Wednesday, June 20, 2007

Bar Talk: the lottery

So I thought I might introduce a possible theme for some of my future posts, just because this particular source of inspiration has been good fuel for thought recently. My roommate and good friend bartends at the Best Western (this is not a plug for that hotel chain, and I'll refrain from commenting on its quality level... though I must say, the bartender is great). We work opposing schedules, so I've found myself frequenting her bar quiet often. After all, who can turn down free bottomless cokes with grenadine? One of the perks of my visits, aside from chatting with my roomie, is my fellow patrons. I live in the ultimate college-town, so bars are usually overcrowded, noisy establishments where you get hassled by sloppy frat boys. Not my style. And it certainly doesn't make for good conversation (who goes to a college bar to talk?). But at the BW life is different. The patrons come in all shapes and sizes, and each has his or her own story to tell, and believe me, they are all willing to tell it. The age range is generally 30-somethings to 70-somethings, and the reason for staying is usually some sort of convention/conference or a friend or family member is at the UW hospital. So, as you can tell, each person I meet comes with a unique set of baggage. And since my roommate is generous when she makes drinks, they quickly become chatty. So I've decided to record my more memorable bar talks, and I'm only sorry I hadn't started earlier because I've already forgotten some great talks.

Yesterday at the bar, I found myself in the company of one 30 something tax attorney (yikes) and a married couple in their 60s (ish). Their conversation somehow turned to gambling, and it caught my attention. They began talking about how casinos prey on the poor addicted souls who just can't help cashing in their paycheck in hopes of somehow hitting the jackpot. So, given that I had just read Sandel's book (which I wish I had kept for the sake of this post) and he had his own opinions on the matter that got me thinking about it myself. Sandel believes, and I agree, that state lotteries unfairly burden the poor and marginalized sectors of society. Rich people don't spend their savings on lottery tickets, generally, because they aren't desperate for financial stability. Also, the more education you have, the less likely (intuitively) you will be to fall prey to the mentality that the lottery really is a realistic way out of poverty. Understanding the odds isn't as simple as it seems, esp without a good education, and if you don't understand the extreme unlikelihood that you will ever hit the jackpot then you are more likely to think you really could win. From a common sense standpoint the lottery is looking pretty grim. Is the state really promoting a program that virtually takes money from the lowest earning members of society and redistributes that money to ease property taxes or fund education? Should the poor really be bearing this burden? Choice or no choice, if the state knowingly runs a lottery where the money is coming primarily from the least advantaged, it is (IMO) culpable of a pretty serious moral wrong.

So what does the literature say? Well I did some research this time (for once), and I wasn't surprised by my findings. The results varied in degree, but overall the sources say that the lottery is, in effect, a regressive income tax. The lower the income, the more burden you shoulder. The percentage of money paid to the lottery versus the percent you earn is lower as you make more money, for various reasons. Education is one reason, and so is the fact that rich people don't need to rely on lotteries to pull them out of poverty. So if it's true that the poor are funding the lottery revenues (and incidentally, so too are minorities, particularly Blacks and Hispanics, according to a Texas study, see below), then the revenues better be pretty damned important. But, of course, they're not, not really. In Wisconsin, according to an audit done on our own state lottery, the funds from the lottery in the fiscal year of 2000-01 had a return of about $67 per household on property taxes (the sole use of our lottery). Who pays property tax? Who is 67 bucks richer? Not the folks who bought the tickets, that's for sure.

Not all of the studies agreed on the extent of the harm done by lotteries. But even the studies that didn't show a huge correlation between education and lottery ticket purchase admitted that if a person had less than a full high school education, then that person's likelihood of buying lottery tickets was inversely related to the amount of years he or she actually completed. Education can even be predictive when you control for income (Miyazaki et al. 1996). Check out this excerpt from a report I found:

"Nevertheless, the fairly consistent finding of regressivity across the five states and numerous time periods suggests that the lottery as an implicit tax may need improvement from a consumer policy perspective. Indeed, it is likely in the best interests of state lottery organizations that they revise the marketing of their products in a manner that decreases regressivity in an effort to avoid regulation of their product due to tax incidence implications. For example, even though it may not prove profitable in the short term, a campaign targeted toward higher-income consumers would likely result in significant changes in a state's lottery tax incidence, thus, avoiding legislation that curbs a particular lottery organization's ability to generate long-term revenue. Alternatively, state policymakers may wish to alter lottery payout structures by decreasing the effective tax rate of lotteries, potentially resulting in a more attractive product for higher-income consumers."**

Mark Thorton, and economist in Auburn, points out (in a rather emotionally charged article) that "Rich people can gamble at much better odds in Las Vegas or over the Internet where the payback is 90% rather than the state lottery’s 50%."

The worst part is that states are increasing advertising and marketing for the games that the lower-income purchasers tend to put more money into (the instant scratch games that have more frequent but lower payouts). Studies show (ask any pysch student) that when you increase reward (or semblance of reward) but at irregular and unpredictable intervals then the person is more likely to repeat the behavior in hopes for the reward. Example, if you give a dog a treat every time he pushes a button four times, he won't push it as much as he will if he doesn't know when it's coming but it comes enough for him to know it sometimes will. I pulled that out of the AP Psych vault, and can't remember who said that, but I remember it. And even if that's wrong, the Wisconsin audit purposefully suggested that the state increase the frequency of prizes for the instant win games because it would bring in more revenues if people saw that some people did win sometimes. And those revenues have been shown to come from the lower income groups even more so than the revenues from the higher payout games.

So I don't like the lottery, not when the state is using it to redistribute income from the poor to the middle-upper income folks. It's not right, and the benefits can't justify it in my mind. Of course the couple at the bar and their conservative lawyer friend protested the lottery because it's a vice that sucks people into a downward spiral, and they may be right, actually they are probably right. But honestly, casinos or other private gambling get-ups don't bother me as much as state run scams. The state should not be taking advantage of people, and it certainly shouldn't use other people's ignorance or financial insecurity to raise funds that just go to the middle and upper class. Interestingly, the lawyer dude told me that although we all agreed that the lottery is bad, he could tell that I am "very liberal" based on my comments about it. I was sort of offended. Why should caring about the poor be limited to liberals? I also hate being labeled, because it traps you into a whole slew of stereotypes. I am not a liberal, and I am not a conservative. But I'm not a centrist either. So take that.

More bar talk to come.


Wisconsin Lottery Audit 2002

The income redistribution effects of Texas state lottery games Source: Public finance review [1091-1421] Price yr:2000 vol:28 iss:1 pg:82

**The tax incidence of lotteries: Evidence from five states Ann Hansen, Anthony D Miyazaki, David E Sprott. The Journal of Consumer Affairs. Madison: Winter 2000. Vol.34, Iss. 2; pg. 182, 22 pgs


Wilson said...

Interestingly, the lawyer dude told me that although we all agreed that the lottery is bad, he could tell that I am "very liberal" based on my comments about it.

Odd. Having grown up in the Bible Belt, of course, I'm used to thinking of anti-lottery campaigns as a conservative cause. The social conservatives see lotteries as promoting vice, and the economic conservatives often say (with that adorable libertarian impishness) that they "don't think the government should have a monopoly on gambling."

It might not have been your overriding concern for the poor per se that was the tipoff. I've known conservatives to use the same sort of argument you have here -- that is, one based on economics and social justice more than virtue. Maybe it was something more specific about your terminology?

Actually, if I were to make a single guess, I would point to your emphasis on the possibility that the money is going to the middle and upper classes. I think most conservatives I know would limit the discussion to the lottery's detrimental effects on the poor.

Lindsey said...

Actually, I wasn't sure how he came to that conclusion either... I suppose I didn't say much about how I think gambling is bad in itself, which I do think so, but I think that about a lot of other things as well. And I think you're right, it may have had something to do with my emphasis on how the money goes to rich people. Although, at the bar I had much less info under my belt (I looked it all up today) and I was really just making stuff up and trying to sound outraged (sometimes it's fun to play along with the drinkers). So maybe my attitude made me look like a crazy liberal ;)

Wilson said...

Or perhaps it was your choice of drinks. You weren't working on a French import at the time, by any chance? ;-)

Lindsey said...

Haha, I wish, but I don't think my friend would give that away for free. So I guess I'll stick to the cherry cokes because I have limited resources.

Rodrigo said...

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