Gambling (Part 2)

July 23, 2010 • Commentary
This article appeared on The Economist (Online) on July 23, 2010.

Part 1 | Part 2 | Part 3

This article is Radley Balko’s rebuttal in a larger debate on The Economist’s website.

Les Bernal’s introductory argument borrows a bit of the right’s moral rectitude and the left’s paternalism, and ends with an odd attempt to tie his own position to patriotism and civic virtue. What it lacks is any data showing gambling to be a drag on the general social welfare, much less one severe enough to merit government prohibition — and all the expense, violence and infringements on civil liberties that accompany it.

First, let me say that I agree with Mr Bernal’s objections to state lotteries and other government‐​run gambling ventures. The house advantage at most casinos runs at about 5%. That number is kept in check by the presence of other casinos (though it would likely be lower if casinos were permitted everywhere, and not just in a few isolated cities). The state’s take in most lotteries is at least 30%, sometimes more. That is predatory. It is a figure you can only get away with when you are permitted by law to send men with guns to shut down your competitors.

But while Mr Bernal’s answer would be to prohibit all gambling, mine would be to legalise it.

Let us start with Mr Bernal’s objections to the “predatory” nature of legalised gambling. He writes that casinos’ “business model is based on people who are addicted or heavily in debt”, and that this explains why a Harrah’s study “found that 90% of its gambling profits come from the financial losses of 10% of its visitors”.

Actually, it does it no such thing. The 90–10 figure is not far from the Pareto principle, which states that most businesses can expect about 80% of profits to come from a core 20% of customers. It is more likely that the 10% of customers who bankroll 90% of Harrah’s profits are high‐​rollers, the sort who have the wealth to sustain their losses (and who casinos shower with gifts like free tickets and hotel upgrades). Indeed, a 1999 survey by the National Opinion Research Center (NORC) found only about 15% of casino, lottery and racetrack receipts came from problem gamblers. A 2006 Harrah’s study study found that the top 30% of its customers had annual incomes over $95,000. In fact, Mr Bernal acknowledges that when it comes to these alleged casino predatory tactics, “[t]he casual player is virtually irrelevant”.

Mr Bernal cites no studies linking casino gambling to consumer debt or bankruptcy. That is because they are hard to find. A 2004 study of states along the Mississippi River, for example, found that “[a]ccess to pari‐​mutuel or casino gaming facilities was found not to have a significant impact on personal bankruptcies”. A 1999 study by the US Department of the Treasury found “no connection between state bankruptcy rates and either the extent of or introduction of casino gambling”. And a 1997 study commissioned by the state of Connecticut six years after the Foxwood Resorts Casino opened found that “probable pathological gambling rates may actually have fallen … and have certainly not risen, during a period in which one of the largest casinos in the world was opened in the state”.

This is not to say that problem gamblers do not exist, or that closer access to a casino will not tempt them. The NORC survey cited above also found that proximity to a casino doubled the percentage of problem gamblers in the region. But this may be in part because of an island effect. Problem gamblers will move to where gambling is permitted. Pathological gamblers still make up a very small percentage of people who patronise casinos. The large majority of casino customers understand that the odds are against them and view gambling as entertainment, not as a potential source of income.

Mr Bernal closes with a strange appeal to patriotism and civic duty, invoking the Great Depression, the second world war and the “greatest generation”. I am not sure what any of this has to do with gambling. (Just for the record: I’m both in favour of legalised gambling and I’m pleased that the allies triumphed over Nazi Germany and imperialist Japan.)

It is true that the government no longer encourages us to buy war bonds, takes over factories to build munitions, or rallies us to act “with a sense that we are all in this together”. But none of that is because we are too busy frittering our time and savings at the craps table. It is because such high‐​minded calls to action are no longer necessary. Nostalgia is nice, but on the whole it is probably a good thing that we are no longer fighting two massive military powers at opposite ends of the globe that threaten the very existence of our republic. We won that war, and have largely remained free to pursue our own happiness ever since. If for some people that pursuit includes the occasional trip to the casino or an afternoon at the horse races, let them have their fun.

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