things kevin hates

Now, a good Catholic boy like me should have no objection to gambling. And for the most part, I don’t. (I mean, I do think casinos are pretty sleazy with the way they block any natural light and prey on old people, but it’s a free country, right?) After all, I grew up playing turkey bingo in the church gym and cherry bells at the church fair. But what If I told you that there’s a form of gambling where the house edge (which is usually a couple of percent at most if you’re at a casino) is 67.5%? You’d think it was an outrage, wouldn’t you? You’d never want to play a game like that, would you? But when you buy a Powerball ticket, that’s exactly what you’re doing.* It always baffles me when I hear about co-workers who get together and buy a bunch of tickets every week in the hopes that they’ll hit the big one. What the hell are they thinking? Obviously, they’re not very good at math.

Now, my point here is not to criticize the guy who goes into the convenience store maybe once or twice a year when the Powerball jackpot is $250 million. If you spend $2 a year on the lottery, you may be losing money—the odds are against you in virtually any** situation—but you’re never going to miss $2 a year. On the other hand, those millions of dollars would be really nice to have if you do luck out. SInce losing $2 a year is essentially equivalent to nothing, but winning a huge amount of money (even at odds of almost 200 million to 1) is really, really awesome, it’s not a bad deal (from a life perspective, not a strict financial perspective) if you play on very rare occasions. My point here is to criticize the people who spend $5 or $10 or $20 or more a week, every week, in the hopes of winning the big prize.

Money like that adds up. $20 a week is more than $1000 a year, which is a fairly significant sum—unless you’re Bill Gates or Warren Buffett, but I’m thinking that neither of those men needs to play the lottery.

And let’s think about this logically: who is most likely to play the lottery? People too dumb to know any better. In other words, the poorly educated. And given the high correlation between education and financial well-being, what group of people is most likely to be poorly educated? The poor.

And do the stats back this up? Absolutely. You can google “lottery demographics” yourself, but if you’re lazy and want to take my word for it, you’ll find that blacks, people who didn’t graduate high school, and people with the lowest incomes are the ones who spend tons of money on the lottery. It turns out that the percentages of people who play are fairly similar across all demographics, but the poor and poorly-educated are the ones who spend vastly more money (as a percentage of their income) on lottery tickets. And in many cases, the lowest income brackets spend more money per capita (even in absolute terms) than the wealthier brackets.

Now, in many cases lotteries fund worthy state programs, perhaps related to health care or education. Many of these programs may benefit the poor; they may even be primarily designed to benefit the poor. But to fund these programs with a program that depends on tax dollars (lottery revenues; the lottery is a voluntary tax) largely collected from disadvantages populations in simply moronic. It leads to what is called regressive taxation. Regressive taxation is taxation paid at a higher proportion by the poorest people in a society. (The opposite is a progressive tax, where the rich pay a higher percentage; when everyone pays the same percentage of income, it’s called a flat tax or a proportional tax.)

It should seem pretty obvious that regressive taxation is a bad thing. And that’s just what the lottery is—a regressive tax. Just because it’s voluntary doesn’t make it any better.

Now, one might argue that if people are stupid and they want to gamble their money away, they should be allowed to. And to be honest, I sympathize with that argument. The poor high school dropout who drops $20 a week on lottery tickets is only hurting himself, and it’s a free country. But just because gambling should be legal doesn’t mean that the state should be in the gambling business.***

Here’s an anecdote: my father used to sell life insurance in poor neighborhoods and drive around collecting the payments. In 1992, when Louisiana came out with the Lotto, business dried up. People who were spending a few bucks on a small life insurance policy (to cover burial expenses and such) spent that money on the lottery instead.

I’m sure there are plenty of similar stories out there. For that matter, I’m sure there are plenty of other gambling horror stories that don’t have anything to do with state lotteries. Regardless of your opinion on whether gambling should be legal, I think it’s clear that the government needs to get out of the lottery business.

* I was unable to dig up the numbers for Mega Millions, but I’d assume they’re similar.

** Obviously, with a large enough jackpot, you’d have a positive expectation on your purchase. But the larger the jackpot, the more people play, and the more likely a split jackpot becomes. And you still have taxes to worry about. I’m not going to bother with the math, but my guess is that you’d need to see a jackpot close to a billion dollars.

*** I realize that states usually negotiate deals with casinos (and other companies involved in non-lottery gambling) and reap enormous taxes as a result, giving the state benefits similar to those that might be earned from a lottery. But I think there’s still a distinction between a state that allows a free market for gambling companies to operate, and a state that runs a gambling company itself. I don’t mind a casino making money, even if the state gets a cut (as taxes). I do mind the state, acting in my name and the name of every other citizen, orchestrating what is essentially a scam that preys on the poor and stupid in the name of benefiting society.