Nevada also shows up prominently in other problem statistics, including school dropout rates and crime. The next figure that is shown compares Nevada in violent crime to other Western States ranked near it in population and to the Nation in suicide and child abuse. Now, Nevada is to the right on the top chart in those two components, and Nevada is the red bar, the middle bar, in robbery and murder rates on the right. Its population is just like the population of other Western States. It is in the middle of those that it was compared to. OK, next chart. We know that 1 to 5 percent of the adult population will become addicted to gambling if it becomes commonly available. Through various means, we can calculate the cost to society per pathological gambler and work that out to what it would mean to the country if the whole country had expanded gambling, and it works out to a cost of between $315 to over $1,100 per working person, per member of the work force, if casino gambling were to spread nationwide. These high costs would be paid by everyone so that some may gamble. OK. The figure shows the share of revenues received by a representative casino from three types of clients. The problem in pathological gamblers-leave the pie chart up. The problem in pathological gamblers are the red section of the upper pie chart and two other groups which I would call heavy bettors and then everybody else. The data suggests that the casino industry is heavily dependent on the revenues of problem and pathological gamblers. In the chart, the hypothetical casino receives slightly more than half its revenues from this group. These figures can be compared to the consumption of alcohol: 6.7 percent of the population consumes 50 percent of all alcohol consumed in the country annually. Because problem and pathological gamblers are typically less than 5 percent of the population, the pie chart below shows what this would mean for the relative amounts of gambling by three individuals of each type. OK. The last-now we can go to the last chart. Since casino gambling began its spread outside the confines of Nevada and Atlantic City, the serious economic questions have been: One, what are the social costs of casino gambling? Two, what are its benefits? And three, which is bigger? The social cost figures just provided are astonishingly high when compared to other social issues. They can be compared to the costs of an additional recession in the economy roughly every decade or to suffering an additional Hurricane Andrew, which was the costliest natural disaster the country has ever experienced, every year for the rest of time. One problem that economists have is trying to explain the billions of dollars of social damage in ways that are comprehensible. The last chart shows the additional social cost, not the total social costs, of gambling on a per-adult basis that would come from_expanding casino gambling to all parts of the country, compared to the pre-1990 situation when only Nevada and Atlantic City had casinos. Extensive expansion would create social benefits of about $110— in social benefits of about $110. That is, the taxes we get from it, the increase in casino profits, and the value to consumers of having nearby casinos, about $110 per adult in social benefits. The additional social cost, however, would be between $110 to $340 per adult. If the choice were between allowing gambling everywhere or total prohibition. These figures suggest that we are better off with total prohibition. The chart, the bar on the left, is the costs; the bars in the middle are the social benefits. That is the relative magnitude we are dealing with on a per-adult basis, comparing expansion to total prohibition. The chart highlights another important point. Casinos can remain highly profitable to their owners whether they bring economic development to a region or not, and regardless of whether gambling creates social costs or not, because the costs are paid by one group and the revenues are received by another. The bar on the right is the revenue that a typical casino would be getting per adult if we were to expand nationwide. Thank you. [The prepared statement of Mr. Grinols follows:] PREPARED STATEMENT OF EARL L. GRINOLS, PROFESSOR OF ECONOMICS, As noted by gambling experts, the expansion of casino gambling in the past half dozen years has not come as the result of a "popularly-based movement for expansion of 1 legalized gambling," nor is it the result of painstaking judicious planning and careful deliberation by elected officials. Rather, it has happened as the unintended consequence of a number of small inceptive events such as the Indian Gaming Regulatory Act of 1988 and initiatives by several states to introduce casinos. The crack in the dike was widened to a flood by gambling industry lobbying in government offices and the inability of most others to do anything about it; the result is a nationwide deluge of casino expansion. Now the Federal government is considering what its role should be in regulating the gambling industry. There would be no need for oversight or regulation if it were not for the tremendous harm that gambling does to some individuals and the widespread and heavy costs that it inflicts on everyone—including those who do not gamble. In many ways an analogy can be drawn between casino gambling today and smoking thirty years ago. There was already a great deal of evidence that smoking was 1 Robert Goodman, Statement before the U.S. House of Representatives, Hearing on the National Impact of Casino Gambling Proliferation, Committee on Small Business, 103rd Congress, 2d Session, Serial No. 103-104, 21 September 1994, p. 57. harmful, but the tobacco industry naturally had little reason to want to provide research on the harmful effects of tobacco. It did have a vast amount of resources and an interest in questioning the evidence of others that tobacco was dangerous. The federal government took a greater role and today we understand the true effects of tobacco on the health of its users. The analogy ends at this point, however, because instituting a prohibition of tobacco sales in any state must confront the long history of legal use of tobacco in every state in the union. In contrast, until 1991 casino gambling was legal only in Nevada and Atlantic City. Gambling Economics One policy option is to prohibit casino gambling, as was the case in all states except Nevada and New Jersey prior to six years ago. Another option is to allow widespread expansion. It is not clear that a middle alternative-allow casino gambling but take measures to prevent problem and pathological gambling by treatment initiatives-is available. Although casino gambling has been available in Nevada since the early 1930s there is little research available from the gambling industry or those it sponsors that would allow one to evaluate these options. My own research, therefore, has been directed to developing independent cost-benefit information on casino gambling. Employment. The industry claims that gambling creates economic development. These claims are mostly false, but because there are rare circumstances in which casinos can increase employment in a given region, they are often accepted in places where the claims do not apply. A good question to ask is whether a casino will act as a factory, a toll house, or a restaurant. A factory exports its products to buyers outside the area and brings new money to fund factory jobs and area jobs in the secondary economy. A toll house, on the other hand, collects money from those inside and outside the region, but has little or no effect on the area's economy because it takes the money it collects outside the area. A toll house could even shrink the local economy if it takes more out than it brings in. A restaurant sells to locals. A growing restaurant may be successful, but it competes with other businesses in the area. Since no new dollars from the outside are brought in, there is no effect on the local economy other than redistribution of consumer dollars. Research completed this summer (1995) using state and county employment and unemployment data from eight casino markets in Illinois shows that the benefits of economic development have not appeared. These markets include both large and small counties, and differ in their proximity to metropolitan areas that range in size from Paducah, Kentucky to St. Louis and Chicago. What was learned should therefore be valuable for cost benefit evaluations of casino expansions in other areas. Of sixteen data sets examined, none showed a relationship between casino gambling and local jobs except two areas where the effect was 15 and 16 percent of what could be expected if casino revenues came from outsiders and, with the exception of state taxes, were spent locally. Representative charts of the data for three of the areas is included in my testimony. The absence of an effect is consistent with the toll house and restaurant models above. In only one case was the outcome larger, measuring 41 percent of the possible. The areas that showed employment effects were characterized by a low population (in both areas county employment was less than 12,000) and close access to a larger population base. Las Vegas, relying heavily on gamblers from California, and Tunica, |