Andy Rooney Gets it Wrong on Gambling...and Lady Gaga

Last week, HuffPost reported on a 60 Minutes piece where Andy Rooney laments that mainstream culture does not cater to him because he doesn't know who Lady Gaga is. In this instance, while Rooney may be somewhat curmudgeonly and his ignorance easily remedied, I can at least respect the idea that he is entitled to his own viewpoint. Furthermore, I am willing to assume that Rooney is not factually incorrect, since his stance of not knowing who people like Lady Gaga and Justin Bieber are is conveyed convincingly.

Rooney's latest piece, on the other hand, takes an unfortunate turn from being merely cranky and opinionated to being factually misleading and ignorant on matters of higher intellectual substance than who the current pop culture icons happen to be. In his piece, Rooney argues that it is "good news" for the economy that "according to an American Gaming Association report, revenue from casino gambling fell by almost two billion dollars last year." Rooney is patently incorrect on a number of fronts.

To illustrate the supposed drag on the economy that casinos create, Rooney states that "casinos keep something like 20 percent of everything bet for themselves." It's somewhat surprising to me that anyone on a respected national news program would make such a statement without bothering to check its accuracy, especially when it comes to a statistic that happens to be very easy to confirm or refute. In reality, the house advantage for popular casino games ranges from less than one percent (for blackjack) to about 15 percent for nickel slots. Rooney also seems to be conflating the concept of gross revenue (the total dollar amount that is taken in from customers) and profit (the money that is left over from revenue after all expenses get paid) in that he claims that the casinos "earned" $30.7 billion. While the casinos did take in that much cash as their house advantage or rake, the majority of that money goes to pay employees, suppliers and the like.

While Rooney's numerical inaccuracies are irksome, they are not central to his argument and thus relatively easy to look past. Where Rooney really gets it wrong is in his claim that, at casinos, "people fritter away money so they don't get to spend it on things that someone else has been paid to produce." The reality is that, according to the same report that Rooney quotes, the U.S. gambling industry employed 328,377 people in 2009 and paid wages of $13.1 billion. These numbers make it hard to refute the fact that the money that people are supposedly frittering away is actually spent on entertainment services that people are in fact paid to produce. Moreover, the claim that "there's only so much money in the world and if it's lost at a gambling table, it's money that isn't spent on things America makes" is completely unrepresentative of how the economy actually works.

The only way that this statement could be even be close to true is if the casino owners set fire to all of the cash they keep in their vaults as profits, which I'm pretty sure is not how they operate. Instead, the owners, investors, employees and others who receive payments from the "suckers" at the tables take the money and spend at least some of it on things that America makes...and then the people who make things take some of their earnings and spend them on things that America makes, and so on. I'm reasonably certain that the winners at the casinos don't torch their newly-won cash either, so they make up for fact that the losers at the casino no longer have the money to spend by spending their winnings.

The point is that, aside from tax intricacies, the overall economic effect of people attending casinos is roughly the same as it would have been if those people had gone to see a movie, had dinner, or engaged in other activities that Rooney would probably consider to be more socially beneficial, so it is incorrect to say that the decline in casino revenue is a good thing for the economy. The difference between the casinos and the other businesses is that whereas the restaurant pays out to food suppliers who then use the money to invest in agriculture and alcohol companies who turn around and plant more grapes or build a new distillery, the casino supports the production of things like slot machines, felt-covered tables and lots and lots of outdoor lighting equipment. In either case, people are put to work in profitable industries and are creating economic value.

Rooney actually goes so far as to ask why the government doesn't outlaw casinos in order to "protect" people from losing their money. Historically, uninformed viewpoints like this have lead to disastrous policy decisions - one need only think back to the excise tax on pleasure boats put in place in the early 1990's for an example. While it's intuitively appealing to tax the rich yacht owners, the reality is that this sort of policy hurts not only the wealthy buyers but also the (likely less wealthy) yacht manufacturers, the suppliers of parts for the yachts, and so on. In a similar fashion, it must be acknowledged that restrictions on gambling would not only "protect" the consumers but also put a number of employees and suppliers out of work. Granted, these people could theoretically find work in other industries, but that is easier said than done on a practical level, and there is certainly some knowledge and human capital sacrificed in the process. What Rooney is actually advocating, then, is that in order to "protect" people from losing their money, we force other people to lose their incomes.

The beauty of capitalism is that people effectively vote with their dollars, and the industries and companies that flourish are the ones where people are willing to pay more for products and services than they cost to produce. Prices and resource allocation are determined by the forces of supply and demand, and this creates economic value for society. The downside of capitalism is, well, that the industries and companies that flourish are the ones where people are willing to pay more for products and services than they cost to produce, and this doesn't necessarily line up with everyone's notion of intrinsic value. (One need only look at the labor market for teachers for an illustration of this concept.) In Andy Rooney's case, his frustration appears to be once again largely due to the fact that his tastes regarding where people's dollars should be spent are outside of the mainstream. As such, he needs to realize that taking away gambling because he thinks it's silly is no more beneficial to the economy than taking away Lady Gaga because he doesn't know who she is.