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.