Commentary

State Lotteries Pander to Dreams

By Julian L. Simon
This article appeared in Bridge News.

A nine-member federal commission will soon be appointed to study legalized gambling.

This is the moment when the “Gambling Issue Moves Into the Spotlight,” as The Wall Street Journal headlined on Dec. 30, 1996. So it behooves us to get a long-run perspective on the role of the government in the gambling business, especially in state lotteries.

In the 1930s and early 1940s, Marty and Sam were bookies in the Weequaic area of Newark, N.J. They also were uncles of my long-ago girlfriend Rocky, also known as Rachel or Ruckel. The “boys” lived with their mother, Rocky’s grandmother, who also brought Rocky up after her mother died.

Sam and Marty taught Rocky to read using the Daily Telegraph’s racing results. They also taught her what to say when the neighbors asked what Marty and Sam did for a living. (The boys wore nice clothes during the Depression and did not leave the house until nearly noon.) Rocky learned to say that they were necktie salesmen.

The names above are changed because, half a century later, it would still be scandalous for the real Marty and Sam to have this written about them, and Rocky would still be embarrassed.

Being a bookie was illegal then. And even if the bookies were simply independent small-businessmen providing a service the community wanted, they sometimes had to deal with some scummy, dangerous people in the trade. This was not good for society.

When she went to graduate school, Rocky swapped stories about her childhood with Carmen, whose father had a tiny stationery store.

The store’s tiny profit kept Carmen’s father on the edge of closing down and taking a laborer’s job. The difference between losing money and staying in business was the occasional lottery “number” that Carmen’s father sold illegally from under the counter.

Carmen’s family always feared that a reform movement would cause Carmen’s father to be arrested. Carmen’s father hated himself for paying off the cop on the beat every week to keep his protection. Carmen himself grew up hating the father he also loved dearly because the other kids teased him about his father’s “racket.”

The theory of the law that made lotteries illegal was this: Betting is bad for people and sinful. Now in 1997, betting on government-run lotteries is legal.

Nothing has changed as to whether or not betting is bad or sinful. What has changed is that the government gets the revenue instead of small-business people.

Moreover, the states do not simply offer their product to the public. They promote hard. Lottery advertisements are beguilingly seductive, and misleading to boot.

Our governments shamelessly pander to dreams. They advise people, many of them poor, that the lottery is a good way to get money.

Something is terribly wrong. The issue is not whether betting should be legal. I happen to think it should be, if only because many people will gamble one way or another.

If the gambling will take place, it is better that it be done with the protection of the law rather than in circumstances where hoodlums and lawlessness will proliferate. But this does not imply that the activity should be conducted by government rather than by private individuals.

The theory underlying government-run lotteries is that the lotteries are a painless way for the government to obtain revenues. There is something to be said for this. But the same revenues could be obtained by a tax on gambling.

This procedure would probably be more efficient because it would forestall the inefficient and corrupt management that a government monopoly always breeds. The District of Columbia recently had just such a scandal.

Also of public interest is the matter of the government’s advertisement of the lottery. Government nowadays is not only willing to profit from people’s betting, but also to promote it. This is extraordinarily sinful, in my view.

What the government formerly hunted down with the police and courts when done privately, it now not only tolerates but actively engenders - simply because government and officials benefit.

Even worse are the diabolical devices appealing to the fantasies of have-nots with the hope of huge hits. If there ever was a get-rich-quick scam, this is it - perpetrated by government. All in the “public interest,” of course.

To top it off, the promotion is a dishonest come-on for a dishonestly run con game. The odds are horrendous, far worse than in any other form of gambling. In New York state, for example, the lottery payout is only 39 percent.

Such a low payout presents an excellent opportunity to private individuals who would conduct a similar game for lower prices. But this is illegal, of course.

The state does not want competition that would steal its business, even if the consumer gets a better deal. This must mean that consumers are not really “the public.” Or maybe “the public” is only us when the government gets to take care of us, and not when we take care of ourselves.

It is time for us to abandon the idea that because government conducts an activity, the activity is acceptable, even though the same activity would not be acceptable if done by private businesspeople.

This is a lesson that people in Eastern Europe have learned well in recent decades. Let’s start by privatizing lotteries.

Julian L. Simon teaches business at the University of Maryland and is a senior fellow at the Cato Institute. His most recent book is “The Ultimate Resource 2” (Princeton).