State Lotteries: Using State Power to Fleece the Poor

By Wisman, Jon D. | Journal of Economic Issues, December 2006 | Go to article overview
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State Lotteries: Using State Power to Fleece the Poor


Wisman, Jon D., Journal of Economic Issues


   "A Lottery is Taxation,
   Upon all the Fools in Creation;
   And Heav'n be prais'd,
   It is easily rais'd,
   Credulity's always in Fashion;
   For, Folly's a Fund,
   Will never lose Ground;
   While Fools are so rife in the Nation."

(Henry Fielding 1732; cited in Clotfelter and Cook 1989, 215)

"Peasants are like sesame seeds: the harder you squeeze, the more they render" (Feudal Japanese maxim).

"Under the Darwinian norm it must be held that men's reasoning is largely controlled by other than logical, intellectual forces" (Veblen 1919, 441)

Imagine a gathering of rich folks, unburdened by moral scruples, dedicated to devising a scheme for transferring yet more of society's wealth from the least privileged to themselves, with, no less, the eager participation of the losers. What might they dream up?

How about state lotteries? What makes state lotteries so perfect for accomplishing this end is that the poor have limited recreation options; they have little means or potential for escaping their status; state lotteries can be promoted as generating revenues to be spent on public goods that benefit the less well-off; they are monopolies that can command monopoly returns; and the product offered by lotteries is an inferior good taxed at an exorbitant rate.

This paper surveys the political economy of this beguiling recreational means to distribute income from the have-nots to the haves. As will be seen, it is an ideal instrument for a kleptocratic plutocracy. State lotteries .are not, of course, a consciously formulated conspiracy of the rich to fleece the poor. However, the consequence is conveniently the same. It just happens that way.

A Brief Historical Backdrop

Gambling has existed throughout human history. (1) Today, some form of legalized gambling exists in about 140 countries, and lotteries exist in 100 of these (Clotfelter and Cook 1989, 21). Gambling provides excitement, it is an adventure. Most gambling activity throughout history has likely been a zero-sum game among acquaintances with all money played fully distributed among participants. However, the temptation was always there for someone to organize a game from which the organizer would profit at others' expense. However, if entry were free, such that anyone could organize a gambling scheme, competition might be expected to act as a curb on such profits.

During certain periods, traditional cultural values, especially religious ones provided a degree of protection for the poor against the establishment of lotteries, (2) although the Catholic Church in Europe made use of the lottery itself from time to time, and local churches in America often used lotteries to raise capital or to fund poverty relief efforts. Indeed, during the eighteenth and nineteenth centuries, lotteries were fairly common in the American colonies and then republic. These lotteries were typically local, organized by towns, churches, or schools to gain revenues for local capital projects and ended with the completion of the projects they funded.

By the mid-nineteenth century, a number of state-franchised private lotteries became embroiled in scandals. Social reformers began to campaign against lotteries, and gambling in general, on the grounds they bred criminality, exploited the poor, and corrupted moral values. The majority of states adopted constitutional prohibitions on lotteries, (3) and lotteries of any substantial size disappeared from the American landscape, (4) especially after Congress banned all lottery materials from interstate commerce in 1890 and prohibited all mail related to lotteries in 1895.

Beginning in the mid-1960s, after a 70-year prohibition, state lotteries began returning in force. (5) Financially-pinched states, always on the lookout for new sources of revenue and unwilling to raise taxes, can easily camouflage the fact that state lotteries are in essence just another excise tax.

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