1	Ante Up: An Abbreviated History of Legalized Gambling in the United States Raymond Sauer Clemson University Mercatus Center Capitol Hill Campus May 6, 2003
2	We’re in a “Gambling Wave” 1965: Lotteries re-appear and now exist in 3/4 of the states 1980s: Casinos expand from NV to NJ to Midwest Riverboats 1990s: Indian Casinos become a multi-billion dollar sub-industry
3	Will the Current Wave Crash? Gambling in US has been episodic Prior episodes generated significant opposition & subsequent prohibition Well-organized opposition exists in the current wave, as before Does gambling sow seeds of its demise? Alternative: what does economics imply?
4	Economics & Tradeoffs Political Choices: some goods are more effectively provided by government Political institutions are built Demand for goods from competing groups Scarcity implies political tradeoffs since all constituents’ demands can’t be satisfied “Goods” can be interpreted to be the absence of costly actions: crime, drugs, prostitution, casinos Why does policy towards gambling change? Do the tradeoffs change over time?
5	The Political Tradeoff: A Perpetual Battle Between 2 Interest Groups The interest groups create the political tradeoff Some of the virtuous have long argued against gambling “…such is the corruption of mankind, that the mere hope of getting the riches of another man without doing anything for it, will engage men to run the hazard of being losers” Judgment of the Ministers (Boston), May 1699 Curtailment creates pockets of rent for those who can obtain rights to provide gambling opportunities
6	Gambling’s Peculiar Nature “Gambling enjoys a poor reputation, one that is somehow improved when sponsored by the state…..” R. Martin and B. Yandle, 1990 References to “casting of lots” in the Bible appear more favorable when priests are in charge
7	Lotteries in the "Old World" "Casting of lots" in the Bible Used to allocate land, jobs, families!! 1 Chronicles 25: "Young and old alike, teacher as well as student, cast lots for their duties" Tudor England Parliament resisted raising taxes Crown adopted lotteries to finance infrastructure
8	Lotteries in the New World Laissez Faire 1621-1720 Licensed Public & Private 1720-1833 Abolition I 1833-1860 Southern Lotteries 1865-1895 Abolition II 1895-1965 Modern Lotteries 1965-????
9	Casinos & Horse Racing California Casinos Gold Rush (Laissez Faire) 1848-1849 Licensed Gambling 1849-1855 Successive Restrictions 1855-1891 Nevada Casinos Legal but secondary to 1909 Ban Repealed 1931-present Horse Racing Commercialization Late 19^th C Abolition 1900-1909 Pari-mutuel Era 1933-present
10	Uses of Early American Lottery Funds Jamestown Settlement (1612-20) Colleges: Columbia, Dartmouth, Harvard, Princeton Public Works & Civil Defense Resale of houses, land, slaves Thomas Jefferson: “an article of property, insusceptible of division...is sometimes of so large a value that no purchaser can be found while the owner owes debts... The lottery here is a salutary instrument for it”
11	An Early Ticket
12	One With GW’s Signature
13	2 More Descriptive Tickets Link to jpg file (314kb) Local link for presentation
14	Lotteries & Finance in early 19^th C City Lottery Shops circa 1830 Baltimore 40 NYC 160 Philadelphia 200 Shops offered ‘std’ means of finance Example: S&M Allen & other firms began as lottery shops before moving into banking
15	Abolition I States outlawing lotteries 1833: PA, MA, NJ, ME, CT Constitutional Bans LA (1845); IL (1848); IN (1851), KS, MN, OR, & SC (1850) Lottery States in 1860: DE, MO, KY (court challenges to ban) The Friend, a Quaker publication & opponent of lotteries, expressed gratitude for a successful campaign Lotteries were common in 1830, gone by 1860? Why?
16	Southern Lotteries Lotteries resurfaced in the south during & after the civil war KY (1862) LA (1864) AL, GA (1866) MS (1867) Abolition II: By mid-1880s all but Louisiana’s had been repealed; LA Lottery died in 1895
17	The Modern Era: Hello! We’re Baack!
18	Horse Racing Fills a Void Racing once the province of the gentry Planters in VA, KY, SC would challenge each other and gamble among themselves Late 19^th C: Commercialization Bookmakers “serve” the public at permanent tracks such Churchill, Pimlico, Saratoga Note: legal lotteries were increasingly scarce
19	Racing: Ban & Boom! Opposition grew with business 1897-1908: bookmaking banned operating racetracks fell from 314 to 25 Only 3 racing states in 1909 A long pause….then boom! 10 states legalize pari-mutuel wagering in a single year………1933 1933 is the biggest “liberalization” of gambling law in US history
20	A Simple Economic Model Accounts For These Episodes Opponents & proponents are in an ongoing political contest Major changes in political tradeoffs occur when significant changes in gambling legislation occur Opponents demand restrictions This demand takes gambling out the free market & leads to state control of varying forms
21	Demand for Gambling A latent demand for risk-taking exists, particularly in young men Settled societies - not cowboys, sailors, or miners -worry more about raising children and gambling’s potential adverse effects Post gold rush migration quote: people from the east “brought their laws with them” Suppliers offer risk-taking opportunities for financial gain Ironically, when gambling is restricted below the free market level their political activity is increased
22	Basic Changes in the Tradeoffs Were early colonies hampered in power to tax & spend? Did significant improvements in American capital markets take place in early 19^th Century? Are states more likely to use alternative revenue sources in a budget crunch? Do higher tax burdens increase the political cost of increasing tax rates?
23	Changing Tradeoffs (1) Early American Lotteries Low Colonial powers of taxation High cost of taxing newly developing land Insufficient public investment from Crown Resort to lottery finance Increased governmental powers accompanied licensing & registration, early 18^th C
24	Changing Tradeoffs (2) Abolition I (early 19^th C) U.S. financial institution were transformed from an undeveloped state to the most sophisticated in the world (R. Sylla) Southern Lotteries (1865) & Pari-mutuels (1933) Severe budget crunches Abolition II? Strengthening of southern states; move to relatively efficient income taxation in early 20^th C
25	Are Modern Lotteries a Response to the Cost of Increased Tax Burdens?
26	Western State Lotteries & Proposition 13 (1978) Western States (CA especially) had higher dependence on property tax revenues Prop 13 was the California prop tax revolt spread to neighbors, all cutting property taxes No Western State had a lottery until 1981 CA, OR, WA, AZ, CO all Western States passed lottery legislation in the 1980s
27	Summary The contest over gambling restrictions is perpetual Opposition more successful when political costs of restricting gambling are reduced Gambling proponents are more successful when the costs of alternative funds is higher
28	Will the Third Wave Crash? This model says it is unlikely -- unless government revenue requirements are suddenly reduced What about Internet Gambling? -- Indian Casinos? Stay tuned for “Let It Ride”