View Single Post
  #1 (permalink)  
Old 05-10-2003, 08:52 PM
Louis Cypher Louis Cypher is offline
Five Star General
 
Join Date: Jul 2001
Posts: 27,140
Default Commentary On Bennett's Gambling: Better if he'd chased interns

By Martin Hutchinson
UPI Business and Economics Editor
From the Business & Economics Desk
Published 5/9/2003 4:28 PM


WASHINGTON, May 9 (UPI) -- William Bennett's confession last weekend that he'd blown $8 million over the last ten years in gambling seems to have been met largely by indifference, except by those opposed to Bennett on other grounds. After all, he didn't mention gambling in his "Book of Virtues."

Other "sins" would have got the media much more excited. Seducing interns would have allowed for endless sanctimonious denunciations of Bennett's morally superior attitude to the Clinton peccadilloes and, when this didn't sell -- as it wouldn't have oddly enough, people don't associate Republicans with sex -- coverage could have been spiced up with suggestive photos of the intern concerned and spicy details of her doubtless adventurous private life.

Financial transgressions -- say, insider trading in Enron Corp. stock -- would have been even more fun for the media, since they would have led to endless regurgitations of the other financial horrors of the last couple of years for which, rightly or wrongly, Republicans are to a large extent blamed.

But gambling -- where's the fun in that? Moralists don't really object to it any more -- how can they, when it is a major source of revenue for the majority of U.S. states? Unlike interns, it doesn't lead to good pictures. And it's difficult to denounce gambling in the media, because those funny people in the "red states" engage in it all the time (they engage in adultery, too, of course, but at least try to preserve a facade of deploring it.)

In reality the seriousness of Bennett's offense, as with adultery but not with financial dishonesty, depends very much on its size -- rampant uncontrollable promiscuity being a much more serious character flaw and, if carried out by a President, danger to the nation than an occasional discreet dalliance.

According to "Washington Monthly" Bennett's losses over a ten-year period totaled $8 million, including $625,000 in one 1999 night at the Las Vegas Resorts Bellagio casino. According to other news reports, $8 million represents the total amount gambled, in which case, as UPI's Joe-Bob Briggs cheerfully pointed out Thursday, the losses would have been only about $240,000.

The difference is very important. Bennett is a wealthy and successful man -- his "Book of Virtues" was a best seller, with a TV series spin-off. The suspected $240,000 in losses in 10 years would not be a huge amount for such a person -- $24,000 per annum, probably well under 10 percent of his earnings over the period, an amount he could well afford to lose. One might have a certain amount of distaste as to his off-duty activities, but one could hardly suppose that his family's well being would be affected, or his own financial integrity corrupted, by losses of that magnitude.

Eight-million over 10 years, on the other hand, is presumably a substantial chunk of even Bennett's income -- he never worked for Enron or on Wall Street, after all! Not only do such losses endanger his family's finances, but also individual bad nights of the $625,000 variety, in which he lost some substantial fraction of a year's income, must have been highly disruptive to his own behavior and to the well being of the Bennett household. Further, financial difficulties of this magnitude can lead to temptation by corrupters -- it is not clear whether his gambling was in full swing while he served as Secretary of Education in 1985-88, or as "Drug Czar" in 1989-90, but if it was, public policy was thereby endangered.

It's as if he drank -- at this level, losing such sums in a casino is equivalent to a violent drunken binge, and equally morally to blame.

Which of the two figures is true I leave to the judgment of history. I'm inclined to believe the Washington Monthly figure, if only because the $625,000 loss in one night seems fairly well attested, and such a loss is not compatible with losses over 10 years totaling only $250,000.

There is however a further issue here, and that is the economic effect of Americans' increasing addiction to casino gambling. There seems pretty good evidence that the amount of gambling in a society is not fixed, with only the division changing between illegal poker games and horse racing in traditional U.S. society, versus casinos and lotteries today, but that gambling itself has been greatly increased by the recent surge in opportunities for it.

At one level, many claim that the economic effect of increased gambling is more or less neutral. Gamblers lose, but have rationally expended their money in a new form of entertainment. Casinos win, but they are providing a service, and like any other segment of the leisure industry should expect to be remunerated for doing so. State budgets benefit, from the levies paid by casinos, and from lottery revenues.

It is the latter point that makes the spread of gambling so secretly attractive to the intelligentsia. While generally in favor of higher public spending, particularly on social objectives both in the U.S. and abroad, they have a natural aversion to seeing their own tax payments rise inexorably to pay for it all. State gambling revenues provide huge amounts of cash for the states, while affecting the intelligentsia minimally because (except for the occasional Bennett-like addict) they don't gamble. In that respect, state gambling revenues are a tax that is deeply regressive (because the poor tend to gamble more as a percentage of income), technically voluntary, and inversely correlated to intelligence. For a modestly wealthy intellectual, such a combination is hard to fault!

If this were the only problem, it would be easy to solve; balance gambling taxation with less regressive taxes in other directions, and you will have a fair tax system, which subsidizes the poor non-smoking, non-drinking non-gambler, the very person whom our Victorian ancestors would have wanted us to subsidize!

However, there are other problems. Gambling, whether in the state lottery or at a casino, is intrinsically an irrational economic activity, because the expected monetary outcome is negative. Not only are gamblers not exhibiting a normal, economically rational risk-aversion, they are demonstrating a negative risk-aversion, in which risk is actively sought out, and uncertainty welcomed.

If they are able to keep this bizarre choice to a modest portion of their economic activity, well and good; the economic damage of their irrationality is minor, and only to themselves and their dependents. But in practice, of course, the attitude that engages in substantial gambling is duplicated in other areas of the gambler's economic activity.

This has huge implications. A gambler will give up a steady job for the promise of entrepreneurship or employment with stock options in a dot-com, even when that choice is economically foolish. A gambler will invest his life savings in overvalued tech stocks, seduced by the millions that others claim to have made. A gambler will fail to diversify his retirement portfolio and then whine, when it all goes wrong, that Wall Street "corruption" was responsible for his losses.

This get rich quick economy, in which people make large numbers of economically irrational decisions, has destroyed a large amount of U.S. wealth already since 2000, and will destroy a great deal more before we're done. The continued spread of gambling, by vastly increasing the percentage of economic decisions that are irrational, is thus in itself hugely wealth destroying.

Chasing interns, on the other hand, has little effect on the economy as a whole!

Copyright 2001-2003 United Press International
__________________
The most valuable commodity I know of is information
Reply With Quote