Powerball Frenzy is Just a Distraction

Money is fungible and lotteries simply supplant other funding

The run up to last Wednesday's Powerball drawing garnered more media attention than the Donald Trump campaign, with hopeful ticket buyers in the multi-state lottery vying for a prize that hit an astounding $1.5 billion. But despite the good news for a handful of winners—and the convenience store owners who sold the winning tickets—lottery fever means little to most people and offers little boost to the economy.

The last time I bought a lottery ticket was in the early 1980s, when I lived in a dicey neighborhood in Washington, D.C. The line outside the convenience store where the tickets were sold was filled with down-on-their-luck folks. It's obvious that lotteries offer horrific odds, even by modern gambling standards. It's all about dreams—and tax revenues. And some criticize it as a regressive, albeit voluntary, tax on those not too worried about the odds.

Powerball ticket buyers have a one in 292 million chance of winning. As Forbes pointed out, one is far more likely to be declared a saint by the Roman Catholic Church, become an astronaut or be hit by a meteor than hit a jackpot. Those scratchers and other tickets have better odds than the Powerball but, obviously, a much smaller payout. Yet state lotteries spend millions annually convincing people that they are just a ticket away from wealth and happiness.

Lotteries certainly aren't the only businesses that promote such buncombe. But as government-run enterprises, it's no surprise the biggest winners are government agencies, as many critics have noted. Powerball winners will pay more than half of their earnings in various taxes. The losing ticket buyers fund the lottery systems and state budgets. It's all supposed to be a good thing because, well, this is a voluntary tax to boost funding for public education.

In California, the public school system gets a little more than $1 billion a year from lottery proceeds, which is a tad over 1 percent of the budget. Research suggests lottery revenues supplant existing spending. Money is fungible, so the education element mainly is a public-relations ploy to help people feel good about the dollars they spend on tickets.

"The popularity of lotteries and legalized gambling is based in part on their claim to painlessly provide additional revenue to needed state functions," according to a study by Donald Miller and Patrick Pierce of St. Mary's College in Colorado. "The most popular purpose to which these revenues have been devoted is education. However, we have demonstrated that these are false promises for education. States are likely to decrease their growth of spending for education upon operating a lottery designated for that purpose."

Ironically, even advocates for more school spending, such as labor and education groups, are troubled by the misperception that lotteries provide so much education funding. "(T)he misperception about the lottery and education funding may play a role in shaping the 2016 campaign by Democrats, labor and healthcare groups to help schools and other services by extending soon-to-expire income tax rates on the most wealthy," reported the Los Angeles Times.

Unfortunately, the lottery bonanza only reinforces the current debate about schooling, which focuses almost solely on funding issues—and largely ignores reform matters that could arguably do far more to improve educational results.

The poor odds and dubious spending claims by lottery proponents seem to get a pass. After all, California legislators have used similar arguments to ban online poker operations and clamp down on fantasy sports enterprises, but not for the lottery. Conservative writer Michelle Malkin made a good point when she argued that not only does the government crack down on competitive gambling enterprises, but the feds closely monitor corporate advertising practices—while protecting state-run lotteries that promote dubious claims targeted to lower-income consumers. She wonders why they get a pass at allegedly "predatory behavior."

California officials have pointed to scandals in those other gambling industries to justify bans or limits. Yet Powerball has faced its own scandal. "Powerball sales have soared despite a scandal that rocked the organization that runs the game—a five-year-old investigation into jackpot fixing in one state that grew to include at least four others," reported the Seattle Times. If past scandals impugn online gambling, they should impugn these state-run lotteries, also.

My biggest problem with Powerball is it creates the impression that wealth primarily is created by luck rather than—as is usually, but not always the case—by starting businesses, investing carefully, spending a lifetime of hard work and careful planning. I have no moral problem with gambling, but at best it's a diversion, at worst a vice. There probably are bigger news events that ought to capture the public's imagination.

For instance, the Powerball drawing seemed to grab more attention than the ongoing stock-market plunge. This probably is harmless fun that provides vast riches to a tiny number of people and bolsters state coffers with voluntary revenue. But I wish Californians were spending more time discussing ways to jump start the economy.