Transcript Virtues of the US Gambling Vice

Are Casinos Good
Public Policy?
ECON 400, Senior Seminar
February 20/27, 2012
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Gambling in the U.S.
 Gambling has been increasingly controversial,
especially during the past 20 years as casinos
spread beyond Nevada and Atlantic City, NJ.
 Commercial casinos are legal in at least 13 states
 Annual revenues over $30 billion
 Tribal casinos exist in 29 states
 Annual revenues over $25 billion
 42 states have lotteries
 Greyhound/horse racing in about 40 states
 Gambling can even be found…
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Religion on Gambling
 Weekly World News* is certainly reputable, but
what does religion have to say about gambling?
 A variety of religious perspectives…
 “There are no biblical or theological grounds for any
absolute prohibition of gambling…”
 But many religions warn about gambling
 Catholics warn against spending too much money.
 Methodists and Southern Baptists are strongly opposed to all
forms of gambling.
 What are the reasons to oppose gambling?
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Gambling as a Vice
 “Vice” can mean different things
 Religious connotation: the opposite of “virtue”
 Immoral or sinful
 Legal: Police “vice squad”
 Drugs, alcohol, gambling, prostitution
 Just a bad habit or bad behavior
 Economists may treat “vices” as negative
“merit goods”
 There may also be “externality” aspects to it
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Why Gambling is “Bad”
 There are convincing arguments used
against gambling
 Morality
 Availability of gambling might discourage hard
work
 Taxes on gambling tend to be regressive
 “Social costs” associated with pathological
gambling behavior
 This is a major focus of gambling research
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Pathological Gambling
 Researchers estimate that around 1% of
the population suffers from “pathological
gambling”
 Diagnosed by affirmative response to 5 of 10
screen questions in the DSM-IV-TR
 Pathological gamblers often ruin their
finances, and personal and professional lives
 Diagnosis and treatment dominates the
gambling literature
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Social Costs of Gambling
 Researchers in economists, sociology,
public administration, and other fields,
have produced monetary estimates of the
social costs of pathological gambling
 Estimates range from $8,000-$52,000 per
year, per pathological gambler
 Most estimates are almost completely
arbitrary
 Policymakers and voters are probably better
informed without this research
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Social Costs of Gambling, cont.
 The types of social costs included in published studies…
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Incarceration and legal expenses
Treatment costs
“Bailout costs” and bad debts
Costs of crime (e.g., theft)
Lost work productivity
Suicide, divorce, family problems
 Some social costs—but not all—can be considered to be
negative externalities
 Many of the alleged costs are wealth transfers or are
borne by the problem gambler
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Gambling Researchers
 Academics perform most of the research on
problem gambling behavior and the economic
effects of gambling
 Psychologists and medical researchers
 Sociologists and anthropologists
 Economists and political scientists
 Industry performs some studies, but these are
typically ignored.
 Governments fund many studies, particularly in
Canada, Australia, and the U.K.—not so much in
the U.S.
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Researchers, cont.
 Among those who study the economic
effects of gambling…
 Many seem to have a bias against gambling
 Gambling is not treated like other forms of
“entertainment”
 There is a pervasive view that casinos and lotteries
“take advantage” of customers
 The games are not statistically fair
 Taxes on lotteries and casinos may be seen as
regressive
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Researchers, cont.
 Some researchers are obviously biased
against gambling
 Never cite research which disagrees with an
anti-gambling perspective
 Fail to criticize obviously flawed research…if it
agrees with their anti-gambling views
 Misrepresent the literature and empirical
findings
 Misuse economic concepts
 externalities, DUP activities
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Researchers, cont.
 Many “anti-gambling advocates” were the
first to publish
 early 1990s
 prior to any empirical evidence
 Examples
 One researcher has written that “Christian
economists should approach economics
differently…”
 Another researcher claims that criminalizing
gambling would cure us of economic woes
and promote national security
 Good consulting opportunities for all
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Costs…
 Overall, “economic effects of gambling”
research is very poor quality
 Extremely high social cost estimates have
been published, but they’re not reliable
 Politicians do pay attention to this
research; they like data
 There is an active anti-gambling interest in
every casino legalization debate
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Can Gambling be Beneficial?
 Gambling must have spread for some reason
 State lotteries are very popular sources of tax
revenues
 Began with New Hampshire, 1964
 Lotteries often tied to “good” programs
 “The South Carolina Education Lottery”
 Casinos are promoted as engines for economic
growth, employment and tax revenues
 Began to spread outside NV and NJ after a 1988 law that
opened the door for tribal casinos
 Casinos become more attractive as state fiscal crises worsen
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Economic Effects
 Tax revenues
 Gambling contributes a small portion states’ revenue
 Usually less than 5% of total revenues
 Does not necessarily lead to increased spending on
earmarked projects
 Employment
 Casinos are labor-intensive
 Create an inflow of labor, or
 Workers choose jobs at the casinos—better jobs
 Critics argue that other entertainment industries may be
“cannibalized”
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Economic Effects, cont.
 Industry complementarities
 Other forms of entertainment may benefit
 Evidence from Detroit indicates casinos have
a positive effect on commercial property
values
 Economic growth
 3 separate studies (1991-96; 1991-2005; and
1991-2010) show conflicting evidence
 2 of the 3 studies suggest a positive impact of
casinos on state per capita income
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Economic Effects, cont.
 Overall, the empirical evidence on the
economic benefits of gambling is probably
stronger than the empirical evidence on
the costs
 Politicians probably do not care too much
 They want easy sources of tax revenue
 Voters don’t demand real evidence of benefits
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Consumer Benefits
 Arguably the most important reason to legalize
gambling
 Consumer’s surplus is likely greater than any other
benefits from allowing gambling
 Consumer sovereignty
 Variety benefits
 “Distance” benefits
 Freedom of choice
 Mutually beneficial voluntary transactions
 Just like every other market transaction
 In policy analysis, these issues are irrelevant
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Important Considerations
 For:
 Economic growth, tax revenues, employment
 Against:
 Social costs, pathological gambling,
 “Vice” or negative merit good
 More important, but typically ignored:
 Proper role of government
 individual freedom
 Consumer benefits
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Conclusion
 There is still much controversy over gambling,
especially regarding the spread of casinos
 Some voters still see gambling as a “vice” but in
a recent AGA survey,
 49% say gambling is “perfectly acceptable for
anyone”
 35%, “acceptable for others but not you personally”
 14%, “not acceptable for anyone”
 2%, “don’t know/refused”
 Researchers’ views may be more skewed
against gambling, as they do not treat gambling
like other forms of entertainment
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