For at least 350 years, economists and (other) cynics have told each other that the lottery is a tax on stupidity. More accurately, modern American lotteries are a voluntary tax paid by those who fail to understand statistics, or who are willing to suspend critical thinking.
State-run lotteries were marketed to the public as a means to fund “educational opportunities” via supplemental revenue for public education. But buyers of lottery tickets are overwhelmingly those who were failed by that system. The leading statistical indicators of buying into state-run lotteries are intergenerational poverty and hopelessness: people who see no other path to the middle class. To them, we sell brightly colored hope of possibilities in the form of a regressive tax.
Playing the lottery is an objectively irrational thing to do, and represents a real drain on the limited wealth of the working class. State-sanctioned lotteries like Mega Millions and Powerball consist of such astronomical odds (1 in 176 million) that if public schools equipped students with critical thinking skills, no one would play. Lottery-funded education is a self-defeating prospect – or it would be, if it worked.
In an 1662 iteration of the “tax on idiots” quip, English economist Sir William Petty wrote:
Now in the way of Lottery men do also tax themselves in the general, though out of hopes of Advantage in particular: A Lottery therefore is properly a Tax upon unfortunate self-conceited fools; men that have good opinion of their own luckiness, or that have believed some Fortune-teller or Astrologer, who had promised them great success about the time and place of the Lottery, lying Southwest perhaps from the place where the destiny was read.
Sir Petty (a charming name for someone who can craft such an insult) identifies one of the lottery tax’s few virtues. People “tax themselves,” in that buying a lottery tax ticket is voluntary. But a review of the data on lottery ticket buyers reveals that, while voluntary, these are selective, highly regressive taxes, paid overwhelmingly by people who can least afford to pony up for someone else’s college scholarship.
Who Pays The Lottery, and Why?
Gallup polling estimates half of Americans “play” the lottery at least once a year. Thirteen percent of Americans play weekly. The cost of a single lottery ticket is low. For a dollar or two, lottery players buy the little daydream of swimming pools, fancy cars, expensive clothes, and most compellingly, no need to work. For many, a two-dollar ticket is a cheap lark (compared to, say, seeing a movie) and for them, the get-rich-quick fantasy of the lottery is harmless entertainment as long as the player is clear that the short-lived daydream is all he’s buying.
But the reality of who plays state lotteries is significantly darker. The poorest Americans lose a disproportionate amount of their (potential) wealth to the lottery tax. People earning $10,000 or less were the most likely to play the lottery (61 percent) and had played most often (26 times a year). Research on behavioral decision-making found those earning incomes less than $12,400 spend an average of $645 on lotteries each year – about 6 percent of total income, or approximately what the upper middle class contributes to a 401K. Over 30 years, that annual loss not only steals the $20,000 (that could have been a small-business startup cost, or saved for heirs) but also the compound interest that might have tripled the sum that was wasted. And the more money you waste, the more likely you are to see the lottery as your best financial option.
Sir Petty speculates that lottery players must have “a good opinion of their own luckiness,” but it may be exactly the opposite. A study published in the Journal of Behavioral Decisionmaking found “participants were more likely to purchase lottery tickets when they were primed to perceive that their own income was low relative to an implicit standard.” A second experiment confirmed “participants purchased more tickets when they considered situations in which rich people or poor people receive advantages, implicitly highlighting the fact that everyone has an equal chance of winning the lottery. “
Those results are not merely correlative. The poorest Americans are motivated to play the lottery specifically because of their relative poverty. People whose lived experience consists of very bad luck – say, the economic vulnerability of being born into a particular neighborhood or school district – may view long-shot randomness of lottery odds as a “social equalizer.” Everyone has an equal chance to win, regardless of his circumstances. For people who know their circumstances are unlucky, that sounds like good odds.
Other differentiating markers of social power, like educational attainment, employment, and vocational opportunities are correlated with the likelihood of spending on lottery tickets. Some polling has shown lower-income Americans buy tickets slightly less often, but spend more of their total disposable income.
States that have lotteries have higher rates of income inequality than states that don’t, and some scholars have posited that least part of the increase in income inequality is directly attributable to the prevalence of state-run lotteries.
We might say, “Choices are choices! And if you don’t know any better, who is to blame?” But the most relevant predictor of whether you’ll play the lottery is whether your parents did (and exposure to lottery games in childhood is correlated with problematic gambling later) followed by household poverty. For families concerned about keeping the car running, putting $600 a year into those golden-ticket daydreams has real consequences.
For those spending 6 percent of income on the “redneck retirement fund” because they think it’s their best chance at financial security, something has gone terribly wrong. The get rich quick dream is most attractive to people who don’t see other ways to build wealth, by effort, entrepreneurship, or investment, whose education or background prepared them poorly for social mobility. The very state that so poorly educated them to understand risk – and wealth creation – is now selling them a scratch-off American Dream.
The Illusion of “Hope in Advantage Particular”
Playing the lottery, like other gambling, is a form of monetized cognitive bias. Players tend to discount their losses and accept their wins at face value: spending $30 on scratch-offs and genuinely believing they won $5, instead of losing $25. People often choose their own lottery numbers, rather than having them randomly assigned, giving the illusion that there is some skill or control involved in selecting the ‘right’ or ‘lucky’ numbers. Dopamine – the brain chemical of reward – explodes from the fantasy of winning, and to some extent, the elation of risk, and reward-seeking behavior.
Cognitive biases are universal, but many of us develop critical thinking skills to recognize and guard against them. Longer time horizons (and with those, the impetus to save money, defer gratification, and invest in longer-term payoffs) are crucial to prosperity, but modern state-run education policy emphasizes short-term thinking for both students and schools.
Who Wins When Players Lose?
Lotteries are a clear loss for people who buy into them, and most Americans seem to understand that lottery tickets are poor long-term investments. We’ve endured many policy attempts to protect the lower classes from themselves, from sin taxes on cigarettes to discourage smoking to blue laws banning alcohol sales on Sundays. More recently, some cities have tried to block pay-day loan vendors, whom they view as predatory, and dollar stores.
Clustered in those same neighborhoods you’ll fund the state-sponsored lottery advertisements in shop windows. And far from decrying lottery sales as predatory on the poor, state governments eagerly promote them. Why are lotteries not as frequent a target? They even have a federal exemption from truth-in-advertising. Why are state legislatures issuing licenses, creating monopolies, and taking a cut of the exploitative action? Lottery companies expertly promote the dream of winning a lifetime of comfort. Hope is their core product, and their product is counterfeit.
Before the early 1960s, there were no state-run lotteries in the United States. Now 44 states sponsor a lottery, and most participate in national-scale games Mega Millions and PowerBall. Dozens of smaller “instant win” games and scratch-offs are, by some estimates, even more prevalent.
State-run lotteries were adopted under explicit marketing campaigns that purported to raise funds for education, either K-12 or college, or both. A few states use their lottery revenue for roads and parks maintenance, but overwhelmingly state lotteries claim a “core mission of maximizing funds for education.”
In Virginia, the back of every ticket bears the phrase “Helping Virginia’s Public Schools.” North Carolina’s lottery says it sent thousands of kids to pre-Kindergarten. California boasts more than $1 billion annually, a full one percent of the total state education budget. Education spending continues to accelerate, but rarely does more than 5 percent of that funding come from lottery revenues. Press releases frame these funds as “donated” or “generated” by lottery corporations, but they are, in fact, raised from the household budgets of (overwhelmingly poor and disadvantaged) people who buy lottery tickets.
State governments get a direct share of lottery ticket sales, and added sales tax from the revenue of merchants who sell tickets (who are in turn paid by lottery organizers). In all but a handful of states, more lottery revenues are given out in prize money than are diverted to state budgets, but it’s often pretty close to fifty-fifty. And that prize money, of course, is subject to taxation. States and the IRS will reclaim as much as half of the revenue from winnings, as well. The percentage of lottery revenues that revert to government is well over 70 percent.
Once received by schools, lottery funds obey different rules for spending than the general education budget. “Discretionary” disbursements are more subjective and less transparent than the already-opaque state budget. The selective funding of some projects and districts leaves more room for cronyism and abuse. Even if lottery proceeds did measurably improve local schools, that improvement still comes at the expense of those who can least afford to contribute to the communal project.
In reality, of course, each state government treats lottery funds as “extra” general revenue. The Washington Post reported on how Mega Millions funds impact education budgets, and found that overall, lawmakers accounted for lottery revenue to fund education, and shifted spending elsewhere in the state’s budget. The earnings of the poorest, and least-educated Americans are shamelessly collected and repurposed, with the promise that one in several million might transcend the status to which state education has condemned them.
Plundering the Ignorant
The Supreme Court identified 150 years ago that the lottery is a “pestilence” that “infests the whole community; it enters every dwelling; it reaches every class; it preys upon the hard earnings of the poor, and it plunders the ignorant and simple.” We have long known that lotteries will never be paths to wealth, and in fact, disproportionately prey on the poor.
You’re more likely to die in a car accident driving one mile to buy a lottery ticket than you are to win the top prize. That’s not only true, it’s deeply telling. For thousands of Americans, the lottery is a shot at financial stability, if they do not know how else to generate such stability for their families.
Regular lottery participation, especially as a substitute for long-term investment or wealth creation, represents a failure of the education system on a relatively simple question of statistics and critical analysis. That many state-run lotteries have attached themselves to a narrative of ‘investing in education’ obscures – or highlights – the fact that the fiercely regressive government-run lottery tax is only sustainable because government-run education fails to invest in the true preparation of its students, who would otherwise not buy those tickets.
If the public education system actually empowered students to earn, to save, and to succeed, the state-run lottery would long since have run out of customers. If a lottery “to fund education,” continues to succeed, that is only because it has already, monumentally, failed.
This article, What Kind of Education do Lotteries Fund?, was originally published by the American Institute for Economic Research and appears here with permission. Please support their efforts.