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The Progressive Economics Forum

The Rise of the Casino Economy

I was on a road trip recently, driving through the American south, and ended up coming face to face with the economics of gambling. The friend I was travelling with is a professional poker player, making his living at casinos all across the US. He used to work as an IT consultant in Toronto, helping companies with their computer systems before he decided to quit and earn his keep in a more unorthodox fashion.

At one point, as we drove along the highway from New Orleans towards Texas (we were heading for Austin) I noticed that just about every gas station had a casino attached to it, albeit small ones. They were big enough to contain some slot machines and crap tables. In New Orleans itself, I visited the Harrah’s casino, a huge building in the downtown core, hermetically sealed to keep the sunlight out in order not to distract the visitors from the task of valiantly trying not to lose their money. My friend spent a few hours there to make some quick cash.

Casinos have been springing up in cities across North America in recent years. They are seen by governments as an economic elixir – a one-stop job creator and tourist attraction designed to replace employment lost because of de-industrialization in America and Canada. By now it’s as much as a (US) $20 billion industry combined between the two countries. In cities like Windsor, which used to employ huge numbers of people in the auto industry, when those jobs vanished the Ontario government built casinos in the hopes of taking up the slack.

Yet any fool can see that gambling makes for a lousy economic remedy. Back in the mid-’90s, at the time the Ontario government was leaping into the casino business, I wrote a feature for The Financial Post about why expanding this sector was a stupid idea. I hate to say “I told you so” but just about everything I predicted in that article has come to pass.

For one thing, casinos don’t actually produce any commodities to be sold. Instead, they vacuum out money from communities that could be used to buy goods and services and shovel it into the coffers of casino operators and governments. In so doing, they kill jobs and stunt economic growth.

Moreover, casinos have a vampire effect – sucking money from one region temporarily before new casinos are built to suck the money away again. Recently, the New York Times Magazine wrote a massive feature about how the Foxwoods Resort Casino in Connecticut is on the verge of going bust. Foxwoods is huge. As the article says: “Forty thousand patrons pack in Foxwoods on weekend days. The place has 6,300 slot machines. Ten thousand employees. If you include everything – hotel space, bars and restaurants, theatres and ballrooms, spa, bowling alley – Foxwood measures about 6.7 million square feet, more than the Pentagon.”

Owned by the Mashantucket Pequo tribe, Foxwoods is in trouble because so many competitors have sprung up in nearby regions. Which exposes the lunacy of the economics of gambling: anyone can set up a casino, making it inevitable they all face a falling rate of profit.

In a way, though, the rise of the casino industry is symbolic of the ruin of the North American economy. Just look at the financial industry in recent years, where it was felt gambling with our money on the capital markets was a legitimate occupation – that is, until their recklessness sent us spinning into the worst recession since the Great Depression. Instead of building an economy based on goods and services that are of tangible value, we have become a nation of financial speculators and casino operators. It’s as if we have forgotten what the Chinese and Indians and Brazilians have, in recent years, so intelligently embraced.

(My  exposé of the crimes of Canada’s financial industry, “Thieves of Bay Street” is being published by Random House Canada in mid-April. You can read about it here:

http://www.randomhouse.ca/catalog/display.pperl?isbn=9780307359636

Or pre-order it here:

http://www.amazon.ca/Thieves-Bay-Street-Brokerages-Canadians/dp/0307359638)

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Comments

Comment from Purple Library Guy
Time: March 25, 2012, 1:44 pm

Bang on. I’ve been saying this for years.
The free market ideology may be popular in part because it is so easy–you don’t have to make value judgments any more. If someone can make a profit from it, then by definition it becomes the right thing to do and people need not worry about whether it makes any sense or does anything useful; The Market is omniscient and works in mysterious ways, its wonders to achieve. Right wingers love that feature of it; they don’t have to admit that the world is complicated, they don’t have to pay attention to studies or census data, they don’t have to pay attention to the specific nature of individual situations at all.
But it isn’t true; some economic activities are useful, some are not very useful, some are useless and some do active harm. There is a point to “picking winners” economically–we should be encouraging the good stuff and discouraging bad stuff; this may require actually thinking, studying, and doing research, rather than applying mindless Panglossian market slogans.
Take drugs, for instance–the argument for legalizing drugs is not that because there is a demand and profits can be made The Market dictates we must see them as useful commodities. To the contrary, drugs are fairly harmful; the argument for legalizing them is that making them illegal fails to control them and in many ways actively makes the problem worse. But decriminalizing would not imply promoting huge heavily-advertised Drugs-R-Us megastores.
Gambling is a similar case–it’s probably not do-able to stop gambling completely by just making it completely flat-out illegal and having the vice squad break in on people’s Saturday evening poker game. But you can certainly have a lot more or a lot less, and encouraging it is insane–as is encouraging speculation to take over the economy. The often-quoted Keynes bit applies as well as ever:
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

Comment from Paul Tulloch
Time: March 26, 2012, 3:25 pm

The shadow banking sector has wrapped its destructive force around every living thing plus trillions and trillions of dead labour outputs as well.

And where post war models of productive capitalism has survived, it has been a mainly through the race to the bottom of production standards.

A good piece today by Hugo Radice gets at the heart EU and the bank rescues. Which seems to be get yourself as many Cash bazookas as possible, and secondly ensure you have enough ammunition. Sounds like trillions of dollars needed to restock the ‘casino’, as the bankers broke the house with asset backed securities, their securitizations, the mortgage transfer fees and tranche filtering into CDOs all risk minimized by credit default swaps and globalized sales.

I just finished a small course on these various bank gambling entities. Uncanny that with all the concern about regulation and rules, and I am sure there are some over zealous regulators, however, the entire financial system that cranked out cash for these bankers was all done in the light of day but seemingly collectively produced in the shadows. WHy?

Well, Hugo kind of points that out, productive capitalism becomes too difficult for modern day collective risk avoiders aka, MBAs.

For example Hugo points a finger at the German model of manufacturing today emphasizing the push to precariousness by massively increasing the size of the flexible periphery of workers protecting the core high wage workers.

‘To a considerable degree, Germany’s relative economic success since 2000 is not because of superior management, high technology and ‘patient’ bank finance, but the Hartz series of labour market reforms. These have had two particularly important consequences: first, they led to the creation of several million mostly part-time and ‘flexible’ jobs, which has reduced the headline rate of unemployment; and second, taken together with the relentless campaign of the mainstream parties (especially the SPD) and the media, the penetration of the ideology of competitiveness into the more privileged full-time workforce. This was reinforced in 2008-10 by government initiatives to support the adoption of shorter working hours, as an alternative to layoffs that would disperse job skills and demotivate the workforce.’

A bit of an eye opener on the quantities of precarious work in the German system. Again we need to have a measure of work quality and this could easily quantify the degree of separation involved here.

He also puts some emphasis on the notion of building a competitive culture, however it is a bit less convincing.

http://www.socialistproject.ca/bullet/608.php#continue

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