How The Government Hurts The Poor By Pusing Them To Buy Lottery Tickets

See Powerbull: The Lottery Loves Poverty: It’s bizarre: States push lotto tickets on the poor, earn $70 billion, and then put the buyers on welfare. By Arthur C. Brooks. 

"What is America’s national antipoverty strategy? Apparently, the Powerball lottery. All across the country last week, millions of people lined up for hours to get their shot at a payout that would end their financial struggles. On Wednesday night, one ticketholder won a $759 million jackpot. That sounds like a lot until you hear the government’s take.

Powerball—the lottery shared by 44 states, the District of Columbia and two territories—is just one of the sweepstakes run by 47 jurisdictions in the U.S. These games produce nearly $70 billion a year in government revenue and enjoy profits of about 33%—much higher than margins in the private gambling industry.

Who are these lotteries’ most loyal customers? Poor people. Lots of folks buy the occasional ticket, but studies have long shown a steady association between poverty and lottery play. Many scholars report that the poorest third of Americans buy more than half of all lotto tickets, which is why states advertise so aggressively in poor neighborhoods.

Harmless entertainment, you may say, but poor people don’t see it that way. They tend to view lottery tickets as an investment. Duke University social scientists Charles Clotfelter and Philip Cook reported in a 1990 study that people earning less than $30,000 a year are 25% more likely to say they play the lottery for the money rather than the entertainment.

Hardly a surprise, since this is the idea that lottery advertising is selling. In California, the slogan is, “Imagine what a buck could do!” In New York? “Hey, you never know.” Scholars have dug up evidence that states intentionally direct such ads at vulnerable citizens. A marketing plan for Ohio’s lottery some years back recommended scheduling campaigns to coincide with the distribution of “government benefits, payroll and Social Security payments.”

These kinds of ads seduce poor people with the illusion of riches. Even if someone feels compelled to throw a financial “Hail Mary,” the lottery is a terrible choice. The odds of winning last week’s jackpot were about 1 in 292 million. And the average return from $1 spent on lottery tickets is 52 cents, according to a 2002 paper by Melissa Kearney, an economist now at the University of Maryland.

But this isn’t easy to see for those with low levels of education. My own analysis of survey data from the National Gambling Impact Study Commission suggests that someone who didn’t attend college may think the return on lottery tickets is 40% higher than the estimate given by a person of similar demographics who holds a degree.

Another common mistake is the “hot-hand fallacy.” The lottery is totally random, yet players are attracted to stores that previously sold winning tickets, as if they were lucky. A 2008 study by Ms. Kearney and Northwestern’s Jonathan Guryan showed that a winning ticket can boost a store’s lotto sales by 38% in the week after the announcement. This is especially true among populations with high proportions of high-school dropouts and households on welfare.

What’s the social cost of all this? Ms. Kearney says lottery players finance their tickets largely by cutting spending on necessities. After a state introduces the lotto, the bottom third of households shift about 3% of their food expenditures and 7% of their mortgage payments, rent and other bills. Effectively, the lottery works like a regressive tax.

It might strike you as bizarre that the government spends billions on nutrition and housing programs for the poor while simultaneously encouraging poor people to move their own money away from these necessities and toward the state’s gambling monopoly. In fact, that $70 billion in annual lottery revenues is strikingly close to what the government spends on food stamps. Is there any set of policies more contradictory than pushing lotto tickets on poor people, and then signing them up for welfare programs that make them financially dependent on the government?

Politicians who profess a desire to alleviate poverty often lament how few levers they have to pull. So here’s a novel idea: Stop selling poor people a mirage of the American dream at the end of a convenience-store line."