kearney, an economist at Wellesley College, Mass., finds that the $38 billion in annual state-lottery gambling sales replace, on average, about $38 per month per household, or 2 percent, of other household consumption.
Since only about half of adults buy scratch cards or lottery tickets, that dollar figure can be doubled for those who do actually purchase these bets.
And for the poor who join in the state-sponsored lotteries in 38 states, the reduction in spending on food, clothing, housing and rent, and other nongambling consumption comes to 3 percent on average.
The resulting loss to nongambling businesses is even larger than average lottery sales of $18 a month per adult.
When a state introduces a lottery or expands its lottery offerings, it raises the amount spent in that state on gambling, Professor Kearney notes. It doesn't take money away from other forms of gambling, such as racetrack, bingo, private, or unlicensed gambling. When states first launched lotteries, they increased the odds that an adult will engage in some kind of gambling during the year by 50 percentage points. State sponsorship of gambling largely erased the social stigma once felt by many Americans, she figures.
"Is this the best thing for children?" asks Kearney. Parents or guardians decide how much of their income goes into gambling, how much for the welfare of the children.
A gambling expansion obviously damages most nongambling businesses in a state, except for the relative few actually serving casino customers or the casinos themselves. It's a wonder that retailers and other businesses haven't risen in political rebellion against the potential expansion of gambling in many states.
Is gambling good for state coffers?
Lotteries pay out 52 cents on every dollar gambled, 14 cents are costs, and 36 cents are profit to the state. But states lose sales-tax and income-tax revenues from other businesses hurt by the diversion of dollars to lottery gambling. Some businesses on the edge of profitabiity close down as they sink into losses.
In effect, lottery states have set up a system of "voluntary taxes." Adults up and down the income ladder spend about the same amount on the "games." But the poor pay a higher proportion of their income, especially the poorly educated. And some put up far more than the average lottery expenditure.
This amounts "to little more than the state picking the pocket of the poor and ignorant," notes Bernard Wasow, an economist with The Century Foundation.
Most gamblers do have a pretty good idea of the slim odds on their lottery plays. Yet the hope of quick wealth overwhelms that knowledge.
Prior to the 1980s, casino gambling was legal only in Nevada and Atlantic City, N.J. Today nearly 30 states have legalized casinos. More, including Massachusetts and Maine, are looking into it. By now, Americans wager more than $370 billion each year in casinos, losing $26 billion to the industry.
The Indian Gaming Regulatory Act of 1988 allowed legal gambling on many reservations. At present, more than 310 gambling operations are run by more than 200 Indian tribes. About 220 are Las Vegas-style casinos with slot machines or table games.
For Indians, the economic results are positive, calculate University of Maryland economist William Evans and doctoral student Julie Topoleski. Four years after a casino opening, employment on the reservation has risen by 26 percent, the population has increased by 11.5 percent as tribal members return, and the fraction of unemployment and working poor has fallen 14 percent.
There is a spillover of benefits off the reservation. Nearby counties see an increase in the employment-to-population ratio and a decline in mortality.
By far, most employees of the casinos are not Indian. But the Indians get some revenues and jobs in local businesses that become more prosperous.
But there are costs, the authors note. Auto thefts, property and violent crime, and bankruptcies increase about 10 percent four years after an opening in a county.
It's not clear whether casinos attract criminals to the area, or whether pathological gamblers are committing more crimes to support their habit.
With so many Indian casinos now, most customers come from nearby areas - perhaps within a radius of 50 miles. Out-of-state gamblers are fewer.
The profits of most Indian casinos are not taxable. So when gamblers divert money to the casinos from spending in restaurants, movies, and other taxable enterprises, the states lose money. Whether states benefit fiscally from gambling remains difficult to determine.
What is clearer is that society as a whole loses. "The social costs of gambling outweigh any social benefits," says Earl Grinols, an economist at the University of Illinois.
He and David Mustard, a University of Georgia economist, found that such benefits as jobs, profits, and taxes from a new casino were at most $75 per adult.
On the other hand, costs of pathological gamblers, about 2 percent of adults, were $140 to $221 a head for all adults.
