Raymond D. Sauer
03/01/2005
America in the first decade of the 21st century is awash in gambling. Riverboats dot inland waterways from the Ohio River to the Missouri. Casinos are humming in Atlantic City and Las Vegas, and have spread from Biloxi to Detroit. Most states run or participate in a lottery, with tickets available at your corner minimart. Many people enjoy and support legal gambling, while others—be they parents concerned about society or shareholders in gambling companies worried about no-holds-barred competition—see the expansion of gambling as ominous.
In formulating public policy to address the future of gambling, American leaders once again confront a political cycle of contagion and containment, a quandary as old as the republic itself. Given the phenomenal growth of gambling on the Internet and on Indian tribal lands, however, this time policymakers may find no easy solutions. Gambling, for the first time in our nation’s history, appears to be beyond the traditional legal reach of its opponents.
Gambling came to these shores with the earliest settlers. Since that time, the public’s tolerance for gambling has waxed and waned, but government policy over the centuries has had common features. These can be understood within an economic framework. As always, policy is a political choice that balances competing interests. In this case, suppliers who trade in this market form one interest group. Their opponents are motivated by the social costs of gambling. In their view, gambling is a morally corrosive activity, which fails to add to the wealth of our culture.
It is difficult for opponents of gambling to obtain the support to eradicate it completely, because there is minimal social impact when gambling is confined to a few small outposts. As a consequence, pockets of gambling have always found a home in this country. In a restrictive environment, suppliers fortunate enough to have a toehold in these markets tend to support existing laws in order to protect the profits that come from limiting competition. A policy of containment tends to be self-sustaining. Opponents are happy to keep gambling minimized and tucked away from Main Street, and suppliers enjoy the extra profit from minimizing competition.
Yet the economics of containment only partially explain policy. Government demand for revenue has historically led to the relaxation of restrictions on gambling. From colonial times to the present, citizens have demanded that government provide goods and services that are not produced by the private market. At the same time, they often object to being taxed to the extent necessary to pay the bill. In periods where both the demand for government expenditure and the cost of taxation are high, opening a market for gambling, and taxing it, offers a potential solution. This way of approaching the social quandary describes many episodes, including the emergence of lotteries in the South after the Civil War, the legalization of pari-mutuel racing in the Great Depression and the return of lotteries across the country in the past 40 years.
Outbreaks of gambling are contagious. When one state offers gambling next door to one that does not, the state without it sends income and tax revenue across the border. Politicians would rather collect the revenue themselves than allow it to go to their counterparts in neighboring states, so they change the rules. The spread of lotteries across the United States in the past four decades precisely fits this pattern of regional contagion.
Such contagion, however, has well-documented social costs. A disproportionate number of problems arise when a fraction of the population develops a gambling problem. As gambling spreads, these costs mount and become obvious to the public. The arguments of those opposed to gambling on moral grounds gain traction when these costs are apparent. Hence, the spread of gambling may sow the seeds of its own demise. Prior to the Great Depression, reform movements successfully beat back each wave of gambling.
This framework heralds a coming political battle between reformers and gambling interests. What is different about today’s environment is that the two fastest growing forms of gaming—on the Internet and on Indian tribal lands—may be beyond the reach of state regulation, the historic means of containment. Reform groups may now have to look to the federal government to formulate a nationwide gambling policy if they hope to succeed as they have in the past.
 | Raymond D. Sauer is a professor of Economics at Clemson University. |