No on Issue 6: opportunity cost, multiplier effect

We study and try to understand economics because we do not live in a utopia.  Resources are finite, scarce, not unlimited.  We have to make decisions about where we will invest scarce resources because we cannot have it all.  We use many mechanisms to determine how to allocate resources.  We consider returns-on-investment, cost/benefit analyses, supply and demand curves, marginal revenue curves, lists of priorities, etc.  When we look at individual participants in an economy, we speak in terms of micro-economics, and when we look at aggregations of participants, including entire economies, then we speak in terms of macro-economics.  Sometimes, to understand what is happening on the macro level, we need to take a peek at what’s happening at the micro level.  Those analysts trying to get a handle on the housing crisis are doing just that.

So let me turn my attention to Issue 6, which would allow a casino to operate in Ohio.  On the macro level, I have often asserted that casino gambling siphons dollars out of the economy.  Siphoning dollars out of the economy would be a shrinkage risk to the economy, taking a toll on commerce, wealth, and employment, among other things.

Gambling is an industry that cannot sustain itself.  It is parasitic.  It sucks the economic life blood out of its victims, and must continually find new hosts to feed upon, or it eventually peters out.  Even  (perhaps, especially) proponents of casinos understand this, for, on the one hand, they try to limit competition (just one casino for all of Ohio, according to Issue 6), because they know that casinos on every street corner would be unsustainable, yet on the other hand, casinos can’t stand pat and stay where they are without expanding their scope, because they would fold for lack of new hosts to bleed dry.  In the state of Nevada, revenues from resort casinos that cater to tourists had leveled off.  To further boost gambling revenues, casinos with less frills that catered to Nevada residents spread across the Nevada landscape.  Despite all the gambling revenues across Nevada, quality of life hasn’t been on the rise.  In terms of public education of school children, Nevada is among the bottom 3 states, with Louisiana and Mississippi.  Nevada’s gambling revenue totals for the last 7 straight months have been down, and the trend shows every sign of continuing.  The housing market in Nevada is in crisis.  The foreclosure rate is skyrocketing.  The construction industry in Nevada is in the process of shutting down because of overbuild, just like Florida.  In an attempt to make ends meet in a sour economy, there are Nevada businesses that try to lower labor costs by hiring illegal immigrants.

Revenues at long-established casinos in Detroit and in the state of Indiana have also leveled off.  Demand for casinos isn’t rising, it’s dropping.  Casinos in Detroit haven’t prevented the city from being the most poverty-stricken in the nation, nor have tax revenues from casinos helped improve Detroit’s public schools.  As backers of Issue 6 have noted in their commercials, their proposal for a casino within a short drive from Cincinnati has sparked a turf war with Argosy, who operates in Indiana.  With declining revenues, the last thing Argosy wants is someone competing in their market area, and if expansion into Ohio were permitted, it would be Argosy seeking to expand into Ohio in order to fend off falling revenues.  Backers of Issue 6 are also running ads trying to make Ohio covet the casino industries that have set up shop in neighboring states.  We, Ohioans, shouldn’t covet the casinos of other states, as they really haven’t been helpful to the economies of those states.  Michigan’s economy is worse than Ohio’s.  West Virginia and Pennsylvania have limped along for decades now, and gambling isn’t doing anything to turn that around.  Indiana used to have a growing economy, but it’s become sour.  There’s nothing about a casino that will cure Ohio’s economic ills.

In fact, it’s the opposite.  Casinos will exacerbate Ohio’s economic ills.  Let’s figure out why.

You do not have an unlimited income.  There are limits to what you can do with your money, because you don’t have much.  So, when you spend money on a new sofa, that’s money that can’t be used for something else.  When you go out to dinner, that’s money that can’t be used for something else.  When you money on a day at Cedar Point, that’s money that can’t be used for something else.  When you gamble money at a casino, that money you lost can’t be used for something else.  That’s called opportunity cost.  When you spend money on something, it eliminates the opportunity to do something else with that money.

Our economy has hinged on consumption to keep it vibrant.  There is a multiplier effect that causes the money you spend to ripple through the rest of the economy.  We can thank the supply chain for that ripple effect.

When you buy that sofa, you receive a tangible asset in exchange for your money.  A sofa can be quite useful in your home.  Meanwhile, the money you spent becomes useful to the merchant.  The furniture store uses the cash to pay for expenses, including the salaries of workers.  Those workers now have the wherewithal to do some spending, too.  But the benefit doesn’t stop there.  It continues up the supply chain.  Your purchase reduced the store’s inventory.  The store places an order from a distributor to replenish the inventory.  Dollars go to the distribution center.  The distribution center pays its expenses, including the salary of workers.  Those workers now have the wherewithal to do some spending, too.  But the benefit doesn’t stop there.  The distribution center places an order with the sofa manufacturer to replenish its inventory.  Dollars go to the manufacturer.  The manufacturer pays its expenses, including the salaries of workers.  It doesn’t stop there.  The manufacturer places orders with suppliers for lumber, fabric, nails, screws, etc.  Dollars go to the suppliers.  It doesn’t stop there.  The suppliers place orders for raw materials to make components out of.  That’s the multiplier effect.

When you spend money at a restaurant, the restaurant pays its expenses, including the salaries of workers.  You received a tangible benefit–food.  You ate it.  You get to survive to see another day because you didn’t starve.  The money you spent in the restaurant doesn’t stay there.  The restaurant orders more food from a warehouse.  The warehouse pays its expenses, including salaries for workers, but it doesn’t stop there.  The warehouse places orders with companies that process foods, like cheesemakers, and bakeries. The benefits don’t stop there.  Eventually, the dollars reach all the way back to the farmers.

When you spend money at Cedar Point, you are also probably spending money on gasoline, maybe even a hotel, restaurant, or retail store.  I should know.  I live in Sandusky.  Again, those expenses for gasoline, hotel, restaurant, and retail store send dollars rippling up those respective supply chains, creating multiplier effects on the dollars you spent, expanding the economy.  At Cedar Point, they pay their expenses including salaries of workers, and they reinvest some of their profits during the winter on R&D, and construction to build the newest, fastest, tallest, steepest, longest roller coaster in order to keep ahead of the competition.  Thus engineering and construction firms are at work every year even when the park is closed for the winter.  The perpetual construction means that more dollars are spent for lumber, structural steel, masonry, fiberglass, etc.  The dollars keep rippling through the economy.

Then there are casinos.  You spend your money.  You lose your money.  You get nothing in return.  The casino pays its expenses, including the salaries of workers, and the rest of the money goes to the casino owners.  And that’s as far as your money goes.  No inventory needs to be replenished.  There is no supply chain.  You might have bought gasoline to get to the casino, but you might not have enough money to buy gasoline to get home.  You lost so much money, you feel sick.  You can’t eat.  You want to sleep it off, the casino comps you a room upstairs for the night, for the casino is selfish.  Once you enter, the casino doesn’t want you to spend a dime at other restaurants or hotels.  They want every dime to be spent on their property.  That’s what restaurants and hotels in downtown Detroit found out.  The casinos don’t share the wealth.  There’s been no uptick in the amount of business the restaurants and hotels do in Detroit since the casinos opened.  The casinos are selfish.  Your gambling losses line the pockets of some shady fat-cat casino owners.  What do they do with the wealth?  Greedy as they are, they probably try to shelter it, by off-shoring the money in some Swiss bank account, or in the Cayman Islands.  That money has left the economy for good.  You got nothing in return.  You go home, you still have to pay for the mortgage.  Can’t pay it?  You’ll end up in foreclosure.  You’ve got bills to pay.  Can’t pay them?  You might file for bankruptcy.  Forget the credit cards, you’ll have to cut them up when you file for bankruptcy.  Want to go shopping?  Forget about it.  You lost the money at the casino.  Opportunity cost.  The money you lost at the casino is lost to you forever.  You can’t get it back.  You can’t put that money to better use.  That money is not rippling through the economy.

The economy contracts.  As the economy contracts, there is less exchange of goods and services.  Businesses fold.  Workers lose their jobs.  The cycle embarks on a downward spiral.

Vote NO on Issue 6.  Casinos siphon money out of the economy.  That’s not going to help Ohio.