Thursday, January 24, 2013

Casinos and Governments

Casinos are proof that governments love money more than people.

As the Ontario Lottery and Gaming Corporation (OLG) continues with plans to overhaul and expand their casinos and other gambling operations, I’m struck by how irrelevant it is to discuss whether this is good for the people. We debate the wisdom of making gambling available everywhere, but we always end up expanding more so governments can get more revenue.

I have no religious or philosophical objection to gambling; I enjoy a little gambling myself once in a while. But how many casinos do we really need so that people can satisfy their gambling itch occasionally? The answer is that this question is irrelevant. What matters is that expansion will bring in more money.

Never mind that casinos are a net loss to the country as a whole. Casinos cost money to operate, so government revenue is less than gamblers’ losses. Casinos create some jobs, but take away more jobs because gamblers buy fewer good and services. In the end, the net loss to the country is the diversion of human work from useful pursuits to running casinos. But none of this matters; governments need more money.

One of the most powerful arguments in favour of government-approved gambling is that without it gamblers will find ways to gamble illegally or in other countries. This argues for a modest amount of government-approved gambling to eliminate most of the gambling profits that would have gone to organized crime or other countries. However, if this were the real goal, then governments would run their gambling operations very differently and would advertise them much less.

Another common argument for government-approved gambling is that it supports hospitals. Who could be against hospitals? However, we could just as easily say that hospitals are funded from income taxes, and that gambling revenues fund less popular programs. The truth is that any difference between how gambling revenues and income tax revenues get spent is completely artificial.

Even municipal governments show their love of money over people. As an incentive to support the building of casinos, municipal governments are offered a slice of profits. The total amount of money leaving a city due to a casino far exceeds the slice of profits kicked back to the municipal government. But that doesn’t stop municipal governments from approving casinos; they want the money even if it hurts the city’s economy.

Government hunger for more money will not stop as long as they continue to run so inefficiently. Governments have bloated administrations in most areas and have too much duplication of effort. However, the biggest problem is the difficulty of firing people who are bad at their jobs. Unions present the image that their members are equal, but the truth is that some government workers are dedicated and competent, some are lazy and incompetent, and others have just had to desire to do good work drained from them by bureaucracy. The range is very wide.

If the problem of being unable to fire poor workers could be solved it would completely change the incentive structure of government and improve efficiency greatly. Governments would then be able to offer additional useful services or offer existing services at lower cost. A side benefit would be improved morale among government workers once they understood that competence is the best path to job safety. Despite the human tendency to be lazy, we are generally happier when we feel we’re contributing to an effort that matters.

Don’t hold your breath waiting for these problems to be solved. It would take a gargantuan battle with public-sector unions to make things better. Politicians have little appetite for such battles. It’s easier to just build more casinos.

11 comments:

  1. Hear, hear.

    How do we nominate you for public office? Would you consider an appointment as deputy finance minister?

    ReplyDelete
  2. Not JUST Casinos, but remember those government run lotteries too! Wonder if I could get a permit to open a booth at the entrance of the O/C Raceway for Gamblers Anonymous? I somehow doubt it, but you never know (might make it more popular like all those nasty pictures on the cigarette packages). Oh and Governments also love the income from Taxes on Cigarettes too!

    ReplyDelete
  3. @Anonymous: Thanks for the endorsement. Unfortunately, I'm no good in debates. I tend to say what I really believe, and I tend to stop and think. In public debates you have to be willing to make convincing-sounding arguments you don't actually believe, and you have to be able to fire quickly from the brain-stem.

    @Big Cajun Man: You're right that lotteries and taxes on cigarettes and liquor are big sources of revenue for governments. Sensible policies for these matters have to begin with systemic changes to governments to reduce their thirst for money. Otherwise, governments are just going to do whatever brings in more revenue.

    ReplyDelete
  4. We live in a world of buyer beware. Unfortunately, we also live in a world of increasing temptation. It's difficult to be good when the opportunities to misbehave are so prevalent. We really do need to look out for ourselves.

    I'm more likely to eat junk food if it's sitting there on my kitchen table. We're more likely to gamble when gambling becomes more convenient.

    ReplyDelete
  5. @Promod: I agree with you. My strategy for eating well involves never having junk food in the house. If it's there, I'll eat it. Limiting gambling opportunities can certainly be justified by looking at the effect it has on individuals, but note that I made my case in this post for limiting the number of casinos based purely on economics. Even staunch believers in individual responsibility have reason to not like casinos on economic grounds.

    ReplyDelete
  6. Hi Michael, I'm just wondering about your statement about Casinos being a net loss to the country. What about movie theaters? Couldn't the same logic apply there too? They cost money to operate and they take away people from more useful pursuits? Or is it different because there is a whole (useful) movie industry backing it?

    ReplyDelete
    Replies
    1. @Opensourceportfolio: Interesting question. If the government were to grant themselves a monopoly on movies and operated movie theaters for profit, I might well think they were a net loss to the country. But that's not how it works. Movie theaters have to survive on the money they get from their customers. In a sense this proves that they give something of value.

      While one could argue that casinos provide a useful service (entertainment), I think they are much more about exploiting human weakness. So, I think the criticism that they divert resources away from more useful pursuits is fair in this case.

      Let me be clear, though, that I don't think we should get rid of all government-sponsored gambling. It makes sense to compete with other gambling avenues that divert money to criminals and other countries. However, we don't need more government gambling venues to accomplish this goal. And we certainly don't need nearly as much advertising of lotteries and other government-sponsored forms of gambling.

      Delete
    2. So would you say that as long as the gambling establishment is private then it is net gain for society? That's a lot more comforting for me.

      Delete
    3. @Open Source Portfolio: No, I wouldn't say that. To some degree all businesses try to exploit human weaknesses, but gambling is an extreme case. A modest amount of gambling is inevitable because an outright ban would simply lead to illegal gambling or gambling in foreign establishments. Having enough government sponsored gambling to suppress most illegal gambling and gambling by Canadians in foreign countries is desirable. Extending beyond this point is undesirable. It may be challenging to exactly define where this point is, but our governments aren't even interested in this question. They just want more money.

      Delete
  7. Casinos on the border can be a net benefit for Canada if they're populated by American tourists.

    ReplyDelete
    Replies
    1. @Patrick: That's certainly true if Canadians weren't permitted to enter, but that's not how we do things. The problem is that targeting Americans tends to prompt the U.S. side to open their own casino nearby and we're back to both sides having a net loss. If the decisions about building casinos were based on trying to make a net gain for Canada, I'd be happy. But I doubt that this is even a consideration. The real test is whether they are a benefit to government revenues.

      Delete