From: mohr@cory.Berkeley.EDU (Gordon Mohr)
Subject: Re: National Lottery System (long, somewhat bitter)
Summary: CA Lottery info, cynicism, Nat'l Projections
Organization: University of California, at Berkeley
Distribution: usa
Date: Sat, 15 Aug 1992 12:37:44 GMT

--

Well, this idea seems to have been put forward at least semi-seriously, so
I'll respond with some relevant thoughts about lotteries I've been
churning about for a while...

In article <1992Aug14.214713.23246@magnus.acs.ohio-state.edu> cdonnell@magnus.acs.ohio-state.edu (Chris E Donnell) writes:
>
>I have always had this idea and today had the urge to get some feedback on it.
>
>My idea is for the national government to institute a national lottery system 
>with large prizes(cash, cars, jewerly) and which each ticket costs $5.  The 
>proceeds of this lottery could be split in many ways but a large percentage 
>would go to pay off the national debt.  For example: 60-75% for the debt, 5-40%
>to compensate states for losses in their lotteries and to support education, 
>5-15% for socially acceptable research and programs(AIDS and Cancer research, 
>government sponsored fiber optic networks, bullet trains, satellites, and high 
>technology research).  As the national debt is extinguished over a 30 year 
>period, the monies could be redivided but only in the above groups.  The cash 
>winnings would, because of the scope and size of this country, be over $100 
>million dollars and would draw enormous profits from people hoping to win.  The
>odds of winning would have to be determined.  I would recommend picking 8 
>numbers out of 50.  This would make it very difficult and allow the government 
>to make a larger profit.  The general public is too stupid to realize that they
>have a better chance of getting hit by lightning twice in a day than winning.  

I always love it when lotteries which prey on the stupid are justified as
a way to fund public education. In a way, it's perversely logical, because
if the state population has enough idiots to bring in big lottery bucks, it
certainly needs a better educational system. 

Yet if those big lottery bucks could really improve the educational system, 
the lottery would soon find no customers.

Perhaps that's why state lotteries pursue distinctly ANTI-educational
promotional campaigns, encouraging people to fantasize about lotto 
winnings and make a horribly bad bet, a bet with a payout far less than 
almost every other legalized bet.

Perhaps teachers who want to keep pay raises coming should have their
students skip the chapters on statistics.

>We could overcome this problem by giving away cars or jewerly for those who 
>guess 5 or 6 of the numbers.  A good propaganda machine would make this very 
>workable.  Does anyone care to comment?  Do you think it is workable and

I don't think people would stay dumb enough long enough. All the state
lotteries are much more popular when they're first introduced, before people
get the "hang" of losing. The spread of legal casino gaming (New Orleans,
perhaps Chicago, Mississippi river boats, etc.) will also give the
lottery some competition.

Lotteries also seem to attract dumb management almost as much as dumb
customers. Take, for example, the California Lottery, which according to a
San Francisco Chronicle article in April 1990, would have ranked 166 on the
Fortune 500 if it were a corporation.

The California Lottery has the market all to itself and only pays out 50% of
all money taken in, yet, as of last December, Lottery Director Sharon Sharp
said: "The California Lottery, right now, if it was a corporation, would be
in Chapter 11." 

They apparently couldn't handle printing, distributing, and advertising 
the lottery with "only" the 16% of the take earmarked for administration.
They also apparently blundered by going to 6-of-53 (instead of 6-of-51) in
mid-1990. Although they thought the lower odds--and thus higher rollover 
jackpots--would attract more of the gullible folks who just look for giant
payouts, they went back to 6-of-51 last December, so it mustn't
have worked as planned. 

All this, despite market research, advertising campaigns, and custom-
designed "neophyte" games, all expressly aimed at hooking new players and
increasing play by the regulars.

As you can probably tell, I resent this state-sanctioned, publicly-granted
monopoly (which is in NO way a utility or provider of a "public good"). I
resent how it uses its privileged position and monopoly profits to encourage
financial fantasy and foolishness. I resent that their tactics prey 
disproportionately on the poor, people who've already been screwed once by
the state educational system.

>                                                                      will 
>this bring in the kind of money necessary to eventually dent the deficit?

I'm not sure if you're aiming to conquer the deficit or (as you mentioned
earlier) extinguish the national debt with this lottery, but let's run some
hypothetical figures.

The only hard numbers I have for the California Lottery are from the year
ending June 30, 1989. Revenues that year were $2.7 billion, and at the
time they projected $2.7 bln for the next year.

Let's be generous and figure $3 bln. And let's be generous in saying that
even though the U.S. has less than 10 times as many people as CA, the
national lottery will bring in 20 times as much money. And finally let's be
generous and assume 66% of the take goes to the targetted program (in this
case, deficit reduction. Only 34% of the CA Lottery take is guaranteed to
education).

We can justify this generosity because of: 1) economies of scale; 2) the
federal government's historical superiority in propagandizing, compared to
state governments; and 3) the potential for the federal government to outlaw
all math, probability, and statistics education.

Let's again be generous and ignore the effects of pulling $60 billion out of
the economy, both macroeconomically and in the specific markets from which
consumers redirect their dollars.

Even with all this generosity, the federal government only nets $40 billion
a year.  Last I heard this year's deficit was estimated at $360 bln, and the
debt was just over $4 trillion. 

Well, at least it's a dent. About the same size dent we'd get by eliminating
the USDA.

As long as we're assigning the government an extortive monopoly in an
industry where there is no economic justification to do so (save sheer
profit), why don't we pick a bigger industry? Say, food? People need food,
so we wouldn't have to advertise to convince them that buying it is a good
idea. With the same effective "mark-up" we were contemplating for the
lottery (about 200%), we might even take out the whole deficit. 

Maybe not.

I've got nothing against gambling, but if it's a legitimate activity, private
concerns should be allowed to provide gambling services, with their profits
taxed at a rate no higher or lower than any other legitimate economic
activity.

If it's not legitimate, having the state run it doesn't make it so.

I don't think private gambling concerns could get away with being any
more cynical or predatory than the state lotteries already are.

- Gordon Mohr ------------
- mohr@cory.berkeley.edu -