Are Casinos Good Public Policy?

1. Are Casinos Good Public Policy? ECON 400, Senior Seminar February 20/27, 2012

2. 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…

4. 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?

5. 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

6. 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

7. 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

8. 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

9. Social Costs of Gambling, cont. • The types of social costs included in published studies… • 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

10. 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.

11. 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

12. 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

13. 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 Researchers, cont.

14. 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

15. 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

16. 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”

17. 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

18. 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

19. 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

20. 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

21. 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