New York Should Roll the Dice and Legalize Casino Gambling

Today, the citizens of New York will vote on Proposal 1, which would allow for legalized casino gambling. The proponents laud the economic benefits, whereas the opponents argue that the costs associated with the vice of gambling will outweigh the benefits. Who's right? Are casinos a good idea?

There is the libertarian deontological argument of individual rights. An individual proprietor has the right to build and run a casino. Provided that the individual consumer isn't harming anyone in the process, the consumer has a right to spend their money on whatever they want, even if that decision is to go gambling. Although gambling addictions and crime are problems within the gambling world, they are not inherent to gambling. If we assessed a policy solely based on its costs, not only would that be a very incomplete cost-benefit analysis, but it would also mean we prohibit the consumption of other goods and services, such as cigarettes, guns, alcohol, and foods with too much sugar or fat.

There is yet another libertarian argument that can be used, which is that less economic barriers lead to more economic prosperity. Allowing casinos to be built means more economic productivity. Setting aside the tax revenue that the government would collect on casinos, not only are jobs created from the construction and operation of casinos, but there are also jobs created indirectly by adjacent resorts, retail shops, and restaurants.

While this is true, it is tough to measure net economic effects for two reasons. The first is that the economic benefits (e.g., employment, construction of new facilities) are tangible, whereas social costs (e.g., increased gambling addiction and crime; see Philadelphia Federal Reserve study) are intangible, thereby making it tougher to account for all costs. The second is that building and running a gambling facility only transfers wealth in a community; it does not create it. Granted, the same thing can be said for any form of entertainment or sporting venue. Just because attending a movie theater or football game merely "transfer wealth" should not be a reason unto itself to ban it. People acquire utility (which is the economic term for "satisfaction derived from consumption") from gambling or watching a movie. The net benefits for the given community are highest when the transfers are coming from outside the community, i.e., there needs to be some sort of tourism for gaming casinos to work, much like we see with the success of Las Vegas.

Let's pull up some research to figure out what the economic effects are. The findings of the St. Louis Federal Reserve Bank (also see here) were twofold. One, the extent of economic gain is dependent on where the casino patrons come from. Two, casinos in rural areas tend to fare better than those in urban areas. The Philadelphia Federal Reserve Bank assessed the effectiveness of casinos in its district back in 2010. It found positive net economic benefits in the short-run, but remained inconclusive in the long-run since social costs can take a longer period of time to manifest. During the Clinton Administration, Congress enacted legislation to create a committee to analyze the impacts of gambling. Upon writing the National Gambling Impact Study Report (1999), the committee realized the difficulties of measuring social cost. Even so, the committee recognized that economically depressed communities derive economic benefit from building casinos (Recommendations, 7.3). Overall, the committee's recommendations are surrounded around the idea that casinos should be legal, but should be built with due consideration.

Even if we want to opine that "the results are mixed," New York would still need to assess it in contrast with the alternatives. If New Yorkers do not have casinos in their own state, they will travel to a place like Atlantic City to gamble. Even with casinos in neighboring states, there is still the reality of underground markets. Underground markets, such as those in marijuana, prostitution, cigarettes, labor, or human organs, do not eliminate the problems associated with the market. What happens when a good or service is forced to the underground market is that you add the problems of underground markets on top of the problems that already exist, thereby exacerbating the issue. Much like any other activity in life, gambling comes with its risks. However, if I had to make an educated guess, I'd say it's a pretty safe bet that New York's economy will experience a net benefit with Prop 1.