State lotteries: Part 3
For those of you who didn’t see the earlier posts, this is the third part of a series on the problems I see with state lotteries. In parts one and two, I give what I hope is a convincing argument that playing the lottery is irrational for the vast majority of players. Today I’m trying to go a step further and argue that we should actually get rid of these lotteries.
Let’s first be clear about one thing. I know state lotteries bring in money for useful things (education, for example). This is of course misleading, since the legislature then plans on this money and reduces other spending on it accordingly. However, it’s true that were one to simply remove state lotteries, many government services would suffer. There might be many situations where this tradeoff is still preferable to the status quo, but there’s another option which is very clearly better. The government could raise taxes (preferably income taxes) in order to compensate for the lost revenue. It’s not politically popular, and it’s not always the best of all possible policy decisions, but it is always better than having a state lottery.
Why would income taxes be better than a lottery? The first and probably biggest reason is that they’re progressive. The wealthy pay a larger portion of their income than the poor do. State lotteries are horribly regressive. According to Brooks, a household with income under $13,000 spends on average 9% (!!!) of their income on lottery tickets. That’s insane. We have come to a general conclusion as a society that a progressive income tax is better (because it seems more fair, because with a lower marginal utility from money the rich are hurt less by each dollar of taxes, and because large wealth disparities have negative social consequences). A few people on the right still advocate a flat tax, but no one believes that regressive taxes make any sense.
Now, this would be okay if it was reasonable to think of the lottery more as a government-run business than as a tax. This only makes sense, though, if you believe that the lottery tickets had a value comparable to their cost and that people were choosing the play the lottery rationally. As I explained in the prior posts, neither of these things is true.
That means that the government is essentially conning people. To me this lack of consent means the lottery is at least as coercive as a tax. In fact, I think it’s worse, because at least with a tax, people understand what’s happening. If they’re angry about it, they can vote against it. The government is up front about what it’s doing and invites scrutiny. This isn’t true in the case of a lottery.
It’s important to remember that lotteries are a form of gambling, and their relationship with private gambling is complicated. If the state is going to allow a private entity to run a lottery anyway, then most of the negative consequences I’ve talked about will happen anyway. Of course, that argument could be made for any business, and yet we don’t live in a communist society. The lottery does appear to be different in several ways, though — primarily because it’s a natural monopoly. The bigger lottery has higher payouts and therefore an obvious advantage over a smaller competitor, so eventually one lottery will take over the whole market. That means whatever benefits competition would bring don’t exist in this case. The state will probably be more responsible about advertising, too, though that’s not totally clear. (You could reasonably argue that the state will be more objective when regulating a third party than when it has money to lose.)
It’s not that simple, though. Lotteries are only one form of gambling. The state, by advertising lotteries, could very well be getting people who otherwise wouldn’t gamble introduced to the activity. Lotteries are, after all, less taboo to play. They’re also available as impulse buys at the gas station, whereas most gambling takes a trip to a casino. There is reason to believe that lotteries and casinos are competing entities. This article explains that in Pennsylvania, newly opened slot machine casinos are hurting lottery sales. Now, at first glance this seems to be an argument for lotteries — if people who play lotteries would otherwise be gambling at casinos anyway, what’s the harm? However, it’s not clear that that’s the case, since many don’t have the means/time/initiative to go to a casino to gamble. Moreover, lottery advertisements create new lottery players. In states with no legal gambling available, lotteries still advertise, so they must be making more people play or those who do play play more often, rather than stealing customers from some competitor. This means, then, that lottery ads (probably) create customers who are more inclined not just to play the lottery but to gamble in general. Whether you have any moral problems with gambling or not, it at least seems that given how harmful it can be to those who do it, the government shouldn’t be encouraging it. State lotteries often put some money aside towards treating/preventing problem gambling, but I can’t imagine that this fully compensates for the society-wide cost of their encouraging it.
Lottery proponents also make an economic efficiency argument. Taxes take a toll on the economy because they reduce incentives to do whatever the taxed activity is (work, in the case of income tax). Lotteries, being voluntary, don’t have this problem. This is a totally correct and valid argument, but there are other equally valid concerns about lotteries. Lotteries have a lot of overhead — advertising, regulation, distribution — that increasing taxes wouldn’t have, since the tax-collecting costs are basically fixed independent of the amount. I also think that most of the money paid to the winner deserves to be counted as economic waste. This is because, as I explained previously, I believe (as most economists do) that almost everyone experiences decreasing marginal utility from money, meaning that the money does much less good to the lottery winner than it would have done in the hands of those who bought the tickets. Given this, I think it’s far from clear that lotteries are an economically more efficient way of bringing in revenue.
In short, lotteries con the public, playing on the hopes and dreams of the most desperate and uneducated among us. They take money not from those who can most afford it but from those who most need it, waste most of that money, and give the remainder to government programs that are meant to benefit those from whom the money was originally taken. They encourage gambling and dreams of instant undeserved wealth rather than hard work, and create a variety of social problems that the programs they fund are meant to deal with. The slight tax increase that would be necessary to compensate for the lost revenue is more than justified to avoid the problems they create.
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[...] Update: The final installment has been posted here. [...]