Intelligent Economic Design: Two Fresh Viewpoints

Crain's caught Ed Morrison's insightful EDPro blog this AM, "We need smarter development, not casinos"

Bill Peirce, Libertarian candidate for Ohio Governor, sent along another must read. See below:

Although there is not much support for casino gambling among the candidates of the major parties, it is revealing that these experienced public servants did not realize that the “Learn and Earn” proposal would swindle billions of dollars from the taxpayers of Ohio. Blackwell and Petro doubt that casinos produce good jobs or economic development. Strickland likes the tax revenue but dislikes the increased gambling addictions. Flannery likes the tax revenue and thinks that Ohioans gamble anyway, so it is just a question of which state gets the revenue.

There are three coherent views on gambling. Some people oppose all gambling on paternalistic or moral grounds. A small fraction of people get into serious trouble from gambling. Also, some people consider gambling to be evil. If your inclinations are paternalistic, you might want to rid the world of gambling to protect the more vulnerable citizens. This argument is not very persuasive in the state of Ohio, which advertises the wonders of the state lottery to the people it tries to protect from gambling.

A second approach is to view gambling solely as a device for maximizing tax revenue for the state. If one adopted this approach, one would presumably advocate building a full-service casino at every major exit point from the state. Thus, the gambler headed for a casino anywhere else in the world would encounter a bigger and better one before leaving Ohio. Working with consultants, one would estimate the tax rate that maximized state revenue (perhaps in the vicinity of 60%), and then auction off the permit to build and operate each casino for a long, but finite period.

A third approach is libertarian. If people want to gamble, why should the state stand in the way? The state should not be involved, it should just stand aside while anyone who wants to operate gambling games can do so and anyone who wants to gamble can choose his game and his favorite supplier of gambling services. Under this approach, gambling establishments would not require any more regulation than movie theaters or pizza parlors. Profits from gambling would rapidly be bid down to the normal level as new casinos opened and advertised their wares.

It is clear that the police effort that now goes into eliminating illegal gambling is just a device for maintaining the monopoly in gambling that now produces high profits for the state or some favored party. If the state really does adopt the second approach—maximization of tax revenue—the policing is not much different from the force necessary for collecting all taxes. Ohio cannot permit illegal gambling today because it cuts into the revenue from the state lottery. But why would the state control entry into gambling in order to protect the profits of 10 private owners?


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