Comment on American Indians and Casinos-BECKER

The American government’s treatment of its native population has often been mean and has been consistently erratic. But little in the long history of relations with American Indians is as peculiar as the granting of Indian tribes a privileged position with regard to the approval of gambling casinos. In some states, Indian tribes are essentially the only ones allowed to have casino licenses, while other states give priority to applications from tribes. Serious discussions in the past of compensation of American Indians for mistreatment of their ancestors considered head start type programs, retraining, intensive medical care and counseling, and cash gifts. Licenses to run casinos? Too absurd to be discussed, yet that absurdity became a reality during the past couple of decades. To be sure, as Posner indicates, such licenses are valuable: revenue from Indian casinos amount to somewhere between $15 and $20 billion. This is why certain tribes, such as those with licenses for the Foxwood and Mohegan Sun Casinos in Connecticut, have received considerable wealth from their privileged position with regard to getting casino licenses. Gambling licenses are valuable when they are limited in number because Americans and citizens of many other nations have demonstrated throughout history a great desire to gamble, whether or not gambling was legal. So state-run lotteries-essentially the only lotteries that are legal in the United States and other countries-produce about $20 billion of annual revenue for American state governments. These states collect about half of this revenue as taxes. Casino licenses to private companies in Los Vegas and elsewhere that allow widespread gambling typically sell for a lot because of gambling's popularity and the restrictions on competition. I agree with Posner that the case for government management and entry restrictions in the gambling industry is weak and unpersuasive. Even if one opposes gambling because it is sometimes addictive or for other reasons, a better approach than the present system would be to allow free entry into the casino industry and other gambling activities. It is more effective to allow entry and tax sales or profits made by privately run gambling establishments. The rates of taxation would be determined by revenue considerations and attitudes toward gambling. Of course, some forms of gambling would move underground if tax rates became high enough. Michael Grossman of CUNY, among others, has shown, for example, that there is considerable smuggling of cigarettes into cities and states with high cigarette tax rates from states with low rates. However, underground gambling could be considerably reduced if governments were willing to apprehend perpetrators and punish them sufficiently. Enforcement is more difficult against the most important trend in gambling; namely, the rapid growth in the quantity and variety of gambling over the internet. For example, it will soon be possible, if not possible already, to bet in real time on the outcome of particular pitches in baseball, or individual plays in football. Internet gambling is particularly difficult to regulate because it can originate anywhere, including at sea, and can relocate easily when authorities try to close down a site. So the internet is in the process of making gambling a global and highly competitive industry that can readily evade taxation. But to come back to casinos and tribal privileges, why should subsidies to American Indians be tied to casino gambling? There seems to be at best a weak connection between which tribes gain the most from these subsidies, and their poverty, disease burden, and how much they have suffered from discrimination. On the contrary, tribes benefit the most when they are sufficiently close to large and well off populations, criteria that are likely to mean that their members do relatively well anyway. This method of distributing benefits to Indians seems inconsistent with any reasonable criteria of which tribes should receive larger subsidies or other benefits. So my conclusion is that the special casino privileges granted to tribes is a continuation of the long history of senseless policies by United States governments toward American Indians.

Comments

[James]

"The American government's treatment of its native population has often been mean and has been consistently erratic."

"Mean" doesn't seem quite strong enough a word for the campaign of extermination undertaken by the Americans pre- and post-Independence. Otherwise good post.

[nate]

At least a casino is up-front about gambling. On the other hand, hedging fixed assets at a corporation may be gambling disguised as management (not sure).

[ch]

Nate, what do you mean?
--Am I wrong to take it as "gambling is in the open at casinos, which is better than when it happens in corporations less openly?"

[Arun Khanna]

A related economic issue has not been addressed. Why are ëcasino citiesí like Atlantic City, Las Vegas, Reno, New Orleans and cities in neighboring countries not able to offer day trips that compete directly with native tribe casinos? A combination of discount airline routes and more casino options in a casino city provides some level of competition for native tribe casinos.

[Joe Merchant]

I agree that the benefit mechanism is bizarre, but I think it befell the Indians just as arbitrarily as all of their "bad luck" in the past 500 years, and in some ways is a poetic and fitting token for them to have, for the moment.

After all, it is the citizens who travel to the casinos who voluntarily elect to donate this money to the Indians. A better gig than the arts and crafts they were selling while I was growing up. Some in South Florida still wrestle alligators for a living, but I think they do it because they enjoy it. At some point, it may get to be too good of a gig, and more regulations will have to be put on it.

But, when a cowboy can invade a country at a whim, spending billions more, costing thousands of American lives, and ruining the U.S. diplomatic standing with one of the worlds largest religious groups, why not let the Native Americans have a little fun for a change. There are bigger problems that need fixing, noone is being ordered to gamble.

[albatross]

Joe Merchant:

The big question isn't why Indians on reservations are allowed to run casinos, it's why everyone else isn't allowed to. The obvious answer is "because that would compete with businesses either owned by the state, or owned by people who spend a lot of money trying to buy legislative favors."

[Bill Churchill]

What a wonderful place for a highly useful economics experiment that would be of benefit to all of humankind.

Question: What would happen if a highly regulated industry was suddenly and completely deregulated across the entire US society (including on ìIndianî Reservations)? In other words, what would happen if we gave Lazziese Faire a chance in a particular industry? What exactly would happen to all of the participants (investors, providers, consumers and society at large) in the ìgambling gameî under such a new regime? What would this cause to happen to the profits of the industry over time? How would the industryís providers and investors react to whatever changes come about? What would be the long term ìmoral consequence?î How would these issues be reshaped by the greater understanding that would accrue?

My hypothesis is that not much long term social harm would come from a complete deregulation of gambling, while at the same time, we could use our modern understanding of economics to analyze ìderegulationî itselfóas the results happen. What makes this prospect sweet is that we would be deregulating (and experimenting upon) an industry on which our whole society is not ìintrinsically dependentî (such as we are with the energy industry or water utilities).

We can test the effects on profits, service, monopoly, crime, etc., etc., etcÖ The possibilities are virtually endless.

But the greatest benefit of all is that this ìreal timeî experiment can be observed for its ACTUAL resultsórelatively unclouded by the constructions of various long entrenched ideologies. The political pundits of the ìLeft,î ìRightî and other ìismsî will have to take a back seat as the science of economics (and other of the variously related fields) is used to refine a better understanding of the true intricacies of the issues of ìderegulationî and ìprivatization.î

I believe that such an experiment, conducted in modern times, will serve as a case of ìfirst impressionî that will stop many spin-masters in their tracks. Indeed, our society may come to realize the benefits of an understanding that overcomes the superstitions that drive its extremists.

I know that this proposal will probably be controversial, having been offered in the context of a discussion of ìIndian gambling rights.î Then again--in light of the degree of corruption driven by the ìIndianî gaming industry, let me ask: how many ìIndiansî are actually benefiting from such ìrights?î I suspect that only a small fraction does.

Posted by Bill Churchill

[Joe Merchant]

Bill,

A larger fraction of Indians benefit from the casinos than you'll find benefiting from large scale corporate profits in "mainstream America."

Deregulation of Gaming would be a fun experiment, but it has unfortunate ties into perceptions of morality - something not easily overcome in this land founded on a principle of freedom of religion. Between that and the vested interests in keeping Gaming where it is, it could never be deregulated in a pure enough form to teach anything about large scale deregulation.

[wavemaker]

Bill, during the 1970's ,y father served as the Chairman of the National Gambling COmmission, established by President Nixon to investigate and make recommendations on the future of legalized gambling and means of regulation (or deregulation) thereof. The Commission's report, issued (as I recall)around 1976, contained predictions then that were 100% accurate, with respect to Indian gaming and other subjects. Its chief recommendations were that (1)regulation of all gaming be left to the states alone, and (2) winnings (net) from gaming be exempted from taxation, provided that the winnings were earned in a licensed gaming establishment (this would effectively eliminated illegal gambling enterprises), and (3)all indian gaming be brought under federal control (at the time there were only a handful of casinos on indian land) to discourage the exploitation of the tribes by profiteers.

Like most Washington-induced Commission reports, it was placed on a shelf to gather dust, and only a few of the Commission's recommendations were ever the subject of legislative action.

[Bill Churchill]

In Response to: Joe Merchant at January 12, 200612:21 PM, and
Wavemaker at January 12, 2006 03:48 PM.

Dear Joe and Wavemaker,

It is probably true what they say that, ìthe real world is a special case exception to the ëlawsí of economics.î

I am sure that you both would agree with me that those who have ìmoral objectionsî to expanded gambling also have interests in its restrictionóbut not its elimination. These are also often the same people who outwardly praise Lazziese Faire capitalism as a panacea for our economy while having other motives. These people donít actually believe what they are saying in this regard any more than those who would say, ìif only more people lived like (name the religious ideal of your choosing) the world would be a paradise.î All these people are really thinking is ìtrust us with the guns (of governmental legitimacy).î After all, their real belief is (to paraphrase Machiavelli), ìno ëprofití is a profit without firepower.î By this usage Capitalism is like all other religions.

This is probably why Wavemakerís fatherís commissionís report was relegated to the dust heap at the twilight of the nationís last great ìLiberalî political paradigm and the dawn of the present great ìconservativeî one. Neither side wanted to really examine the issue or change thingsóother than to determine who was to be in power. These labels (ìConservativeî and ìLiberalî) mean nothing. We must get beyond these nearsighted political superstitions or one of these two camps will bury us in a new dark age, the likes of which I shudder to imagine.

Posted by Bill Churchill January 12, 2006

[Rbaron]

Bill,

Interesting comment. In 2000 Time magazine looked at some of the tribes that were profiting casinos, notably the hugely successfully and profitable Foxwood casino. Time found that many of these tribes had questionable origins, extremely small, effectively closed to entry, and with very close ties to professional interests. The tribe connected to Foxwood, for example, had at the time of printing 491 members each recieving annual stipeds more fitting of a Saudi prince. The tribe was only reconized by the Federal government months before the ground breaking of the casino.

Based on that article, one can only surmise that very few "Indians" are actually benefiting from these casinos.

[Joe Merchant]

Simple economics on the recognition of "long lost" Indian tribes - in earlier times there was a negative benefit to being recognized, when the profit of casinos came around the "underground Indians" resurfaced to claim the gold ring.

I am 3/64 Native American, 1/64 Cherokee and 1/32 Oklahoma Plains (as documented in family bibles.) This just falls short of the 1/16th eligibility limit, so I was unable to join a tribe and claim minority status for benefits such as college scholarships. Although my father does qualify for membership, he is not aware of any tangible benefits for joining (though I might suggest he look into the casino angle....)

[Kossuth]

The problem with these deregulatory fantasies is that they neglect to take into account how the government itself will need to be working to ensure the rights of the new gambling entrepreneurs, enforcing order on their properties and perhaps even insuring their risk and assisting them in collecting debt, since once gambling becomes the source of so many local economies (whose proprietors are too lazy or foolish to diversify?--see Detroit), we won?t be able to let a poorly run gambling operation go bankrupt for making the wrong bets.

I for one find it morally repugnant for government, which is supposed to be a place to which we can look for ideals, to have anything at all (taxation profits, whatever) to do with gambling.

[Quad Rim]

Gambling has been an issue eversince it came to existence. For years, government regulations were made to regulate gambling. However, it turned out that those laws are designed to boost the casino industry. Likely, this trend will go on for as long a the people are willing to make bets.

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