Morality and Professional Gamblers
An excellent cross-blog discussion about the morality and economics of professional gambling was launched by Greg Mankiw explaining at length why he is saddened by gambling. He is especially troubled by professional gamblers, who use their talents in a way he considers a drain on society.
Jacqueline Passey notes that good professional gamblers can make more money gambling than anything else and it’s just the market at work. Further, “gambling is distributive justice, moving money from stupid people to smart people (all voluntarily, too!).” Mankiw argues that professional gamblers are unjust on utilitarian and moralist grounds and is willing to ignore his libertarian impulses to so state. Unstated in his criticism is that Passey is misusing the philosophical term of art “distributive justice,” meaning the two are talking past one another.
Passey retorts that Mankiw’s utilitarian, moralist, and libertarian impulses seem to be crowding out the economist who understands markets.
Half Sigma agrees with Passey, laments that more money isn’t being tossed at super-smart folks, and proceeds to spend the weekend playing penny ante poker online, netting a whopping $19.88 for his efforts.
Tyler Cowen thinks it all depends on how much stupid people enjoy losing.
Comments on all the posts are worth a look, too.
One of the problems with the libertarian model, from a moral perspective, is that a lot of people really are as dense as bricks.
I’m not saying that one cannot sustain many libertarian positions in spite of human stupidity, and without discarding any sense of morality; but an awful lot of extremem libertarian writing seems to assert the equality stupid==unworthy.
The problem with these analyses of gambling is they look only at the zero-sum bet, and not the larger economic context. This is like claiming banks don’t make sense, because any money they pay in interest to depositors must come from interest paid by borrowers. In fact, this argument was used against lending at interest for centuries. Economists should understand that banks stimulate economic activity, and when you include this effect, they can create net wealth.
Given that gambling is near-universal in human societies, and that the majority of people (including the majority of college graduates) gamble, it’s hard to accept the “they’re all stupid” explanation.
A casino in a competitive market pays back about 75% of losses to individual gamblers. These come in many forms, the moderate stakes middle-class gambler usually takes them in the form of comps: travel expenses, room, meals and event tickets. You could argue that they’re paying a 33% premium for these services, but the casinos bundle them in a very attractive way. Go to the restaurants or shows in a good casino, and you’ll see people having more fun (and therefore more than recouping the 33% surcharge) than in a lot of cash restaurants or shows. It’s no more irrational than paying $10 for liquor you could buy for $0.50 (and cost $0.05 to make) because a bar puts it in a pretty glass, serves it with a smile and surrounds you with nice looking people having fun.
That’s just one explanation for one type of gambling, of course. It’s not the reason people play poker or buy lottery tickets. But all of these things have serious economic rationales.