Monday, April 16, 2012

John Tamny: The Government Rip-Off of Lotteries

Lotteries are a deceptive form of theft by governments unable to live within their means. Voters should abolish them not because they're a rip-off or regressive, but because they're an extra source of revenue that allows governments to fund even more programs that will prove difficult to cut.


By John Tamny

AS IS ALMOST UNIVERSALLY known now, the recent Mega Millions lottery offered up a prize exceeding $600 million. Sensing the possibility that a life of leisure awaited them should they possess the correct numbers, ever optimistic Americans lined up to purchase tickets; last minute purchases the driver of a jackpot that reached nosebleed heights.

Lots of fun was had, even for the losers, though not discussed enough are the major negatives that come with lottery programs run by the State. If tax rate cuts are the gift that keeps on giving, then lotteries are the hidden theft that keeps on taking.

That's the case because lotteries are disingenuous ways that governments unable to live within their means raise extra revenue. Just as governments have historically devalued the currency in order to pay for wars the citizenry did not want, today governments use lotteries to cover that which besieged taxpayers will not.

Government spending is by definition a tax owing to the basic truth that governments can only spend what they've taxed or borrowed from us first, and lotteries are simply a soft version of the latter. At least with lotteries, we can delude ourselves into thinking we have a chance to get back some of what we've given through purchases.

Of course it's not just the near-term spending that should concern us. Even if readers believe what isn't remotely true, that government spending is an economic stimulant (quite the opposite, actually), not acknowledged enough is that government spending doesn't meekly occur without long-term, and very negative, effects.

Instead, once cash-rich governments deploy the money in the wasteful ways that continue to amaze even the sentient among us, for doing so they create programs that are difficult to sunset. Up front, government spending draws down our earnings, turns some workers into indolent takers, plus it weakens the economy overall for governments bidding for labor against the tautologically more productive private sector. Worst of all, it also doesn't go away.

Once a program is funded, a special interest is created; one with employees whose votes count every bit as much as those toiling in the real world, and who want nothing from government. In short, government spending serves as a tax on real growth out of the gates, and then the programs funded serve as an ever expanding tax as more and more money is needed to feed the eternally hungry beast.

Some will say that lotteries have historically funded education, but that's a false argument on two counts. For one, money is money, and extra revenues enjoyed by governments - even if earmarked for education - ensure that other non-educational programs will have more funds to consume (the definition of capital destruction) thanks to a larger revenue intake overall.

Second, investment in education has soared in modern times, far outpacing GDP growth in percentage terms. Much as politicians on the left and right might wish otherwise as they naively talk up the "correlation" between education and economic growth, the simple truth is that "smart" and "hard work" - the two essential success inputs - cannot be taught.

Notably, some suggest lotteries should be abolished for disproportionately preying on those who reside in lower economic strata, not to mention a history of lottery winners that's riddled with addiction, divorce, bankruptcy and suicide. Fair points, but assuming private entities desire to stage lotteries in place of the State, democracy that frequently takes the form of mob rule should not get in the way.

About fully privatized lotteries, it should be said that the State naturally creates a wedge that could be filled by private, for profit companies, staging what is a gambling exercise. Though participation would still be a waste of time, it's not the job of governments or voters to protect us from what are voluntary acts no matter how stupid they may be.

The above applies to the notion that lotteries should be abolished because they dupe so many low-income individuals. Maybe so, but once again, government should exist to protect our rights to do as we wish, not limit what we choose to do.

As for the horrific life track record of so many winners, this reality should - though it won't - remind politicians of how ineffective government redistribution schemes are. President Obama is the latest in a long line of politicians who has talked up the alleged good that comes from spreading the wealth around, but as evidenced by once again all the addiction, divorce and bankruptcy stories that modern lottery history is littered with, wealth is far more of a state of mind - think working hard and smart - than it is about putting money in people's pockets.

In short, winning the lottery and "wealth" in no way ensures that those allegedly lucky enough to have done so will also possess the values that so often correlate with wealth actually earned. Free individuals should once again be free to participate in lotteries, but let's hopefully use the myriad failures and tragedies that follow "winning" to remind ourselves of the folly of wealth redistribution.

Looking ahead, it would be wholly naïve to assume governments used to the revenues lotteries bestow on them will ever cease dipping their greedy hands in our pockets. Still, the economics of lotteries are bad for all concerned even if we leave out the horrendous odds, so voters should seek their abolishment with economic growth in mind.

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