You Can’t Win if You Don’t Play
A Lottery is a Taxation,
Upon all the Fools in Creation;
And Heav’n be prais’d,
It is easily rais’d,
Credulity’s always in Fashion;
For, Folly’s a Fund,
Will never lose Ground;
While Fools are so rife in the Nation
– Henry Fielding, 1732
There is a legend about a devout Christian man who prayed to the Lord to let him win the lottery. His prayer continued through years of blue collar labor until the man grew old and weary. Finally, on his death bed, after decades of praying to win the lotto, the man cries out “Lord, I’ve been your humble servant my entire life and I’ve only ever asked you for one thing, why have you forsaken me.” Suddenly, a blinding light shines down from the heavens, God sighs and says in a thundering voice “you know, you could buy a ticket!”
I will freely admit that I have played the lotto a few times. This was caused by an irrational belief in fate, not an irrational belief that playing the lottery is a good idea. I played the long odds that I was meant to win the lottery. It wasn’t in the stars.
Lotteries can be traced back to the Han Dynasty (~200 B.C.). While it may seem like the government recently stole the whole concept of the lottery from organized crime, a lottery actually helped fund the American Revolution.
Many critics call the lottery a “regressive tax” because a disproportionate amount of the revenue generated comes from the poor. It’s funnier, and probably even more true, to call it a “stupid tax.” If you must gamble, you’d have to look hard to find worse odds. Of course it isn’t a tax at all – playing the lottery is voluntary. I would call the lottery a failure of government to justify its policy prerogatives.
A lottery is a mechanism for raising revenue without directly raising taxes. In some states, a lottery provides a mechanism to support programs that the public couldn’t otherwise be convinced to support. In others, it’s a shell game. Lotteries are used to fund programs with broad public support so the funds that should be supporting those programs can be shifted to projects that are not public priorities. The latter is the case in Illinois.
In Illinois our schools are our justification for our lottery. Because the wealthy and the powerful want their kids to learn in palaces, we fund our schools at the local level through property taxes so they can keep revenues local.
Instead of honoring the Illinois Constitution which says the state has the primary responsibility for financing the system of public education, we insist on keeping the funding local. Instead of insisting that students across Illinois have a roughly equal educational experience, the powerful are protected and the poor are given lottery based school funding. The result: Illinois has one of the nation’s largest gaps, in both funding and achievement, between rich and poor public schools.
Governor Blagojevich, looking for another short term fix that will pass our states fiscal problems on to future administrations, wants desperately to sell or lease the Illinois lottery system for a short term pool of cash to balance the budget. This will lead to a smaller percentage of revenues going to fund state programs and likely an overall expansion of Illinois lottery operations. While this could fill a short term budget hole, the policy is a disaster, and a poor substitute for either further cutting spending or modestly increasing taxes.
If I were dictator of the world, I would abolish the lottery. Instead, I’ll make one modest reform proposal. If you take a short drive across Champaign to the other side of Bradley, and interview those who buy lotto tickets $20 at a time, you would likely find many welfare recipients in that $20 dollar club. I’ve met more than a few in my own blue-collar central Illinois town. It is particularly troubling when public funds are gambled/recommitted into lottery system. While I generally oppose tracking technology, I propose creating a state lottery registration card. Everyone who wants to play the Illinois lottery could be issued a card, and those receiving public benefits like food stamps, welfare, or social security disability payments, would have a cap on the amount per month they are permitted to spend on lottery tickets. This could also help curtail counterfeiting and ticket theft. I realize some will likely argue it is protecting people from themselves, but it’s also protecting public funds.
I look forward to your thoughts on this proposal.
Comment by illinikc33 on 12 February 2007 at 11:31 pm:
“If I were dictator of the world…”
Aren’t you?
Comment by kofi the you may poop today; you're welcome on 12 February 2007 at 11:43 pm:
I think this is interesting. If you receive aid funding, you can only use so much of that money for certain things. Brilliant idea, but why stop at lotteries. Cigarettes, alcohol, cable TV, sugar laden foods – many of these are greater wastes of money than lotteries. At least you can win a lottery.
It makes perfect sense. These are people who can’t take care of themselves. They need daddy government to regulate their lives and provide for their well being. A couple ground rules are perfectly reasonable. After all, “as long as you live under my roof…”
Brilliant. Absofuckinlutely brilliant. While we’re at it lets pass laws requiring me to go to bed before 11pm and awake before 7am. And how many times can I shit per day? Once? Twice? I was planning to jerk off tomorrow, is there a form I need to fill out?
You are kidding right? I acknowledge the abuse of government aid. I saw it cross my register for years processing WIC and food stamp orders. The solution to abuse of aid isn’t spending more money to regulate the aid; it’s spending less money so that the aid they get can’t be abused.
Comment by Augur on 12 February 2007 at 11:58 pm:
Democrats are in charge of Illinois Kofi, state level entitlements aren’t going to see cuts. I’m dealing in the realm of the practical, you’re in the realm of some kind of snarky political fantasyland.
I do think there is a distinction between regulating gambling on lotterys (which some states prohibit altogether) and that which rests at the far end of your slippery slope.
Comment by Brandon on 13 February 2007 at 7:53 am:
I feel a little slimy once again because I’m sort of agreeing with Kofi. See I did a lot of research on humanitarian aid while in undergrad and the findings of most of those studies showed that the most effective way to combat hunger and deprivation was to just give people cash and let them spend it. The programs that just gave people food were infinitely less effective because the food was usually flown in from the United States (good ‘ol USDA subsidies) whereas the people with cash would generate a market opportunity for producers in other regions/countries and suddenly they’d find themselves with a glut of food.
I’m not a die hard free marketer, but I think the lesson of aid in Africa extends to aid here at home to the extent that trying to force people to do a certain thing with the money you’ve given them, attaching strings, either won’t work or will piss people off (which is always a fun thing). Hell honestly if people prioritize that badly and spend $20 a week on lotto tickets, let them. It’s like my neighbors when I was a kid, they didn’t have money for anything, but they had cable because it was the one luxury they were willing to scrimp for and it made them feel like they had a piece of middle class lifestyle.
Comment by Augur on 13 February 2007 at 8:58 am:
Brandon:
I’m not saying don’t allow them to play at all, but cap it if the money they are spending comes from welfare. If I could get you and Kofi to think of this as a modest welfare reform, maybe I’d come closer to winning you over. If they weren’t dumping money into an inefficient lottery system, they would have more resources to “generate a market opportunity.”
What do you think of my assertion that a lottery is a way for the government to get added funds so they can support programs they couldn’t otherwise convince the public to support?
Comment by Brian on 13 February 2007 at 9:54 am:
Augur,
Don’t let these guys force you to compromise your principles! Masturbation regulation NOW! Stay strong!
Comment by illinikc33 on 13 February 2007 at 11:13 am:
I don’t get it guys. I mean I know nothing about economics or sociology, but these people are on welfare because they don’t have enough money to live, right?
I don’t really see a problem with restricting the $ they are GIVEN by the gov’t to those things that are necessary; i.e. food, clothing, housing, heating bills, etc. If they have enough left over to buy a lotto ticket, some MGD, or those new Air Jordan’s for Jr., that’s fine. I just don’t see what’s so absolutely horrible about the gov’t making sure the $ they are giving out to help these people keep a certain quality of life actually serves its purpose. If they get pissed off, take the money away and see how they feel then.
I’d assume most on welfare haven’t the slightest clue about how to effectively manage their money, whether it be gov’t money or their own. I’d think they would need the help anyway.
I have a problem with the whole welfare system anyway, but that’s for another day.
What am I missing here?
(tet, please no “gov’t is bad post; we’ve all heard that ad nauseam :)
Comment by kofi the can i have an advance on my allowance - please? on 13 February 2007 at 11:36 am:
My point was simply that if some have enough money to buy lottery tickets, we’re obviously giving those lottery players too much money. Rather than begin regulating what people can spend their money on, give them less money so that they can not waste it. Does no one else see the slippery slope? First we’re regulating welfare checks. They’re we’re regulating tax refunds. Before long I’m getting a weekly allowance from my nanny state.
Comment by Brandon on 13 February 2007 at 11:46 am:
Augur
Now I’m not going to poke around to find the exact numbers because I’m doing homework and don’t really feel like doing extra research atm, but I’m going to venture a guess that the number of your chronic lotto-playing “welfare moms” is miniscule at best. Most people I’ve known on welfare use it for what it’s intended – food, rent, their kids. That said, welfare fraud is also miniscule (I think the last number I saw was like 1-2%) and if we could get corporations to avoid their taxes at that rate we’d all be dancing in our nanny state money till the sun goes down :-D
Comment by illinikc33 on 13 February 2007 at 11:47 am:
I’m all for decreasing welfare $$, but still how will we know if it’s going to food for the kids or for Smirnoff and Scratch-N-Wins for Mom and Dad’s habits?
I did think of the tax refund argument before posting, but I believe that’s entirely different. Tax refunds aren’t gov’t handouts; they’re pretty much just giving back money because we paid them more than the ~30% that they take from us.
Even if you see this as a handout, they are just giving us back our $$ that they took in the first place, not giving us money on top of what we earned.
I’m all for welfare if it actually works to reduce poverty, but the way it seems to be going isn’t working.
Comment by Brandon on 13 February 2007 at 12:35 pm:
I’m saying that if the wealthy and corporations paid their taxes at the same rate the people defraud welfare we’d have quite a bit more money to nanny people with ;-). It has nothing to do with tax returns.
Comment by J. Prescott on 13 February 2007 at 12:41 pm:
People gamble. A lot. Especially if you are poor. A life of riches and being well of for a mere $5, $10, or $20? No problem. But if people are going to gamble, then better it be with a government organization than with an outside source.
Which is what we had before the first state lottery in NH in 1964. The numbers racket, which was the lottery’s precursor, often proved to be the most reliable source of income for the American Mafia and it wasn’t just because of the demand. Bosses like Dutch Schultz figured out a multitude of means to cheat the public and make sure the house always won. By instituting lotteries, states didn’t just obtain a new source of funds ($800 million in revenues for the state of Illinois in 2005), they also provide a safe means to gamble without a person being unduly taken advantage of and gives the players at least a chance to win.
So I think the better argument for lotteries isn’t the money, as lotteries only account for approximately 3% of state revenues (2005). Lotteries provide a safe, regulated means of gambling for those that must. Increasing regulations on these devices will make these people go elsewhere, and utilize less legitimate means to satisfy their gambling urge.
Comment by tet on 13 February 2007 at 1:12 pm:
Well, I’m now warmly and safely esconced at home in front of my computer. I’ve been thinking about this since last night when Augur interrupted my viewing of Heroes to ask me about this in the first place.
Let me go on record here to say that I hate regressive taxes as much as I hate progressive ones. In this case the former punished the stupid and in the latter, the intelligent. Bad idea both ways.
I think that what Augur meant by “Welfare recipient” is “person who is too stupid to realize that their kids aren’t going to eat because they spent too much money on lottery tickets”.
There may be an engineering solution to this problem that doesn’t involve moral decisions about welfare, increasing the bureaucracy of the lottery agencies *or* acting as the nanny-state.
We can divide the population that plays the lottery into four groups:
1) The gambling addict–this group spans the entire economic spectrum, since it has more to do with how the norepinephrin circuits in the brain are wired than intelligence.
2) The casual player, who buys a ticket when they fill up with gas or get into a pool with the guys at work. Their ticket purchases are not enough to put a dent in their income.
3) The smart player, who invests in the Powerball when the payout exceeds the mathematical odds of winning.
4) The stupid player, who believes that a large investment in the lottery will result in an easy way to get millions of dollars without honest work.
The people that you seem to feel are being exploited in particular, Augur, are the ones in the first and fourth category.
As a non-practicing alcoholic, I can tell you that nothing that you do is going to save the folks in group 1. If you institute ticket purchase tracking, they’ll outsmart it by having all of their friends and acquaintances purchase the tracked tickets and giving them to the addict. I expect that they’ll congratulate themselves on their cleverness.
So, what it comes down to is an attempt to protect the stupid from themselves, right?
Since I am opposed to taxation, I’ll solve your problem for you. Obviously, if the fourth group is a large contributor to the lottery and you want to limit them, you don’t mind the lost revenue from their tickets that would remain unsold, am I right?
This reduces the solution to one simple method:
INCREASE THE PAYOUT PERCENTAGE
Currently, the return on purchased tickets for the Illinois lottery varies from 36% for the Lotto to 50% for the Pick 3 game.
By comparison, the average return on slot machines is set anywhere from 78% in Las Vegas to 83% in New Jersy by software at manufacture.
Let’s say that the State of Illinois changes the nature of the prizes for the games to increase the payout to 75%. What would be the overall affect of such a move?
First of all, the revenue would drop by a considerable amount, depending on how the four groups are distributed in population.
[Some of the anti-gambling sources put the fourth group numbers as high as 70%. Obviously, they've got a bias, but considering that half the population has an intelligence below average, I'd feel safe at calling it 50%.]
The gambling addicts would not have their behavior changed at all, since their decision to bet is based on chemicals, rather than a rational decision. They would receive more money, which, if not immediately put BACK into gambling could benefit them and their families.
The casual players would receive a larger payout, but it would not really make much difference, since they are just playing as a lark, rather than for a payout. They may consider themselves luckier.
The smart players will actually play MORE, since it will be easier for them to get to their “time to play” odds or better on the Lotto.
The stupid won’t change their habits at all, (because they do not connect their wins or losses with mathematics) but they will be punished less. For every dollar they put in, they’d get 75% back, greatly reducing the social cost to their families.
How can you pay for this drop in revenue? Currently, of the money generated by the Lottery system in most states, 60% goes to pay salaries of the officials, business expenses and advertising. If the payout percentages increase, word of mouth could possibly replace the need for much of the advertising.
In any case, the State could set the payout percentage to be the maximum that it could afford, which, if Prescott is right, would be quite a bit.
Tom
Comment by Augur on 13 February 2007 at 1:48 pm:
Augur called BEFORE your precious Heroes. I’ve got to run to a meeting, but I’ll read the rest and reply late today.
Comment by Allan Niemerg on 14 February 2007 at 5:12 pm:
Despite what this article suggests, playing the lottery isn’t completely irrational. While it is true that a lottery ticket has an expected value (payoff * odds) of less than the purchase price, the expected value is not a very good way to value lottery tickets. Lottery tickets are entertainment and people derive considerable enjoyment from purchasing them. Most people (even most poor!) purchase lottery tickets to enjoy the fantasy of winning it big, and not from some expectation that they will, in fact, win. Moreover, even the most poor and ignorant understand (or quickly come to understand) that lottery tickets are not a quick way to riches. While it is true that some people become addicted to gambling, there is no reason to believe that the poor are more likely to be addicts. Instead, the large numbers of poor players suggests that the poor are more likely to value the entertainment value of hoping to “hit it big.” This is likely a consequence of the fact that the poor are likely to have diminished opportunities to achieve wealth through other means, and therefore place a higher value on long-shot wins. To dismiss that subjective value as “stupid” is a failure to understand the true motivations of lottery players. Thus, I don’t buy the argument that playing the lottery is irrational because the value of a lottery ticket is highly subjective.
If the lottery is a tax, it would be difficult to create a less-awful tax. The lottery is completely voluntary, with each person choosing whether to contribute and the amount of the contribution. Furthermore, it is a welfare-enhancing tax because no one would buy the tickets if they didn’t feel at least a little better off. As you point out, the lottery is a fantastic way to raise revenues without raising taxes. Absent hard data that a large amount of the poor are injuring themselves through the purchase of lottery tickets, the disproportionate amount of purchase by the poor is not that alarming. As I said, such purchases indicate a difference of values and are not an indication of widespread stupidity.
Nevertheless, the State should get out of the lottery business. If lotteries are worth having, then having a single government owned lottery is the worst method. By excluding competing sources of gambling, the state earns monopoly rents on the gambling to the detriment of those who gamble. These rents are the difference between the cost of the ticket and the expected value of the ticket. Let’s take as an example the MegaMillions game. The payout is currently 130 million with a 1 in 175,711,536 chance of winning the jackpot. Thus the expected value of a ticket is $0.74. (This is not accurate because of the various payouts and prizes, but it’s close.) Since a ticket costs practically nothing to make, at $1 per ticket, the state pulls in $0.26. At this size of jackpot, the estimated number of tickets sold is around 24 million, so for each round the states involved make $6 million. However, if there were two or three lottery ticket agencies, each agency could increase its revenues by lowering its price and the corresponding income of both agencies. (The state could also take a huge cut.) However, the benefits would go to the ticket buyers, who instead of paying $1.00 on a ticket with an expected value of $0.74 might pay $0.90 per ticket. (This would be a huge difference on the low prize payout tickets.) Now, if you don’t really care about the welfare of the ticket buyers, then you won’t find this argument persuasive, but it is arguably a better idea than trying to micromanage welfare checks.
Some quick notes to finish this off.
Even though I think the lottery shouldn’t be owned by the state (mostly for reasons not mentioned here), I don’t like the proposals to sell it. I agree that lotteries are a shell game to shift money to things the public doesn’t support. Because it was mentioned, I agree that property taxes distort school funding. Moreover, they create a sort of default school voucher system where the mobile rich can self-select to districts with “palaces” and leave the poor and lower middle class to fend for themselves.
Comment by tet on 14 February 2007 at 5:20 pm:
Actually, Allan, if you add up the printing, advertising and administrative costs, that ticket that sells for $1 costs more like 30 cents. Add that to the payout and the state gets about 25 cents for every dollar ticket sold.
Tom