Benefits of Gambling

According to one report, there is little reliable information on the social and economic impacts of gambling.1 A great deal of research does exist, but often it is prepared by groups advocating one position or another and is biased or suffers from such basic flaws as to render it virtually unusable. In short, much of what has been done is not sound.

There is a Debate Over Whether or Not Gambling Can be Good For an Economy. Proponents of the view that gambling is harmful use a quote of Nobel Laureate Paul Samuelson.2

"(Gambling) involves simply sterile transfers of money or goods between individuals, creating no new money or goods. Although it creates no output, gambling does nevertheless absorb time and resources. When pursued beyond the limits of recreation, where the main purpose after all is to kill time, gambling subtracts from the national income."

Other economists have taken exception to Samuelson's characterization of gambling. They point out that his criticism could be applied to movies or Disneyland. These are products that don't add to the ability of the economy to produce more. But they still have value because they provide satisfaction, or utility in the economist's jargon, to consumers. These economists are more concerned about the costs of banning gambling, that is the ensuing enforcement costs and the incentives to lobby and bribe public officials to allow illegal gambling to occur.

Gambling Can be a Powerful Economic Development Tool. Las Vegas is a testament of the powerful ability of gambling to foster economic development. Because of gambling, Las Vegas has shown impressive job growth, developed into a major city with a low tax burden that many state and local governments look at with envy, and has spawned significant private and public sector investment. But can the Las Vegas model be duplicated?

There are other questions:

Are there costs involved that exceed the obvious economic development benefits?
Who actually gains and who loses?
If Las Vegas is a model of economic development through gaming, are there any other costs that need to be looked at? Las Vegas tends to have a wide variety of social ills associated with it.3 There is some controversy of the true level of these given the high tourist population. No studies have examined whether those are associated with gambling, the transient population, the growing population, or the low level of social services provided by the state.
How widespread are the economic benefits? Las Vegas has grown into a large diversified city, but others have not. Atlantic City is a different case.
"But look at Atlantic City. It used to be a slum by the sea, and now, it's a slum by the sea with casinos."4

Research has attempted to answer these questions. Before we look at the research results, this report will lay out how a gambling development project may affect a local area. For those that are uninterested in the theoretical discussion, there are some conclusions that begin on page IX-7 that may be more interesting. This discussion also tends to focus on casinos but it is true for any type of gambling facility operation.

The Basic Criteria For Economic Development Success is For a Project to Increase a Region's Net Exports. Specifically, the amount of goods or services that are exported needs to be increased or the amount that are imported decreased. This is the only way that income can increase. Projects can certainly be an overall economic success in terms of profit without doing either of these, but those profits come at the expense of other businesses.

Various Factors Come to Play in Determining if Gaming Has a Positive or Negative Economic Impact. A full accounting of all costs must be done and it is difficult. The economic impacts of legalized gambling are tangible and quantifiable. The basic economic impacts include the construction of a casino which leads to many jobs for construction employees and suppliers, employees to staff the casino, and the suppliers for an ongoing casino. Multiplier effects then ripple throughout the overall economy. But just because a gambling project creates a lot of jobs and a large facility is built doesn't mean the economic impacts are positive. Non-economic impacts such as social costs are usually intangible, difficult to measure, and on balance negative.

Building a casino creates new jobs, such as a card dealer, in the sense that they did not exist before. But they may not be new jobs for the economy. Money spent on a gambling facility is money that already existed but was spent on other things. That is probably an obvious point, but one that needs to be made. Building and running a gambling facility doesn't create wealth, it merely transfers it. The benefit for a region is if the transfers are from outside of the region. In contrast, there is not a stimulus or net benefit if development of the casino leads to more money being spent outside of the region.

This stimulus or beneficial impact could happen two main ways:

Tourists from abroad spend more time and money within the region. For example, if foreign tourists changed their travel patterns so that rather than coming to both California and Las Vegas, they only go to California.
Local residents who used to travel outside of the region and gamble now stay within the region.
There are also ways that building a casino could result in no increased benefits for the region:

Local residents who used to go to restaurants now spend their money in the casino. Then the casino has no net economic benefit.
Tourists who used to spend money on other activities within the region now go to a gambling facility within the region.
Constructing a casino could hurt a region if either of the following occurred:

Locally-owned businesses go bankrupt because consumers have changed their expenditures to casinos that happen to be owned by out-of-state interests.
Casinos buy more products from out of state than the businesses they replace.
Casinos result in increased social costs including police and other public services as well as the costs of pathological and problem gamblers. These issues will be addressed shortly.

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