Is a Lottery Good For the Economy?

Lotteries are a popular form of gambling, with Americans spending about $100 billion each year on tickets. But the lottery has a troubled history in this country, both as a public game and as a private business. And it’s still not clear whether state lotteries are good for the health of the economy.

One of the most obvious things about the lottery is that it attracts a large number of people who wouldn’t otherwise gamble. That’s why it is so important for states to regulate the games, and that’s something most of them have done. But there are many other factors that make the question of whether a lottery is healthy for the economy more complicated.

For starters, the money that goes to jackpots has a major effect on ticket sales and on state revenues. The biggest jackpots draw the most attention and entice people to buy tickets. And that’s a problem because it can encourage the spread of gambling addiction, as the story of Kenny Powers demonstrates.

Another problem is that state lotteries tend to have a monopoly status and are often not transparent or accountable. That makes them vulnerable to criticisms that they are addictive, and they may not be putting public welfare first. State officials also face pressure from specific constituencies that depend on the lottery for revenue, such as convenience store owners (lotteries are their bread and butter); suppliers to the industry (heavy contributions by these companies to state political campaigns are regularly reported); teachers (in those states where lottery proceeds are earmarked for education); and so forth.

In addition, a few states are considering legalizing a multi-state lottery, and these have the potential to dramatically increase sales. The history of state lotteries reveals a pattern: a new lottery starts in a single state, and soon other states follow suit. This can happen even if the new lottery is not particularly well run.

The earliest lottery-like activities were organized in the Low Countries in the 15th century. Various towns held them to raise money for wall construction and for helping the poor.

But the modern era of the state-sponsored lottery began in 1964, when New Hampshire established one. Since then, the industry has expanded rapidly, and spending has skyrocketed.

The lottery is a classic example of policy decisions being made piecemeal and incrementally, with no overall overview or accountability. Authority – and thus, pressures on lottery officials – are divided between the legislative and executive branches of government, and are further fragmented by the specific needs of the individual lottery. This means that the general public’s interest in lottery policy is taken into account only intermittently, if at all. This is the underlying reason why most, if not all, state lotteries are in dire financial straits today. Fortunately, there is a way out. But it requires more oversight and accountability – and more honesty from the public. If the industry wants to thrive, it has to change its ways.