The Lottery is Not a Panacea for State Finances

The lottery, that great game of chance where you pick a series of numbers and hope they match the ones randomly chosen by a machine, is not only a national pastime but also an enormous source of revenue for state governments. It’s a business that’s designed, from the ad campaigns to the math behind it, to keep players coming back for more. This is not an accident, and it’s not all that different from the strategies of tobacco companies or video-game manufacturers.

As the historian David Cohen points out, there has long been a fascination with unimaginable wealth—the dream of winning the lottery, in particular. But the real story of how this became a national pastime starts in the nineteen-seventies, when our growing awareness of all the money to be made in the gambling business coincided with a crisis in state finances. As populations grew and inflation accelerated, pensions and health-care costs soared, and unemployment and poverty rates climbed, it became harder and harder for states to balance their budgets without raising taxes or cutting services—and those were wildly unpopular options with voters.

So, in search of a quick fix, states turned to the lottery as an alternative way to raise revenue. They started small, offering a handful of prizes, and eventually expanded to include games that allowed people to win everything from units in subsidized housing to kindergarten placements at good public schools. By the mid-nineteen-eighties, when many Americans were still reeling from the recession and fearful of a future that looked less secure than their parents’, there was a widespread impression that it was possible to get rich quickly through the lottery.

But, as Cohen and other scholars have found, the lottery is not a panacea for state finance problems. In fact, a lot of money is lost on the game—and even when it does bring in some cash, it’s not as effective as other methods.

For example, some states have discovered that the lottery has a tendency to create a cycle of debt. When the jackpots start getting really big, they encourage more and more people to buy tickets, which increases ticket prices and the number of winners—and that in turn leads to a bigger prize and even higher ticket sales. The same pattern can be seen in the way the state-run Powerball jackpot has grown to record levels of over $600 million.

And, as many have pointed out, the lottery is a remarkably expensive game to run. For every dollar that is paid out to winners, a large percentage must be deducted for administrative expenses, advertising, and profit. And the odds of winning are actually quite low. So, if you’re going to play the lottery, be smart about it and limit your purchases to small-prize games with lower stakes. That way, you can maximize your chances of winning and minimize the amount of money that’s lost in the process.