Bombs Away on Internet Gambling
by Michael S. Rozeff
by Michael S. Rozeff
The House this week dropped a bomb on internet gambling when it passed The Internet Gambling Prohibition and Enforcement Act (H.R. 4411.). The legislation prevents Americans from gambling online. The stock market believes that the legislation has teeth. Stocks of overseas companies that offer internet gambling fell drastically, losing 58-76 percent of their market value in one day. They fell further the next day. Billions of dollars of investor wealth were wiped out by the House.
Gambling is like a vast number of other goods and services that people spend their money on. It's no better and no worse. It's what many people like to do and want to do. They see a benefit and they indulge. What's the problem?
The fact that a small percentage of people go nuts over gambling and lose their shirts is no reason to prevent everyone else from gambling. A person can harm himself or his bank account doing a huge number of things: relaxing, vacationing, playing the stock market, driving fast, running, hunting, drinking, eating, swearing, smoking, making love, typing, reading, swimming, mountain climbing, taking drugs, and even working. How many online games are there such as World of Warcraft? Are they also a problem?
One can form a habit, one can be addicted to almost anything. When people can't handle an activity, others notice. They try to help. There are organizations such as AA and Gamblers Anonymous. There is an On-Line Gamers Anonymous. For personal problems, do we actually need an Act of Congress? We should all be forced to stop eating peanuts because some people are allergic to peanuts or eat too many?
We don't need Congress to ban everyone from buying a good like gambling or marijuana because some people have problems. Where does that get us? The demand for the good doesn't go away. It's forced to go underground. Usually illegal enterprises arise. More innocent people get into trouble with the law or sent to jail. Lives are broken and bent. More criminals are handed profitable businesses. We've been through prohibition of alcohol. Taxes are so high on cigarettes that we're getting smuggling of tobacco products. We've imprisoned hundreds of thousands of innocent people in a futile war on drugs.
How dumb can Congress get? Pretty dumb. But Congress is not that dumb. Congress slickly made sure it left internet betting on horse racing alone. It didn't touch lotteries or domestic casinos. It effectively protected certain forms of domestic gambling while outlawing others forms and foreign competition. Professional football, basketball, and baseball all supported the legislation. The NFL Fantasy game isn't touched. So what really is the agenda? Looks like some old friends: votes, money, and power. Under "power" I classify all those who sincerely believe in legislating morality as they see it.
Jim Leach's attack on gambling
Jim Leach (R-IA) was point man for the legislation. He has said "There is nothing in Internet gambling that adds to the GDP or makes America more competitive in the world." What a revealing argument this is. The be-all and end-all of living in America is to enhance the GDP, that's the Gross Domestic Product. This is what promoting the general welfare means to Mr. Leach and other Congressmen. We work and live for a number, a macroeconomic number. Socrates now has his answer. The "good" is a higher GDP. Why didn't he or Plato think of that?
The GDP includes government spending. So if government spending goes up by $100 billion while personal consumption falls by $100 billion, we do not worry. We have just as much "good" as if we spent the money ourselves. How happy we all are as the government shoots our money into outer space or into Iraqis. The GDP counts exports minus imports. The more we export compared to imports, the happier we are according to Mr. Leach and his ilk. We work to produce. We produce to export. The GDP goes up. We are all happy and well. Spending money on foreign goods is not good, however. That creates imports. These make us unhappy. Gambling with foreign companies does us no good, according to Mr. Leach. It does not add to the GDP. If this story makes any sense to you, then run for Congress.
Mr. Leach's good also includes working and living to make America more competitive. We live in order to work and produce in ever more productive ways such that American businesses gain market share. This is why we are born, go to state schools, learn trades, seek jobs, and work. It is to be able to undersell the competition. Stay healthy so that the GDP will rise and America be strong and competitive. Don't overeat. Don't waste your time or money gambling. You should be busy inventing a new gizmo that adds to the GDP.
Here is another of Mr. Leach's arguments: "Unlike in brick-and-mortar casinos in the United States where legal protections for bettors exist and where there is some compensatory social benefit in jobs and tax revenues, Internet gambling sites principally yield only liabilities to America and to Americans." Ah-hah, the broken window fallacy once again. If we are going to gamble and be happy gambling without a casino, then why not gamble efficiently without wasting resources on casinos? Mr. Leach would have us build casinos when we don't want them. It's good for the GDP, and what's good for the GDP is good for America. Doesn't this make us less competitive? And does convenience count for nothing in GDP? Apparently not. Mr. Leach studied several years at the London School of Economics. He should have enrolled for a summer at Mises University.
Now he rolls out the big guns: "It cannot be stressed enough that from a macro-economic perspective, there are no social benefits for Internet gambling, and from a micro-family perspective enormous harm is frequently inflicted." Mr. Leach gets an F for economics. Gambling is an act of consumption. The gambler gains just as surely as a movie-goer gains. After the movie, the viewer has a memory, an experience, perhaps learns something, and has less money. How different is it for the gambler? Sometimes gamblers actually get money back. An exchange has occurred between the bettor and the casino. Both sides expect gains. As long as the gambling industry persists and people keep gambling, we can be fully assured that there are social benefits from gambling. They are the "aggregate" of personal benefits. This is not a measurable aggregate whatsoever, but we can be quite sure that most repeat gamblers are gambling because it brings them satisfactions or gains of some sort.
Congressmen love misery and miserable people. They love dramatic stories of misery, failure, disaster, and tragedy. This is what scientists call anecdotal evidence. It's dramatic but also biased. It says nothing about the general welfare except when Congressmen assert that the tragic specimen testifying before Congress is a typical case that can be multiplied indefinitely. Something obviously must be done. No, folks, we are not staging this for our own benefit. Your neighbor is an addict. You may be an addict and not know it. You need our help. We will remove the temptation.
To say "enormous harm is frequently inflicted" by gambling is to use the passive tense. Lightning has struck a family. A flood has occurred. Gambling strikes like a thief in the night. The gambler had nothing to do with it, this language suggests. He was in no way responsible. This affliction, this addiction, was visited upon him and wrecked his life and his family's. Nice going, Mr. Leach. More votes are headed your way, but have you said anything sensible? Have you made true statements or erroneous and misleading statements?
I really do not mean to pick on Jim Leach. He just happens to have been a major voice favoring this legislation. His statements are easy to find on the internet. Bill Frist, the Senate Majority Leader said much the same: "Gambling is a serious addiction that undermines the family, dashes dreams and frays the fabric of society."
Religion and gambling
Mr. Leach also brought in the religious element when he said this: "The reason the religious community has come together is that they are concerned for the unity of the American family... Religious leaders of all denominations and faiths are seeing gambling difficulties erode family values." Separating church and state is a practical impossibility when people are elected and given power who have strong religious beliefs. The ACLU keeps barking up the wrong tree in its efforts to secularize the state by legal means. Ending the state would be easier and solve the problem. Politicians often run for office and gather votes on the basis of signals about their religions and religious beliefs. The U.S. has no official state religion, but that doesn't mean that religion lacks influence on politics. Everyone knows that it does.
Did the Christian conservatives get their way on this bill? It seems they did although Mr. Leach is referring to all denominations. Actually, there is some evidence that Christian conservatives did get their way. The gambling bill had 34 voting co-sponsors in the House of Representatives. Co-sponsors are willing to take credit for the legislation as their own. Of these 6 are Catholic. In voting for the gambling ban, they voted against the position of their church. The Catholic church does not regard gambling as a sin, except under certain conditions that do not generally hold. One co-sponsor is Jewish, and the Jewish religious denominations seem to have no strong or consistent anti-gambling position. The remaining 27 representatives are Protestants and Christians or both, and their varying churches either have quite strong positions against gambling or at least lean in that direction with a few (such as Episcopalian) indecisive on the matter. For example, 5 of the 27 are Methodist. The Methodist position is this: "Gambling is a menace to society, deadly to the best interests of moral, social, economic, and spiritual life, and destructive of good government." Another 5 are Baptist. The Southern Baptists have lobbied against gambling for years. There are 3 Presbyterians; their church is officially against gambling. There are 3 Lutherans; their church tends to be against gambling. Another 7 are of various Christian denominations that also tend to be against gambling.
Among the co-sponsors of the anti-gambling bill, there is a preponderance of representatives who belong to churches that frown upon gambling. Since Jews and Catholics make up about 36% of Congress but only 20% of the co-sponsors of the bill, the anti-gambling religions are indeed over-represented among the bill's co-sponsors.
This doesn't bother me. You can't spite a man or woman for being religious or even voting their consciences as influenced by their religious beliefs. The problem is not religion. It's power.
The good and the powerful
Let us not libel any of these outstanding citizens who are in Congress by suggesting that they did anything underhanded. Let us know these men and women who represent us and make our laws. Let us know them for the most part as fine and upstanding Americans. I can say the same for millions upon millions of ordinary Americans who have not been elected to political office and do not have the community associations that Congressmen typically have. Excluding their desire to be lawmakers and exercise power over us, a desire which does set them apart, I am willing to assume that our Congressmen are not better than we are who dwell in the rank-and-file. I am also willing to say that they are not worse.
Go and read the biographies of the sponsors of H.R. 4411. Assume that their records are as spotless as they can be and as their official biographies suggest. We will be mistaken to think of them as evil people. Take, for example, Congressman Todd Akin (R-MO), engineer, veteran, father of six children. "Today, Todd continues to write and lecture on the principles of America's Founding and Heritage. He is active in the Boy Scouts for America, a leader in his church, a former board member of Missouri Right to Life, and sits on the board of the Mission Gate Prison Ministry."
One among the 34 co-sponsors I knew as a friend many years ago and for several years: Thomas (Tim) Petri (R-WI). I will personally vouch for his integrity, but he needs no vouching for by me. I remember when he and several others (excluding me) formed the centrist Republican Ripon Society. Petri is a stalwart against government waste. "A persistent foe of government waste, Petri has repeatedly earned high marks from such organizations as the National Taxpayers Union, the Concord Coalition, Citizens Against Government Waste, and the Watchdogs of the Treasury."
We could go on and on. Our representatives may not be saints, but they are by no means devils. As people, they are in fact like many of us. And are we not mostly good people? We could go on and on about these outstanding people who represent us. They believe that what they are doing is right. This is only natural. They have sought their posts to do good, and they would be remiss in their duties if they did not do good as they see the good. How then can evil come out of such a plethora of wonderful biographies, educations, and intentions?
In a word: power. If each and every one of these ladies and gentlemen brought a soapbox to Hyde Park and regaled us with colorful rhetoric to persuade us that we should put gambling out of our hearts and minds, they would be as harmless as hummingbirds though not as enchanting. Arm them with the power to rule over us and they become terrifying pterodactyls, winged lizards swooping down whenever and wherever they please to prey on us.
If I favored bans, I would not have to look far. If there is a sin that should be banned, it is politics, for politics, I repeat, is evil. If there is a fix that overheats the brain, it is the fix of power. When a Congressman votes, undoubtedly a brain center lights up, probably the same one involved in other addictions. If there is an addiction that creates a most dangerous craving, it is the lust for power, not the hungers for cocaine, nicotine, caffeine, running, writing, gambling, alcohol, or Big Macs. Here is a lust that generates no guilt and no bad conscience. The very opposite! What better way to feel smug and satisfied, than having passed a law against one's favorite sin? What better method than lawmaking to impose one's utopia on an unyielding mankind?
The countless lobbies against everything from Nyquil to white bread invariably recruit a consultant who comes before Congress and testifies to the horrendous social costs of their favorite whipping boy. Meanwhile Congress blithely imposes incalculable costs as it swings its wrecking balls hither and yon. A Congressman can go to his grave satisfied of having done his duty before God and man.
Is power addictive? It would not be surprising if it were. One fix leads to another. So many other evils need to be stamped out beyond gambling. What else are our Congressmen intent on fixing by hook and by crook? By voice vote, they just reauthorized sanctions against Iran and openly legislated their backing for overthrowing Iran's present government. Bombs away on internet gambling. Bombs away on Iraq. Bombs away on Lebanon. Bombs away on Iran.
Out of power, Lenin could write pamphlets and agitate. In power, he could and did murder mercilessly. The differences between our rulers and Lenin are less one of kind than of degree. Give them time and there will be no differences.
October 5, 2006
Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.
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