Let’s re-criminalize gambling to pump-prime economies

Legalized gambling is a drag on local and national economies. Why is the US government giving the industry a helping hand?

One happy beneficiary of the US$800 billion stimulus package stitched together by the Obama Administration was the American gambling industry. Provisions were “real wins … for casino operators,” announced the American Gaming Association lobbying group. These tax incentives, the AGA touted, “add up to billions in savings for our companies, allowing the industry to better deliver on its promises to its employees, customers, shareholders and the communities where we operate. There still is much to be done before we emerge from this recession, but the stimulus should be hailed as a productive step forward.”

Why is the Federal government giving the gambling industry a helping hand?

Since 1988, academics, business experts, and government officials have warned that government-sponsored predatory gambling has been philosophically and fiscally corrupting business, economic, and financial systems in the US and overseas. Internationally, legalized gambling has a negative impact upon economic national security, military readiness, and anti-terrorism efforts. It also hampers attempts by the US and other countries to combat organized crime.

Some countries have recognized the economic and crime costs of legalized gambling and taken robust action. In 2006 Russian President Vladimir Putin recriminalized 2,230 Russian casinos. Also in 2006, Austria, Italy, and France opted to maintain many anti-gambling laws—despite facing censure by the European Commission.

But the United States still takes a soft line. In 1999 the US National Gambling Impact Study Commission (NGISC) called for the re-criminalization of various forms of gambling, as well as for a moratorium or prohibition on the expansion of any type of gambling anywhere in the United States. However, by 2009 pro-gambling interests had found legal campaign loopholes, such as the McCain-Feingold exceptions allowing unlimited donations via Indian tribes. This not only marginalized the NGISC, but also hampered the ability of 28 state governments to manage their own economies because the tribes are allowed to set up casinos.

In the 2002 Economic Stimulus Act to help the US economy after 9/11, the Congressional Gaming Caucus bragged that it had inserted a $40 billion tax write-off for slot machines and associated technologies (it had lobbied for a $133 billion write-off). Similar gambling-enhancing pork may be found in the 2009 Economic Stimulus legislation.

What’s wrong with the economics of encouraging gambling?

First of all, by converting consumer dollars into non-productive “gambling dollars,” gambling constitutes approximately a US$0.5 trillion drain per year in lost consumer “multiplier effect.” In fact, a comprehensive new collection of research on gambling’s hazards, Gambling with Crime, Destabilized Economies, and Financial Systems, demonstrates that if countries want to pump prime economies, one important element is eliminating legalized predatory gambling.

Gambling also undermines economic national security, and destabilizes banks, financial institutions, and stock markets.

One such warning tremor involving gambling occurred on the London Stock Exchange during October 2006 when internet gambling stocks lost billions of dollars overnight—after the United States re-emphasized its ban on internet gambling via the Unlawful Internet Gambling Enforcement Act (UIGEA). Via treaties, the U.S. State Department needs to extend this ban worldwide and thereby re-assert ethical US economic leadership, re-stabilize financial systems, and restore consumer confidence.

The mantra of the US gambling industry is that predatory gambling provides tax revenues and employs more people than the US car industry. This is a seductive pitch for states where jobs are scarce. But there are always alternatives. They should look to the example of Omaha, Nebraska. Instead of building a casino on an old racetrack, the land was used for a new extension of the University of Nebraska plus a high-tech office park. Re-criminalized casinos are easy to transform into educational facilities similar to the way in which communities often transform Olympic dorms and cafeterias into health, business, and educational facilities.

Let’s give credit where credit is due. Government-sponsored gambling is certainly creative. It creates new gamblers. Five years after a gambling facility opens, gambling addiction rises by 100 percent amongst adults and 200 percent amongst teens and college students. It creates personal, professional, and business bankruptcies. And it creates new crime. Studies show that crime has increased by about 10 per cent a year near gambling venues. And it creates burdens for taxpayers. Data from the past 15 years shows that the taxpayer costs borne by governments are at least $3 for every $1 in benefits.

This is just common sense. Economics 101 shows that economies cannot gamble their way into prosperity, even if they can gamble their way into recessions. After the American Civil War gambling was widespread. The experience was not positive. At the beginning of the 20th Century, progressive politicians re-criminalized US gambling. Restrictions were even written into most state constitutions. During the Great Depression, President Franklin Roosevelt maintained these gambling bans, because he knew that gambling only fuels recessionary trends.

As the biggest and most sophisticated economy in the world, the United States must polish its tarnished record in business ethics. One important element in reasserting its leadership role is to re-criminalize gambling. To paraphrase George Santayana, “Those who cannot remember the mistakes of economic history are condemned to repeat them.” And there is a cost for inaction. If the Obama Administration cannot resist lobbying from the mighty casino industry, its credibility as an ethical regulator will be undermined. In the current state of the American economy, credibility is the President’s strongest asset. If it slips from his grasp, he may be unable to press ahead with substantial regulatory reform in banking and financial services.

Professor John Warren Kindt, J.D., MBA, LL.M., SJD, is an editor and contributing author to the multi-volume  United States International Gambling^TM Report, published by William S. Hein & Co., Buffalo, N.Y.

This article is published by John Warren Kindt, and MercatorNet.com under a Creative Commons licence. You may republish it or translate it free of charge with attribution for non-commercial purposes following these guidelines. If you teach at a university we ask that your department make a donation. Commercial media must contact us for permission and fees. Some articles on this site are published under different terms.