To an obdurate defender of economic theory’s central simplifying assumption — that people act to maximize their long-run satisfaction — lotteries provide a formidable counterexample. Indeed, it’s difficult to imagine a clearer embodiment of humans’ irrationality.
The math is simple: A few years ago, the Maine State Lottery made $272.3 million in ticket sales and awarded $178.2 million in winnings. In other words, the expected return on a $1 ticket was 65 cents. If everyone was driven by calculating self-interest, not a single lottery ticket would ever be purchased.
Yet since its inception in 1974, the Maine State Lottery has generated $5.8 billion in sales. Clearly, the lottery is a great money-maker for state coffers. But at what cost? It claims to provide “the citizens of Maine with fun and exciting entertainment” while “generating important revenue…in a fiscally and socially responsible manner.” In reality, the lottery constitutes an ineffective and unfair shell game, redistributing money around the economy in a destructive and highly regressive way.
Without exception, researchers have found that lotteries disproportionately soak the poor and “generate substantial regressive tax revenue as low-income players spend a higher proportion of their income on lotteries.” While estimates aren’t available for Maine, one nationwide study found that households with incomes of less than $13,000 spent an average of $645 a year on lottery tickets, or about 9 percent of their income.
There’s also evidence that lotteries entice people who never would have begun to gamble without the government’s encouragement. Studies in the 1990s indicated that in states with a lottery, the rate of participation in other forms of gambling was higher. And for some, the lottery evolves into something more than a game. A 2007 study suggested that 15.2 percent of lottery gamblers were addicted, a condition closely associated with family dysfunction, bankruptcy, and criminality.
The lottery’s negative effects reach far beyond its direct victims. Unsurprisingly, a study found a strong positive correlation between lottery sales and poverty rates. By deepening the challenges of people who already struggle financially, the lottery increases welfare dependency and spending on the social safety net — costs borne by all taxpayers.
“Pathological and problem gamblers in the United States cost society approximately $5 billion per year and an additional $40 billion in lifetime costs for productivity reductions, social services, and creditor losses,” according to a report in 1999. As lottery participation has grown in the last two decades, so have the costs.
But the damage doesn’t end there. The lottery siphons money out of the economy and diverts it to unproductive uses. For example, the Maine State Lottery spends more than $3 million per year on marketing and advertising, much of which goes to out-of-state contractors. And that’s not counting the costs of maintaining the gaming infrastructure, paying state personnel, compensating retailers for selling tickets, etc. That money would be better left in Mainers’ pockets and spent on useful products and services — which would generate sales tax revenue, to boot.
Is anyone really better off because of Maine’s lottery? Even for those lucky enough to win big, the gains in life satisfaction often fade rapidly.
The lottery is a thinly-disguised tax on the most vulnerable Mainers, and a crutch for policymakers unwilling to make hard choices about taxing and spending.
Politicians justify high cigarette and alcohol taxes by arguing that raising the price of unhealthy products will reduce sales. How can these same politicians support a state-run operation designed to exploit its citizens and encourage a destructive and irrational habit?
There’s no question that individuals have the right to gamble, but we should question the merits of the Maine State Lottery.
