Lottery Laws and Public Benefits

In an era of increasing inequality and limited social mobility, lotteries dangle the promise that somebody is going to win big. It’s a cynical marketing strategy, to say the least, but it works. The ubiquity of billboards for Powerball and Mega Millions makes clear that people are attracted to the chance to get rich, even though odds are extremely long. But the lottery is a lot more than that. It’s a way for states to raise money without imposing onerous taxes on the middle and working classes. In the immediate post-World War II period, that arrangement worked just fine, but the system is slowly coming unhinged as the economy and war costs have exploded. It’s no longer feasible to expand state services without putting a substantial burden on the working class, so governments have turned to the lottery as a source of revenue.

In fact, since New Hampshire started the modern era of state lotteries in 1964, most states have adopted them, and they continue to grow. They legislate a monopoly for themselves; establish a state agency or public corporation to run them; start operations with a modest number of relatively simple games; and, as demand and pressure to raise revenues increase, progressively add games and increase the size of prizes.

The principal argument used to justify a state lottery is that it will benefit a specific public good, usually education. This argument is especially persuasive in times of economic stress, when the prospect of tax increases or cuts to government spending can arouse anxiety among voters. But it has also worked when the state’s fiscal health is strong, as Clotfelter and Cook point out.

Once the lottery has been established, debates and criticism change from the general desirability of the venture to more detailed features of its operations: the problem of compulsive gamblers; alleged regressivity in the distribution of winnings to low-income groups; and so on. These are important questions, but they miss the bigger picture: Lotteries have a powerful cultural force that draws people in with the lurid promise of an instant fortune, and they then exploit their addiction to irrational gambling behavior for state-subsidized profits.

A large percentage of the prizes are given to winning ticket holders, and a smaller fraction is taken as costs and profit. But the real money comes from a much larger pool of customers, including convenience store operators (the primary lottery vendors), suppliers (heavy contributions to state political campaigns are widely reported); teachers (in states where lotteries are earmarked for them); and, of course, state legislators, who quickly become accustomed to the extra cash. These groups form extensive, specific constituencies that help keep the lottery in business. They have the power to make or break its future, and they will probably do so despite any legitimate concerns about the lottery’s long-term viability.