Wagers of Sin

The not-so-secret agenda of America's anti-gambling guru

Robert Detlefsen from the December 1997 issue

(Page 3 of 3)

Of course, Goodman is not content to depict gambling as just another socially useless investment strategy. Gambling is worse than the others because it takes a huge toll in "social costs." We learn, for example, that "the American Insurance Institute estimated that 40 percent of all white-collar crime had its roots in gambling"--an item subsequently repeated in The Economist. Trouble is, there is no such organization as the "American Insurance Institute." Goodman's citation on the matter uncritically passes on a claim made in an obscure publication. As for the 40 percent figure, it cannot be taken seriously: U.C.-Irvine criminologist Paul Jesilow notes that to arrive at this datum, one would have to identify all white-collar crime--a nebulous category that includes everything from a worker stealing a pencil from his employer to insider stock trading and antitrust violations--and ask all the perpetrators why they did what they did.

Goodman's tendentious use of statistics is nowhere more evident than in The Luck Business's discussion of "problem gamblers," a group he says comprises "between 1.5 to 6.5 percent of the adult population." The notion that so-called problem gambling is sweeping the country as legal gambling becomes more accessible is perhaps the most potent weapon of those who deplore gambling's "social costs," which, says Goodman, include suicide, divorce, job loss, and the aforementioned "white-collar crime." But Goodman doesn't define "problem gambling" in The Luck Business.

In contrast to problem gambling, "pathological gambling" is a clinical term recognized by the American Psychiatric Association. Psychiatrist Richard J. Rosenthal defines it as "a progressive disorder characterized by a continuous or periodic loss of control over gambling; a preoccupation with gambling and with obtaining money with which to gamble; irrational thinking; and a continuation of the behavior despite adverse consequences." Recent studies estimate that between 1 percent and 3 percent of the U.S. population suffers from pathological gambling, though some psychiatrists argue that the South Oaks Gambling Screen--the questionnaire used to diagnose the condition--yields
results that are over-inclusive. Moreover, the estimate includes not only the currently afflicted but also those who suffered in the past and have since overcome their condition.

Goodman allows that he "can't define [problem gambling] precisely." Problem gamblers, he says, include pathological gamblers and others with "serious" behavioral problems related to gambling such as chasing losses and borrowing money they don't repay. "Whether you're a pathological or problem gambler," says Goodman, "depends on how extreme your behavior is."

A book written to educate and inform--written, that is, "to provide policymakers and the general public with a more accurate basis for making their decisions" (to quote from the preface to The Luck Business)--would take note of all this. Goodman, however, tells us nothing of the disagreements among psychiatrists over the diagnostic criteria and prevalence rates for pathological gambling. Throughout The Luck Business, he uses "problem gambling" as a synonym for "pathological gambling," attributing to problem gamblers the dysfunctional characteristics that psychiatrists associate solely with pathological gamblers. And by citing the higher problem gambling rate, Goodman invites the reader to conclude that pathological gambling is much more prevalent than it really is.

Goodman's tactic of blurring distinctions so as to cast commercial gambling in a negative light is by no means confined to his writings. Appearing last December on The News Hour with Jim Lehrer, Goodman was asked to comment on the fact that Americans, according to interviewer Margaret Warner, "are wagering tremendous amounts of money, I think something like $480 billion wagered, more than they spend on spectator sports and music events and movies combined."

Here was a perfect opportunity to correct a common misconception about the economics of gambling. "Margaret," Goodman might have replied, "those numbers are apples and oranges. The amount of money wagered is many times greater than the amount of money lost (or spent). With casino games, between 85 and 95 percent of the money wagered is returned to bettors in the form of winnings. The wager figure is so high because the bettor's money is used many times. A gambler with $50 to bet on slot machines, for example, could stretch that money over the course of an entire day. By the time he was eventually cleaned out, he may have wagered more than $500. But he's only spent $50 out of his own pocket."

Instead, Goodman's response was to claim that the situation is considerably worse than Warner's numbers indicate, because "what we're getting, essentially, is a small group of people in this country wagering huge amounts of money, getting in trouble over their gambling, or wind [sic] up writing bad checks, going bankrupt, committing fraud, embezzling money from where they work."

To challenge the notion that casinos inject cash into local economies by encouraging people to increase their personal spending, Goodman invokes an iron-clad version of the "substitution effect," which holds that the money consumers spend on newly available goods and services represents money withheld from pre-existing businesses. For Goodman, a dollar spent in a new casino must come at the expense of some other establishment. Though plausible, this is not necessarily the case: Consumers can alter their work and spending habits and new forms of entertainment can coexist with, and need not supplant, existing options.

In any case, worrying that consumers might decide to visit casinos in preference to non-casino hotels and restaurants smacks of little more than a desire to selectively protect certain businesses from would-be competitors. Isn't it true that every dollar spent on food served in restaurants is a dollar not spent on food sold at retail grocery stores? If we are willing to protect restaurants from competition with casinos, shouldn't we consider protecting grocery stores from competition with restaurants? Goodman's analysis raises such questions, but instead of confronting them directly, he breezily dismisses those who "maintain that the free market, not government, should dictate which businesses succeed and which fail." The criteria for selecting government's favored businesses are never spelled out.

What is more, Goodman's invocation of the substitution effect characteristically ignores the interest of the individual consumer. Economists Reuven and Gabrielle Brenner have noted that when people divert money from an established business with which they previously traded to a new competitor, they are expressing their judgment that the new product is more valuable to them than the old one. For government to deprive consumers of the opportunity to transfer their purchasing power in this way is to perpetrate an injustice against them. Dwelling on the effect of "substitution" on businesses, the Brenners point out, ignores the gain to society that comes from fulfilling consumers' wishes.

In the concluding chapter of The Luck Business, Goodman returns to the canard that all gambling enterprises--not just lotteries, but private gambling operations as well--are subsidized by state governments. "Gambling," asserts Goodman, has been adopted by the states "as a kind of ad hoc industrial policy." As an alternative to government support for this "parasitic economic activity," Goodman argues for an expanded industrial policy that would favor "productive enterprises." Since he furnishes no criteria by which we might distinguish the parasitic from the productive, we may surmise that by "productive" Goodman means those enterprises that produce things of which he approves. Calling an industry "parasitic" tells us nothing more than that the person using the epithet doesn't like that industry.

As the Brenners point out, "the truth is that the gambling industry is like any other entertainment industry. It uses hotels, machines, computers, video equipment, croupiers, and what not; new games as well as technologies for selling the games are being invented. There is no difference between this industry and, let us say, that linked with the production of operas, plays, or ballets--instead of hotels, theaters and concert halls are being built." What happens, the Brenners ask, when government restricts people's entertainment choices? "They either go elsewhere to spend their money, or they have less incentive to work."

One can appreciate the profound disappointment that Goodman must have felt when, instead of leading to "more progressive forms of socialism," state lotteries during the 1980s and '90s paved the way for a new form of private enterprise--casino gambling. At times it seems that what most upsets Goodman is not that hapless gamblers are losing their money, but that increasingly their money is, as he remarked on The News Hour, "going into the pockets of the people who run the gambling companies....Now, essentially, what we've done is privatized a sector of our tax system." Lotteries may be a bad bet for gamblers--they typically return only about half of the money wagered--but at least the money bettors lose goes into the state's coffers.

It seems unlikely that Goodman will succeed in his effort to lay the groundwork for a comprehensive national industrial policy--and ultimately, the "community socialism" that he championed in earlier writings. But he has already done much to shape the current debate over legalized gambling. By focusing on "gambling's broken promises," Goodman has succeeded in transforming what should be a personal-freedom issue into
one dominated by macroeconomic considerations. Curiously enough, he has been assisted in this by casino executives, their lobbyists, and sympathetic politicians, who have proved quite eager to trumpet the economic benefits that gambling brings, but who have said little in defense of the proposition that tax-paying, law-abiding citizens have an inherent right to spend their time and money on pastimes that do no harm to others.

The economic effects of the different forms of legalized gambling, considered in various contexts and circumstances, are empirical questions that await the federal gambling commission. Even an objective study, however, runs the risk of becoming overly preoccupied with gambling's economic costs and benefits--which can be quantified--while ignoring the not-inconsiderable benefit that people derive simply from being free to spend their time and money as they wish. The greatest danger posed by the National Gambling Impact Study Commission, however, is that it will embrace Robert Goodman's tactic of using anti-gambling politics as a vehicle for further expanding the power and jurisdiction of the managerial state.

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