RoR: Forum

Here's a point: What if the Orren Boyle type woke up one day to find a jackpot winner as his neighbour?

Or what about the cottage circuit: "Did you hear about that lottery winner who moved in? He just re-named 'Social Benefice' 'Government Jackpot'!"

Post 1

Thursday, July 22, 2004 - 9:53am

David

Really excellent article. I didn't know that the rate of return on government lotteries was so much higher than rates of return on private gambling. I would be interested to know the extent to which that is true more generally, other than just for Las Vegas, where the casinos operate in what is presumably a highly competitive market.

As you say the government can only sustain returns like that because it operates a monopoly. And presumably this monopoly is sustainable only because everything else is regulated or taxed out of the market altogether. From what I recall poker machine operators in NZ are only permitted to keep 7% of their revenues, or something like that...

Post 2

Thursday, July 22, 2004 - 1:48pm

Government lotteries and similar type schemes/scams are "a tax on stupidity and depravity." They punish personal evil. Not the worst way to fund a government nowadays... Intelligent and virtuous people actually seem to benefit.

Post 3

Thursday, July 22, 2004 - 5:17pm

David,

You make some good points in this article, but I must take issue with your description of the low payout ratio of lotteries as a "TAX." People who purchase lottery tickets do so voluntarily, and the figures on just how much money governments are skimming off the top are publicly available. It just doesn't sit well with me to conflate the voluntary purchase of a lottery ticket with having one's income or property expropriated under the threat of imprisonment or death.

That said, state lotteries are effective fundraising vehicles only because of monopoly protections--bans on private lotteries, tax immunity for the public lotteries, etc. I think it's pretty doubtful that lotteries could make any meaningful contribution to government revenue without these legislative favors.

Post 4

Thursday, July 22, 2004 - 6:31pm

like andrew, I take issue with the notion of calling a lottery a "tax". you are not "taxed" if someone suckers you into wasting money by nothing more than appeal to your own inept judgement. Taxes are when I, directly or metaphorically, threaten to kill or harm you if you do not give me money. Taxes are robbery by any other name. lotteries are nothing more than setting up an obviously inept business proposal, and letting the suckers waste their own money on it by virtue of their own stupidity. by your logic, should we say that selling crack cocaine to an addict is "robbery"? but such would be ridiculous: we are merely taking advantage of a pitiful, unthinking subhuman by offering to sell him his own death. if he's dumb enough to pay for it, not my problem: i'll sell every addict on the earth a crackrock if I can do so without fear of legal reprisal. lotteries are a difference only of degree, not of principle.

Post 5

Friday, July 23, 2004 - 7:54am

Andrew, Robert,

I think you are both missing a subtle, but important point. There are other ways to expropriate wealth beyond a direct use of force. By establishing a coercive monopoly on gambling, the government can inflate the price of gambling beyond what a free market would otherwise bear. Consequently, the gambler will have to pay more for the product than he would if he were allowed to purchase the same product from competing private vendors. This additional cost to the gambler (the government price minus the free market price) is, as David has pointed out, effectively a tax on the gambler, even if it does not strictly fit the definition. It is money the government receives through its coercive ban of competitors. I think the argument is flawed that says since a person chooses to gamble, no expropriation is involved. Compare this to the government nationalising the food industry, banning all private sellers of food. The government can now inflate the price of food to whatever it wants. I assume you would grudgingly still choose to purchase food, but do you not agree that the government is expropriating your wealth by disallowing you to buy food at a cheaper price from another seller? The principle is the same whether it is food or gambling.

David,

Excellent article. I had never thought about government-run gambling in this way before. Here's a thought though - Do you think the amount of money returned to gamblers would actually matter much in a free market of gambling? I ask this because gambling is inherently irrational behaviour. I wonder if gamblers would, on the average, be rational enough to shop around for the best value. I really don't know the answer to that one. Also, if the government were to compete with privately run gambling enterprises, and earn the same returns, do you not think that it would still make a lot of money?

All in all though, I've always been skeptical about government lotteries being a good way to finance government in a free society. To have a political system built upon rational philosophical principles, and for it to be sustainable, I believe the society will need to be comprised of mostly rational people. There needs to be a culture of reason. Because of this, I can't imagine too many people in this hypothetical society playing the lottery, and even if they did, isn't it a moral contradiction to have the government of a rational society dependent on the behaviour of the irrational?

Cheers,
Gordon

Post 6

Friday, July 23, 2004 - 11:44am

Andrew, Robert:

I stick by the word "Tax" to describe the excess quantity it costs consumers to gamble in a market distorted by state mandated monopoly lotteries. If you want to be sticklers you could choose a narrow definition of money as being money levied directly by government. But I find it useful for people to realise that government imposed fiats of the nature of seemingly harmless lotteries, DO impose an additional burden on consumers, and this money IS collected by the state lottery agency as a monopoly rent. That's good enough to me to call it a tax.

Gordon:

Thanks for the support. To answer your first question, 90% of gamblers will stupidly not give a damn about the proportion of money being returned. But, guess what, that's the same for ALL consumer goods! Studies show that most people don't notice or care whether they pay 50 or 60c in competing supermarkets for a carton of milk. BUT! And here's the dirty secret of competitive markets- the other 10% (this 10% is arbitrary, it could be 30% or 5%) DO care, and THEY are the ones that drive prices down. The same would happen with gambling. And the big gamblers would be disproportionately represented in the 10% that hunt out the best deals.

And who says gamblings not rational! Even if out of 100$ invested, you stand to win 95 on AVERAGE, I think the thrill is worth way more than the 5$ lost (...on average :-)...).

Post 7

Monday, July 26, 2004 - 1:12am

Good Article, David. I also agree with you that it's a tax. The fact that people can voluntarily choose to participate in the lottery doesn't change it's nature. We also have gasoline taxes, phone and electric taxes, income taxes, and sales taxes. Every one of them is "voluntary". The government just hides the lottery taxes by running the enterprise itself.

Post 8

Tuesday, July 27, 2004 - 9:19pm

Gordon wrote that "To have a political system built upon rational philosophical principles, and for it to be sustainable, I believe the society will need to be comprised of mostly rational people. There needs to be a culture of reason. Because of this, I can't imagine too many people in this hypothetical society playing the lottery."

Why do you assume that buying lottery tickets is necessarily irrational? Many people do so -- and gamble in other ways as well -- simply because it can be fun, and because the possibility exists that they'll win something. They're not emperiling the mortgage or food for their children. If you go to the circus, you may try to shoot the wooden ducks, but not because you believe doing so will lead you to a lucrative career as a marksman; you do it because it's fun.

When I'm in Las Vegas, I have a very good time at the craps tables. . . until I've lost the money I decided to bet. The atmosphere is exciting, many of the people there are interesting, and there often is a comraderie among the players that is very pleasant. I've seen an elderly lady win hundreds of dollars while placing only dollar bets -- and win thousands for people at the same table who placed bigger bets. At one point she whispered that she needed to go to the ladies' room, but horrified shouts of "No!" kept her at the table indefinitely. I've often wondered how she managed. I've seen an Arab sheik lose a million dollars in one evening (which, I'll admit, gave me a special and perverse pleasure). I saw a man and wife enter the casino, the wife saying she'd go upstairs and unpack and the husband that he'd play for just a short time. Hours later, he'd won $240,000. He suddenly realized that it was early morning and announced: "Oh God, my wife will kill me!" It was only the shouts of laughter that made him realize she probably would not.

And most important of all, it was by being in the casino that I learned that Johnny Weismuller, the first movie Tarzan and therefore my childhood hero, was at the swimming pool. I was able to rush to the pool, gaze at him adoringly, and tell him he was wonderful. Would anyone dare say it was irrational for me to have been in that casino?

Barbara Branden

Post 9

Wednesday, July 28, 2004 - 7:02am

It was irrational for you to be at that casino.

Just joking.

Post 10

Wednesday, July 28, 2004 - 8:45am

Very Good article David. I thoroughly enjoyed it.

Andrew and Robert,

If the Government legislates that a certain proportion of the profits must be given to another group of people, then that is a type of indirect taxation. I think that you are arguing that it is essentially placed on the producer rather than the consumer - and therefore not a consumer tax. Nevertheless, indirect taxation of any kind can be argued to equally burden both producers and consumers.

I am sure many politicians would love your definition of tax.

They would say, "These indirect taxes are not really taxes, because they are voluntary."

Better not let your justification for indirect taxation get out into the public domain or every politician from New York to Namibia will be on to it :-)

Post 11

Wednesday, July 28, 2004 - 10:38pm

Really, if the state of modern political discourse is any indication, politicians hardly need any help from Robert or me to completely mangle and miscontrue the concept "tax." I had considered the idea of monopoly rent as a kind of tax when I first posted on this thread, and in retrospect, I dismissed it too easily and let my own anti-lottery prejudices cloud my thinking on the issue.

Ok, the monopoly rents on state lotteries are a tax. I still think there is some distinction to be drawn between income or sales taxes, which one can escape only by "living off the grid" with no income or material consumption whatever--and the lottery, which one can escape simply by refraining from the purchase of (usually) worthless pieces of paper. Yes, I'm aware of the legitimate thrill of gambling, and have even purchased a couple of lottery tickets myself for jackpots numbering in the hundreds of millions. But the lottery just doesn't arouse the same moral indignation as when the government levies taxes on the very things I need to live, including income, sales transactions, or Gordon's hypothetical example of food.

Post 12

Thursday, August 5, 2004 - 2:51pm

going to casinos is irrational if the happiness gained from playing is less than that which could otherwise have been gained with the time /(likely) money lost.

i see only two types of people who can rationally go play at a casino: card counters, and expert poker players (going to a poker room).

i suppose some people may consider it to be a happy event. if so, then it may not be irrational for them to go. for me, it would be tainted by the waste of money, and the seeming idiocy of it.

when i went to las vegas last, it was with my father and brother (we were passing through), and he asked what i thought of it (with all the lights, and the neat looking buildings). i said: "it's a town built on stupidity". i mean, it is very pretty, but it's one big monument to irrationality.

also, the set up at the casinos is rotten. they try to keep you at those tables, shelling out money, for as long as they can. i remember, my dad and i were waiting for a table at a restaurant, and he decided to play a little craps, and finally when the table was ready, he wasn't back.

so i went over to the table, it was very crowded, and i called over to him. he didn't hear me, but the guy running the table asked to see my i.d. i told him i wasn't 21, i was just trying to get my dad. he tried to get me to leave, and started moving towards me.

i shouted out "dad!!" and finally he looked up. i forget why i hadn't gone to the other side of the table where he was. i think the manuvering room was bad or something.

also, so i hear, you can get chips anywhere, but in order to cash out, you have to wait in big long lines..

also, i do not think gambling should be banned. i also agree that the gov't should have no part in gambling.

it's amusing that the gov't has a law against running a lottery. do as i say...?

Post 13

Friday, July 22, 2005 - 6:43pm

Great article, except for one minor quibble: government lotteries are not a tax on gamblers, but a tax on suckers. Intelligent gamblers (if such people exist), stay well away from government-run games and stick to poker. :)

Post 14

Monday, July 25, 2005 - 11:00am

I have difficulty making the connection with the lottery example provided in the article. An individual's decision to purchase a lottery ticket does not imply taxation on the general public.

Certainly states will encourage the purchase of lottery tickets, as it is a form of revenue generation and of course they will emphasize marketing of the product to the poor, who are more prone to spend frivolously on such a bad risk.

Tax revenue obtained from the sale of lottery tickets does not have an inversely negative effect on taxpayers at large. i suppose one could argue that by, "encouraging," frivolous pending, the government is subliminaly encouraging the diversion of that private money from more appropriate resources such as health insurance, and thus driving up the costs of health care and other goods and services partially subsidized by taxpayer revenue, but I'd say that is a bit of a reach.

MCD

Post 15

Monday, July 25, 2005 - 1:38pm

Hi Matthew and Matthew, thanks for your comments.

Matthew D:

The key point I tried to get across in this article is not that lotteries are bad, or even that government lotteries are bad. What is wrong is the use of force by governments to ensure, as is usually the case, that if somebody wants to gamble, they must do so through government endorsed (and usually government funding) entities.

It is the abuse of this monopolistic power that makes revenue raising via lotteries effectively a tax on gamblers.

David

Post 16

Monday, July 25, 2005 - 2:37pm