President Obama wants to use government to reduce inequality between the rich and poor. But what if government is partly to blame for the steady rise in income inequality? One glaring cause may be gambling events like this week’s Mega Millions jackpot. The multistate lottery may beat the 2012 record of $656 million.
While the winner of the lottery drawing will be instantly megarich, this government-hyped form of gambling will only help millions of poor Americans become even poorer – and could only worsen the nation’s growing wealth gap.
The poor do spend more on lottery tickets than the well-off. A 2010 study in North Carolina found most of the state’s poorest counties had the highest per capita spending on scratch-off and lottery tickets. In economically depressed Lenoir County, lottery spending was more than double the state average.
But you won’t hear much about this wealth effect from governments that rely on lottery revenues. In about a dozen states, revenue from lotteries has become so high that it is greater than revenue from corporate taxes.
“Governments are constrained by the profit motive in their willingness and ability to minimize and mitigate the harms arising from the introduction of new forms of gambling,” said Rachel Volberg, a public health professor at the University of Massachusetts Amherst, at a House hearing on gambling last week.
In promoting lotteries, states send the wrong signal that a poor person can get rich quick. (In Oregon, the logo of the state lottery shows crossed fingers, the symbol of luck.) For most citizens, the lottery is one of the most common forms of communication from government. Why should this message be one that implies luck is the source of well-being?
Few lottery officials will warn the poor that in buying a ticket, they effectively pay a disproportionately high “tax.” Only 62 percent of the money goes back to gamblers. No wealth is ever created.
“When gambling merely transfers dollars from one pocket to another without creating a tangible product, we are made poorer,” states Earl Grinols, a Baylor University economist who researches gambling. He calculates that all forms of gambling create $3 in social costs for every $1 they generate. In Delaware, bankruptcies rose after the introduction of video lotteries in 1995.
Lotteries take advantage of the poor as much as an employer who cheats a lowly worker. “Lotteries set off a vicious cycle that not only exploits low-income individuals’ desires to escape poverty but also directly prevents them from improving upon their financial situations,” stated a 2008 Carnegie Mellon University study.
The lure of lotteries, stated the study’s authors, is in providing a “feeling of a balanced playing field, the sense that everyone has the same chance – absurdly small as it may be – to hit the jackpot.”
Among industrialized nations, the United States now has the highest rate of income inequality. Mr. Obama and many other leaders want to tackle the main causes of this disparity. They should start with the state lotteries. States shouldn't make worse the very poverty they wish to lessen.