THE LURE OF
LOTTERY: FROM LUST TO BUST
The
beginning month of the New Year witnessed real frenzy among a section of
American populace who was buying into the dream of a lifetime: winning the
unprecedentedly large $1.3 billion Powerball jackpot. By the time the jackpot
had accrued to over $500 million, Powerball tickets were reportedly flying off
bodega and convenience-store counters.
With a $2 price
tag of the ticket, the dream chasers were being driven into low-risk impulsive
buying. However, the odds of winning stood at 1 in 292 million, making lottery
a form of “stupidity tax.” Then, winners of more than $600 are
subject to 45 percent windfall taxes on their good fortune. "The
house" is winning, even when it’s losing.
According
to the North American Association of State and Provincial Lotteries, lotteries
took in $70.1 billion in sales in the 2014 fiscal year. That’s more than
Americans in all 50 states spent on sports tickets, books, video games, movie
tickets, and recorded music sales combined! And of the top ten jackpots of all
time, nine were in the United States.
So, who
among the American populace are winning? It turns out that it’s the poor who
are actually losing. The poorest third of households buy half of all lotto
tickets in the United States, according to a Duke University study in the
1980s, in part because lotteries are advertised most aggressively in poorer
neighborhoods. In other words, that stratum of society is being lured into
playing “the luck” game. Where economic opportunities are hard to come by, who
can resist the temptation of striking it big.
A 1986
California survey found that lottery players were split evenly on whether they
played for money or for fun. However, among those with less than $30,000,
"25 percent more respondents cited money rather than fun, while the
reverse was true for those with higher incomes,” according to the survey. There
was another damning discovery in the study: Local lottery ticket sales rise
with poverty, but movie ticket sales do not. In other words, lotto games are
not merely another form of cheap entertainment. They are also a prayer against
poverty. This fits what the researchers call the “desperation hypothesis”:
States are making their most hopeless citizens addicted to gambling to pay for
government services.
Some
policymakers argue that the moral cost of lotteries is low. After all, the
games are voluntary. Lotteries set aside about 40 percent of
their ticket sales as state revenue that often goes to schools. And
perhaps the money collected by the state is better off going to schools than to
booze and cigarettes and whatever else.
But to see
the true source of the lottery’s appeal, don’t look at poor neighborhoods.
Focus on the states.
Half a
century ago, gambling was criminalized in every state of the US except Nevada.
As recently as 1980, just 14 states held lotteries. Today it’s 43. A political
cynic might say lotteries are the perfect public policy: A tax disguised as a
game without an organized lobby to oppose it.
Corporate
income taxes punish corporations, and companies respond with lobbyists.
Personal income taxes and estate taxes hurt the rich and rich families fund
elections, so no need to elaborate on that problem. But lotteries
disproportionately affect the poor, who vote at lower rates, donate less to
campaign funds, and have inconsistent representation on K Street and its
equivalents in the states. So no surprise that, as recently as 2009, lotteries
provided more revenue than state corporate-income taxes in 11 of the 43 US
states where they were legal.
In an age
of rising income inequality, it’s pernicious that states rely on monetizing the
desperate hope of its poorest residents. State lotteries take from the poor to
spare the rich, all while marching under the banner of voluntary entertainment.
Banning lotto games will not make the poorest communities suddenly rich. But
these neighborhoods have lost enough lotteries in life even before they touch a
penny to the scratch-off ticket.
Soon after
the January Powerball lottery was drawn, the winners were paraded in front of
TV cameras to rekindle the dream among the losers. Even if such a dream does
pan out for a handful of people, winning the lottery will not solve all of
life's problems. In fact, many people's lives became notably worse after they
got super rich, and managed to lose it all too quickly. Some winners met even
worse fate, having lost their lives.
And just
how do winners manage their finances? On an average, it takes about five years
to burn through 70 per cent of the prize money. A Camelot survey found that the
most popular things British spent their winnings on were relatively
flashy—properties, cars, and vacations. Similarly, an oft-quoted study of
35,000 lottery winners in Florida found that 1,900 winners filed for bankruptcy
within five years—and that while the large infusion of cash reduced the
probability of bankruptcy during the first two years of winning, it increased
the odds of bankruptcy three to five years out.
Even if
somebody is meticulous about preserving the windfall, the interferences from
the society are bound to increase. I have heard of instances when the winners
would go underground for the fear of their lives and those of the loved ones!
Very recently, I signed a petition on behalf of a resident of the US state of
Georgia calling on the Georgia legislative body to allow lottery winners to
choose to remain anonymous to protect their privacy and safety. The murder of a
friend in his own house and in front of his family following his lottery win
had prompted the petitioner.
The
overall picture of how lottery-winners fare is still very hard to determine.
First, many of these results are found by surveying winners, and self-reported
data is notorious for its low quality. Second, it’s not exactly easy to get
lottery winners to surrender their financial records for research, so there are
likely large holes in even the most scrupulous research. And finally, the fates
of the lottery winners who researchers have the easiest time tracking down
might skew negative, because tales of financial ruin are more publicized in the
media than tales of stability.
In the
end, while winning can turn out bad, the real bad thing is probably the lottery
itself: the U.S. and the rest of the World, especially the poor households,
spend way too much on it, and the odds are worse than at a casino.
SUBHODEV DAS
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