Gambling

"The gambling known as business," said the 19th century wit Ambrose Bierce, "looks with austere disfavor upon the business known as gambling."

You can count me among the business spokesmen who look with disfavor on gambling, and especially upon the pell-mell rush of state governments to embrace gambling as a source of state revenue. At least 39 states today authorize some form of casino gambling, up from only two in 1988, and more casinos are under construction or being planned in New York, Pennsylvania, Massachusetts and Maryland. And virtually every state operates various forms of numbers games and lotteries. It is as if the entire country has gone mad for gambling.

It is not difficult to see why the states are addicted to gambling. It creates jobs and provides a steady stream of revenue. What's not to like about that?

My problem with gambling is that it is what we economists call a zero sum game. That is to say that the activity of gambling involves a great churning of money without producing any tangible product. Most business enterprises produce something of use to society, whether manufactured products or services, but gambling consumes time and money without producing any viable product. From an economic perspective, gambling is a black hole.

From a moral perspective, it is even worse. The majority of people who engage in gambling lose money and for the most part they are people who cannot afford to. I am not referring specifically to people who are addicted to gambling, but rather everyone who gambles on a regular basis, even for small amounts. If a millionaire wants to squander his excess cash at the roulette wheel, that is of little consequence to him or the rest of us but when working people squander the money they need to pay the rent and provide medical care for their children that becomes a societal issue.

As for "the gambling known as business," in Bierce's phrase, it is a given that any investment in business entails a certain amount of risk, whether you are building a factory, developing a new product or simply buying stock in a company. But this is what I call sensible risk - a viable investment in the future. Some business investments fail, but the ones that succeed produce tangible wealth, the goods and services that are the foundation of civilized life.

Unfortunately, too much of business today is coming to reflect the short term gambling mentality Bierce referred to, and much of it can be attributed to policies of the Federal Reserve. By injecting massive amounts of liquidity into the financial system holding interest rates at artificially low rates, the Fed discourages saving and capital investment. Thus, we see too many mega mergers, and also too much financial engineering, and not enough long term capital or R&D investment. This short term high stakes mentality is not in our best interests. Business should leave gambling to the states and focus on business.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.