NEWS INDEX Archjves 2004 March

Social costs of gambling nearly half that of drug abuse, new book concludes

Mark Reutter, Business & Law Editor
217-333-0568; mreutter@uiuc.edu

3/8/04

"Gambling in America: Costs and Benefits," By Earl L. Grinols

CHAMPAIGN, Ill. — Owing to the widespread expansion of casinos, the cost of pathological and problem gambling has soared to nearly half the annual cost of drug abuse in the United States, an expert at the University of Illinois at Urbana-Champaign says in a new book.

The social costs of gambling, such as increased crime, lost work time, bankruptcies and financial hardships faced by the families of gambling addicts, have reached epidemic proportions, costing the economy as much as $54 billion annually, Earl L. Grinols, an Illinois economist, has written in “Gambling in America: Costs and Benefits,” published this month by Cambridge University Press.

This compares with the estimated annual $110 billion cost of drug abuse, according to the U.S. General Accounting Office.

Casino gambling causes up to $289 in social costs for every $46 of economic benefit, according to Grinols. “In 2003 dollars, the cost to society of an additional pathological gambler is $10,330 based on studies performed in the mid-1990s, whereas the cost to society of an additional problem gambler is $2,945,” he wrote. “Accounting for the cost of raising tax dollars to cover some of these costs raises the totals to $11,304 and $3,222, respectively.”

Put differently, Grinols said, “The costs of problem and pathological gambling are comparable to the value of the lost output of an additional recession in the economy every four years.”

A former senior economic adviser to President Ronald Reagan, Grinols wrote the book because there is “a great unfulfilled need for an economist to study the costs and benefits of casinos in society and to identify which side of the ledger [is] predominant.”

He pointed out that nearly all research on gambling consists of industry-sponsored studies ballyhooing new jobs and increased taxes.

“Good policy requires that some party provide factual and accurate information,” he wrote. “Because a casino promoter, an Indian tribe or even local government places itself in the role of the house, thereby reaping benefits, does not mean that casinos are socially beneficial. Social benefits must take into account all stakeholders. There are benefits of casinos to players, to owners and to citizens, and there are costs as well. Identifying a winner or loser from the social perspective requires understanding the complete picture and knowing which components should be compared.”

His book includes economic analyses that put price tags on the inflows and outflows of gambling money.

On the positive side of the ledger, a casino may increase local employment and raise state and local tax revenues. In Las Vegas and Atlantic City, N.J., where casinos primarily serve tourists, gambling creates regional jobs and an inflow of revenues.

However, in the Midwest and South, where casinos primarily attract a local clientele, gambling causes a net loss to the community. Not only do out-of-state casino operators remove gambling dollars from the local economy, but local employers and taxpayers must foot the bill of increased crime, personal bankruptcy, domestic violence, lost workdays, child abuse and other social costs from problem gamblers.

According to evidence cited by Grinols, gambling causes addictive and destructive behavior much like alcohol and drugs. About 30 percent of the population does not gamble, and most people who gamble do so infrequently, such as on an occasional trip to Las Vegas. However, about 10 percent of the population gambles regularly and accounts for up to 80 percent of the wagers in casino enterprises.

This means that the gaming industry’s profits are based on a relatively small number of addicted gamblers who run up huge costs to themselves, their families and society. While excessive gambling affects members of all social classes, its greatest social concern comes from its prevalence among poor economic groups.

“If there were no social costs caused by gambling, there would be no reason to object to it,” the Illinois economist argued. “That is, when individuals understand risk and odds and want to gamble for enjoyment as they would for any other form of recreation, there is no argument.”

However activities that create more social harm than good, according to Grinols, “need to be regulated, monitored and in some cases altered or banned to achieve greater social well-being … The need for public intervention occurs precisely when the costs are borne by one agent or group and the benefits by another.”

Grinols has been on the Illinois faculty since 1984. He was a senior economist for the Council of Economic Advisers to President Reagan in 1987-88. He has testified before Congress and nearly two dozen state legislatures and legislative committees on the economics of gambling.

His academic specialties include macroeconomics, international economics and public finance.