Kentucky is the original home of the Kentucky Wildcats, homemade moonshine, and since 1992 the KY Powerball. While most opponents of a lottery point to a lottery’s corruptive nature or moral Christian beliefs as their, this article will choose to use an approach based more on economic principles. Considering the transfer power that a lottery has on wealth, should the Commonwealth of Kentucky continue to maintain lottery games like the KY Powerball and Mega Millions? Before that question can be answered though, a serious look at the good that the lottery has done for the Commonwealth is appropriate.
Since Kentucky enacted a lottery in 1989, lottery games like the KY Powerball have contributed a staggering $3.5 billion to the Commonwealth’s treasury. More specifically, early in the 90s, the Kentucky lotteries were legislatively mandated to set aside $32 million for a bonus to the Commonwealth’s Vietnam veterans and $214 million for elementary and secondary education. In addition, since 1999, Kentucky’s lotteries have contributed $1.74 billion to state post-secondary scholarship funds and grants like the KEES program, $36 million for early childhood reading and adult literacy programs, and $21 million for housing affordability initiatives. Finally, Kentucky lotteries have contributed more than $1.5 billion to the government’s General Fund according to the General Assembly.
Even though the Kentucky Lottery games do so much good on the broad economic scale (government budgets and education), the first argument against state lotteries is the effects on the immediate economy (GDP and consumer spending). For instance, just in the 2011 fiscal year, Kentucky lottery games, including the KY Powerball, sucked over $700 million in lottery revenue out of Kentucky’s local economy. Although more than 50% was returned back to winners, the remaining portion is a direct leakage from the GDP and ultimately hurts growth. If consumers in Kentucky are spending $700 million more on goods and services rather than a state sponsored lottery, then it would have generated tremendous demand for Kentucky businesses and started a down slope in the unemployment rate. Instead, the Commonwealth’s consumer spending remains stagnant and unemployment is above 8%.
The other argument against state lotteries like KY Powerball is the blatant and shameful advertising strategy that is carried out. For the most part, the demographics of a lottery ticket buyer are middle or lower income, minority, and high school level education. States like Kentucky have this data but still choose to base place and promotion strategies off of it. For example, retailers and their promotions are overwhelmingly located in large urban minority communities at convenience stores, gas stations, liquor stores, bodegas, and even small mom and pop stores in rural areas of the state.
In short, until targeting of these misfortunate individuals are stopped, the economic anemia described earlier in this article will continue to happen—and states like Kentucky will have to think twice about having major lotteries like KY Powerball and Mega Millions reaping so much hidden, economic damage on economic growth. What do you think? Whether you agree or disagree, please share any thoughts on Facebook, Twitter, and LinkedIn with other friends and family.