The dark line shows the labor market experience while the red lines beginning at month of opening show the potential impact on jobs of the casinos if the casino gross revenues came from gamblers outside the area and all revenues (except for state taxes) were spent locally.

The figures show no discernible pattern to the data after casino opening compared to before. Statistical regressions confirm the absence of an effect in these markets.

This data agrees with economic theory and with what most economists would expect.

Social Impact

The central objections to gambling derive from its costly externalities and the effect that it has on society. Nevada has had casinos since the early 1930s, owes more than half of its jobs to the casino industry, and, until 1978 was the only state with casino gambling. Nevada has the highest suicide rate in the nation, more than double the national average, and one of the highest rates in the world. Nevada has one of the highest rates of child abuse (third in the nation), and has one of the highest rates of automobile accidents per vehicle mile driven. The connection to gambling is that addicted gamblers commit suicide at 5 to 10 times the average rate according to experts and that casinos often use alcohol as a gambling inducement. Nevada also shows up prominently in other problem statistics including school dropout rates and crime. The figure compares Nevada in violent crime to other western states ranked near it in population and to the

nation in suicide and child abuse.

Pathological Gambling

We know that 1 to 5 percent of the adult population will become addicted to gambling if it becomes commonly available. Pathological gambling has the potential to become just as big a social problem as any the country now struggles with including drug addiction, alcoholism, and

crime. Combining prevalence studies with information about the social costs per pathological gambler implies annual costs averaged over the country's work force of $315 to over $1,100 for every working person. These high costs would be paid by everyone so that some may gamble. The next figure shows the share of revenues received by a representative casino from three types of clients: Problem and pathological gamblers, heavy bettors, and everyone else. Combining information from pathological gamblers about how much they lose annually with data about the prevalence rate of pathological gamblers in the population, suggests that the casino industry is heavily dependent on the revenues of problem and pathological gamblers. In the chart, the casino receives slightly more than half its revenues from this group. These figures can be compared to 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 next chart shows what this means for the relative amounts of gambling by three

hypothetical individuals, one of each type.

Costs and Benefits

Since casino gambling began its spread outside the confines of Nevada and Atlantic City, the serious economic questions have been:

1) What are the social costs of casino gambling?

2) What are its benefits?

3) Which is bigger?

The social cost figures just provided are astonishingly high when compared to other social issues. In my Congressional testimony last year I compared them to the costs of an additional

recession in the economy roughly every decade or to suffering an additional hurricane Andrew, the costliest natural disaster in American history, every year for the rest of time.

One problem that economists have is trying to explain billions of dollars of social damage in ways that are comprehensible. My last chart shows the additional social costs and benefits 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 including $15 in taxes, $14 in increased casino profits, and the benefits of closer casinos for consumers. The additional social cost would be between $110 to $340 per adult. If the choice were between expansion or prohibition, these figures suggest we are better off with the pre-1990 situation.

The last bar shows casino revenues. Because social costs equal three-fourths to more than 100 percent of casino revenues, social costs cannot be compensated by taxing casinos more heavily.

The chart highlights another important point: Casinos can remain highly profitable 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.