Casinos And Economic Development- Gambling calculations must take into account all benefits

Last Updated: March 23, 2003

In his spirited column about gambling ("Gambling doesn’t create wealth," March 9), John Torinus argues that casinos play no part in economic development. That’s not only misleading, it’s inaccurate.

By RONALD A. WIRTZ Minn. Fed Gazette- Milwaukee Journal Sentinel Inc.

Any assessment of economic value means adding up costs and benefits, and determining which side is bigger.

That’s a tall order, to be sure, and Torinus skims over many cost-benefit considerations and concludes prematurely that casinos are a net economic loser, merely a transfer of wealth: You gamble, you lose, you’ve gained nothing, and the tribe gains everything.

As discussed in the March issue of fedgazette, the Minneapolis Fed publication to which Torinus refers, casinos, like any business venture, bring capital investment and jobs, which in turn generate local purchases and other indirect multipliers and taxes.

Any calculation of casino benefits must also include their entertainment value – as legitimate as any other form of entertainment in Wisconsin, be it trout fishing or watching the Packers. And the spinoff infrastructure – both physical and human – that has been built on Indian reservations is another undeniable benefit associated with casinos.

To say there is no benefit to gambling is to ignore the income and education strides made on many reservations.

While defining "economic development" might be difficult, most would say it involves precisely those sorts of revenue, infrastructure and benefit flows. Yes, most benefits accrue to Indian tribes, but the benefits of any business accrue to a small pool of beneficiaries, usually to stockholders and workers.

Torinus asserts that the economic effect of casinos does not go outside the borders of the host county, but that case can be made about the vast majority of companies.

Indeed, elimination of casinos would likely have an immense ripple through much of the northern half of the state – just ask the other businesses in those counties that cater to casino patrons or are suppliers to casinos. You’d also see unemployment in some of these counties spike to double-digits.

Is gambling a wealth transfer? In a way, yes. But from a market standpoint, it’s no different than the money Torinus’ business earns, or the money you pay to see Brett Favre throw touchdowns.

In each case, it’s money that is freely spent by consumers to the economic benefit of, respectively, Indian tribes, Serigraph Inc. and the Green Bay Packers. (One does have to hold aside the matter of gambling monopolies, which is an issue not of economic "benefit," but of economic competition.)

Torinus further argues that we should be striving for knowledge-based "new economy" companies, rather than casinos. But that’s a false dilemma: It’s not an either-or choice.

A look at the data will quickly show that the entertainment and leisure economy is one of the fastest-growing sectors of the economy, and that growth rate has little influence on the growth or success rate of high-tech companies.

That’s not to say casinos are economic manna from heaven. As is often pointed out, casinos have associated economic and social costs, ranging from greater traffic congestion to increased pathological gambling.

Some of these costs are easy to measure; others are quite difficult. These, too, must not be neglected in any analysis of the impact of a casino on a community or state.

Unfortunately, casino advocates tend to exaggerate their benefits – by not looking at the value of alternative uses of the same capital investment, a concept economists refer to as "opportunity cost."

And casino critics often overstate their costs – by including revenue streams that are actually just transfers from one party to another, not actual costs to society.

Calculating the full cost-benefit impact of casinos is an exceedingly difficult task. But a more careful economic analysis of casino costs and benefits would cut through the exaggeration and give policy-makers better information on which to base decisions.

Ronald A. Wirtz is editor of fedgazette in Minneapolis.

fedgaz: ( http://www.minneapolisfed.org/pubs/fedgaz )