The Problem With Lotteries

Like most Americans, I never gave much thought to lotteries. They were just an amusing, unlikely way to get rich at the cost of a only few bucks and some minutes filling out tickets.

But as The Atlantic’s Derek Thompson points out, lotteries are big business in the U.S., and can very well be considered an industry in their own right. Consider the following chart based on data from the North American Association of State and Provincial Lotteries (they’ve got an organization for everything these days). As of 2014, Americans nationwide spent more on lotteries than on all other forms of entertainment combined.

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The popularity of lotteries also varies dramatically from state to state:

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The national average hides a lot of variance among the states. In North Dakota, per-capita lottery spending is a pittance at just $36 a year. In South Dakota, however, it’s an egregious $755 per head. Lotto games bring in the most money per person in the mid-Atlantic and northeast: number-one Rhode Island (nearly $800 per capita!), Massachusetts, and Delaware are among the top five states, while New York, Maryland, New Jersey, Connecticut, and Pennsylvania join them in the top 13 (so does Washington, D.C.).

This might all seem like good clean fun, but it turns out that there is a bit of a dark side to this lottery craze (bolding mine):

Lotteries set aside about 40 percent of their ticket sales as state revenue that often goes to schools. Then, winners of more than $600 are subject to 45 percent windfall taxes on their good fortune. “The house” is winning, even when it’s losing.

But it’s the poor who are really losing. The poorest third of households buy half of all lotto tickets, according to a Duke University study in the 1980s, in part because lotteries are advertised most aggressively in poorer neighborhoods. A North Carolina report from NC Policy Watch found that the people living in the poorest counties buy the most tickets. “Out of the 20 counties with poverty rates higher than 20 percent, 18 had lottery sales topping the statewide average of $200 per adult,” the North Carolina Justice Center reported.

A 1986 California survey found that lottery players were split 50-50 on whether they played for money or for fun. But among those with less than $30,000, “25 percent more respondents cited money rather than fun, while the reverse was true for those with higher incomes,” wrote Garrick Blalock, David R. Just, and Daniel H. Simon in a study “Hitting the Jackpot or Hitting the Skids”. The researchers made another damning discovery: Local lottery ticket sales rise with poverty, but movie ticket sales do not. In other words, lotto games are not merely another form of cheap entertainment. They are also a prayer against poverty. This fits what the researchers call the “desperation hypothesis”: States are making their most hopeless citizens addicted to gambling to pay for government services.

Granted, some would argue that none of this is a big deal. Obviously no one is forced to play a lottery, and at least a lot of the proceeds go towards schools. But there is something iffy about lotteries essentially serving as a tax on the poor’s desperation. The Atlantic cites a 2009 study that found that eleven out of the 43 states in which lotteries were legal raised more revenue from the games than than state corporate-income taxes. As Thompson asserts in the closing paragraph of his article:

In an age of rising income inequality, it’s pernicious that states rely on monetizing the desperate hope of its poorest residents. State lotteries take from the poor to spare the rich, all while marching under the banner of voluntary entertainment. Banning lotto games will not make our poorest communities suddenly rich. But these neighborhoods have lost enough lotteries in life even before they touch a penny to the scratch-off ticket.

What are your thoughts?

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