Gambling through lotteries, stocks, casinos, and in other ways is common throughout the world. Economists explain this by both process and outcomes. By "process" I mean that many people enjoy the thrill of the risk involved in gambling-this is sometimes called "the utility from gambling". This enjoyment of gambling is the dominant factor behind the many small gambles that people take while playing poker, cards, slot machines, blackjack, craps, and other games. Gambling is also attractive when, as with lotteries, it offers a small probability of winning a lot, and thereby changing significantly one's economic situation, even when combined with a large probability of losing a little. Economists explain this by assuming the marginal utility of income in rising in some income intervals.
Put in this context, the popularity of online gambling is not at all surprising. It offers highly convenient access to gaming situations from one's home or office that includes also flexibility as to amount wagered, many different types of gambles, and relatively good odds. Nor is it surprising, however, that the American government and the governments of most other countries are unhappy about internet gambling, and try to either prevent or tax it.
The approach to gambling by state and local governments of the United States is fairly typical of what happens elsewhere. Gambling was long officially banned in all states except Nevada, but it persisted illegally in the form of numbers, bookies, card games, and in other ways. The hit musical of several decades ago "Guys and Dolls" based on a story by Damon Runyan centers around a floating game of craps in New York hosted in different venues to avoid police. Eventually, state governments saw the tax revenue potential of state-run lotteries when combined with continued prohibitions on private lotteries. Lotteries then spread from state to state. Many states now also license casinos and tax them heavily, and the federal government got into the gambling picture by the strange method of giving Indian tribes special advantages in running casinos.
Governments are concerned about online gambling primarily, I believe, because it threatens the revenue and other political advantages they get from taxing and tightly regulating various forms of gambling. Internet gambling is very hard to regulate and tax because online companies can set up in remote places and make gambling available to practically anyone who has access to the Internet. In fact, many online gambling companies are located either in ships at sea, or in very small countries that allow them to operate in return for a cut of the profits. For example, the big online betting company, BetOnSports, currently being prosecuted in federal court, has its headquarters in Costa Rica, and has other offices on the island of Antigua.
The House of Representatives by a large majority passed a bill in July that attempts to curb online poker games, sports betting, and other Internet-based wagering. Among other things, the bill would bar the use of electronic payments, such as credit-card transactions, in online wagering. This bill came six years after a similar measure was defeated. Many attribute the change in the House's vote to the Jack Abramoff scandal. That may have been the precipitating factor, but the main reason is the rapid growth in online gambling during the past six years to about $12 billion per year worldwide, with about half of that in the United States. Online gambling is fast becoming a major threat to government revenue from gambling, and to its control over how and where gambling takes place.
Supporters of this bill argue that easy access to online gambling is dangerous because it encourages and strengthens gambling addictions. The fact is, however, that gambling is even less addicted than drinking, and is not nearly as addicted as smoking. Moreover, gambling addicts can already find many ways to gamble. The vast majority of online gamblers bet modest sums for pleasure, such as the estimated 23 million Americans who now play online poker (the Pokers Players Alliance, which claims more than 25,000 members, opposed the bill).
Other supporters of a ban on online gambling claim that it is used to launder money obtained from drugs and other illegal activities. The laundering argument against gambling is largely irrelevant, given the many other ways to launder money.
I favor allowing online gambling, given the weak arguments against it, the common human desire to gamble, and also that addictive aspects of gambling are greatly exaggerated. Indeed, I also believe it should remain tax free, along with purchases of other services through the Internet. For tax-free online gambling would put pressure on governments to reduce taxes and various restrictions on lotteries and other forms of gambling. Lower taxes and fewer regulations would give individuals cheaper access to ways to satisfy the mainly harmless desire to play games for money, and to bet on sporting and other events, including lotteries.
As with many other laws, restrictions on gambling mainly impact the poor and middle classes since wealthier individuals can and do gamble through equities, derivatives, housing, and in many other ways that are not readily available to families with modest incomes. There are many ways to spend money in ways that others do not approve. Why single out families with modest incomes who may enjoy the excitement of gambling, or the dreams gambling provide about striking it rich?