Gambling Our Way to Economic Prosperity

July 14, 2009, 9:00 a.m.

Iowa: A Place to Grow (Your Debt) and Lose Your Green
(brought to you by FromDC2Iowa.blogspot.com*)
The Press-Citizen has a good editorial this morning regarding the wisdom of increasing the number of Iowa's gambling casinos. l, Editorial, "State shouldn't gamble with any more casinos," Iowa City Press-Citizen, July 14, 2009.

Here are some excerpts, followed by some of my own analysis from two years ago:

Iowa voters have seen much evidence of the Iowa gambling industry's power over legislators in recent years.

In 2007, the Legislature and the governor agreed to dry up the requirement that gambling facilities with riverboat casino licenses locate their gaming floors over water. . . .

In 2008, the Iowa Legislature exempted the gambling floor of casinos from the state smoking ban. . . .

And now the casino industry is looking to gain even more of a foothold into Iowa politics. The Iowa Racing and Gaming Commission is scheduled to meet this week to consider increasing the number -- and most likely the influence -- of casinos in the state. . . .

[W]e hope the commission recognizes there simply is no need for the state to increase its addiction to gambling dollars.

Gambling too often becomes the fool's gold of economic growth. If Iowa really wants to grow its small towns and increase tax revenues, then lawmakers need to continue to support businesses and industries that help create new wealth and new opportunities. . . .

I would take issue with that last suggestion -- as I have in numerous blog entries. The best way to "support businesses and industries" with taxpayers' money is not the "support" that goes directly to the bottom line of a for-profit enterprise. It is to make a public investment in infrastructure (e.g., roads, broadband, schools, libraries, community colleges, parks and trails, etc.) that can help attract business to the state while sharing the benefits of that investment with every Iowan.

Aside from that, I think the editorial is right on point.

The problem, of course, was the initial decision to get into the gambling business. It was, after all, a business that was originally prohibited by the Iowa Legislature in the same chapter of the Iowa Code that prohibited prostitution. Once we have established 20 in-state casinos, as we have -- like the 50 bars within walking distance of the campus in Iowa City -- the net effect of prohibiting any more (while certainly better than adding to the number) is to increase the "medallion value," the oligopolistic profits, of an industry effectively protected from competition.

Here are some earlier thoughts of mine regarding the wisdom behind the hope that Iowans might, somehow, gamble their way into economic prosperity:

1. It doesn't "create jobs" or "improve Iowa's economy" to move jobs and revenue from one county to another. Politicians and business persons alike proudly assert that every new business in Iowa is creating jobs, and improving the economy. They claim too much. Riverside's figures make the point. So did the Coral Ridge Mall. (I don't have the figures for the latter off the top of my head, but it's fairly close to say that it grossed about $100 million in retail sales its first year -- while the surrounding counties lost something like $90 million in retail sales.) I'm not suggesting this is an argument for, or against, starting up new businesses; but it is a caveat regarding the claims of the economic benefits they bring. It turns out it's true, once again, in this instance. The Riverside gambling casino didn't bring an additional $7 million profit into the state; it simply shifted much of it from its competitors to itself.

2. Gambling isn't value added manufacturing or services. Gambling is something in the nature of a self-imposed tax -- indeed, a significant proportion of what's left behind by each visitor is literally a tax going to the State and other governmental units. True economic development for Iowa requires (a) making something from our natural resources (e.g., wind generated electricity; food; ethanol and biodiesel), (b) value added manufacturing (e.g., making something from raw materials or parts that can be sold for much more than the cost of what goes into it, as numerous small and large manufacturers are doing throughout the state), or (c) value added services (e.g., individuals with the ability to create value by fixing broken equipment, or transforming a dream into an architectural plan). Jobs are created, and money changes hands, when casinos are built or expanded (such as the Mesquaki $111 million expansion project). But once they're built their primary function is to suck money out of the state's economy, not put more back into it.

3. It's not clear how much gambling is enough; conflicts of interest drive public policy. . . . When the Iowa Racing and Gaming Commission evaluates applications for additional casinos, how much will its decisions be shaped by the present casinos' desire to prevent any additional competition, and how much by -- if it is in fact our purpose to promote Iowans' gambling as vigorously as we can -- the desire to make casinos ever more conveniently located for old, and potential new, gamblers?

4. Gambling casinos are primarily taking advantage of Iowans. Of course, casinos located on Iowa's borders will attract gamblers from the bordering states -- unless they have a closer casino located in-state. But for the most part, it is Iowans who are leaving their money behind in these establishments. How much of that money is flowing to out of state owners, managers, and mortgage holders? Do we know? What we do know is that we can't gamble ourselves into economic prosperity.

Nicholas Johnson, "Gambling: Checking the Math," October 11, 2006.

And see the additional material linked from the blog entry, Nicholas Johnson, "Riverside Gambling Casino's Future," October 12, 2006.
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

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