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Gambling in America: Costs and Benefits

Cambridge University Press
By Earl L. Grinols
256 pp., $45 (cloth)

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Skipping to the end of a book is usually considered cheating. In the case of Earl L. Grinols' just-released Gambling in America: Costs and Benefits, cheating may be warranted. Because if the book's findings and the latest rumblings from Harrisburg are both accurate, by the time you plow through Grinols' equations there may be a casino on the corner and a line of gambling addicts, criminals, broken families and corrupt politicians stretching around the block.

 

Grinols is a professor of economics at the University of Illinois who has spent 12 years sniffing around the gambling industry. On page 3, he describes an encounter with a gambling-industry executive. "I then asked him the following question: If he knew that what he did to make his living unintentionally hurt people -- really hurt them -- would it be enough to make him change his line of work? He quickly replied that, of course, it would. I then drew from my briefcase a photocopy of a newspaper clipping titled, 'Woman Gambles Away Family's Savings, Kills Self.'" The exec dismissed the account as anecdotal and incomplete. So Grinols set to work on a scientific study of America's $67 billion betting business.

 

Grinols painstakingly crafts a formula for weighing gambling-industry profits, jobs, tax payments, and even the dollar value of the convenience of having a casino nearby. It also estimates the percentage of casino profits that stay local versus those that go elsewhere; casinos' "cannibalization" of dollars from other local businesses; and the social costs of increased crime and other documented effects of gambling. (An interesting digression mocks the economic impact studies used to justify the construction of sports venues, and concludes that taxpayer-backed stadiums and arenas are almost inevitably economic losers. Look out, Penguins.) There are, regrettably, pages and pages of equations and charts that only a professional economist could decipher.

 

On page 146, Grinols lets the reader up for air. For 20 pages, his voice and his equations are absent, replaced by excerpts from 96 mostly dispassionate news reports. Some describe the rise in bankruptcies, armed robberies, burglary and embezzlement that followed the introduction of casinos to various cities. Others chronicle hundreds of thousands of dollars in campaign contributions to politicians as gambling bills moved through state legislatures. But most are crime-blotter accounts of people taking their own lives, killing their spouses, and even murdering their infants to collect insurance money -- all reportedly tied to their betting addictions.

 

The book's last 30 pages summarize past studies of the crime, lost productivity, bankruptcy, suicide, illness, treatment, welfare payments and divorces associated with problem and pathological gambling. Grinols averages their results, and calculates that the average gambling addict costs society $10,330, and the average problem gambler costs $2,945. When casinos come to town, the numbers of pathological gamblers increase from almost none to about 1 percent of the population, and problem gamblers go from about 1 percent to 2 or 3 percent of the population. Now I'll give away the conclusion: "The long-term cost-to-benefit ratio from introducing casinos to a region that did not have them previously is greater than 3:1. ... By a large margin, tax by casino is inferior to levying a conventional tax."

 

That last point might be worth considering in Harrisburg, where Gov. Ed Rendell is pushing a proposal for 12 slot machine palaces statewide, including 8 at racetracks. At least one would be in Pittsburgh. Taxes on the slot machines would fund schools and reduce property taxes. The biggest legislative obstacle has been senate Democrats' insistence on an Indian-run casino, but that position has softened in recent weeks. Both gambling supporters and opponents predict a vote this spring.

 

Grinols barely touches on philosophical questions, like whether it is appropriate to ban a purely voluntary activity that doesn't pollute, cause cancer or impair driving ability. He notes only that whereas alcohol prohibition didn't work, gambling was illegal in almost every state for most of two centuries, before it surged forth in the 1990s. If an activity that costs the economy an estimated $43 billion via crime, lost productivity, treatment and social services can't be banned again, he suggests, it should at least be taxed to the tune of 45 to 70 percent.

 

Grinols' book closes with a scenario involving a theoretical city of 362,000 -- slightly bigger than Pittsburgh -- that brings in a casino. All the economic activity, profits, taxes and new jobs brought in by the casino would be exceeded by gambling's social costs, leaving the city about $10.4 million poorer, he calculates. Let's hope state and local politicians read to the end, so we don't have to live it.

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