The Problem with the Lottery System

There are 3 fundamental philosophical criticisms of the lottery system:1. The lottery is a business ran by the government; at best the marketing is deceptive and at worst it’s a pure lie.

  1. The lottery is a tax for the poor and middle class and gives people a false belief that they can win money for nothing.
  2. No help is given to the lottery winner once the money is distributed. It isn’t all it’s cracked up to be.
  3. Marketing

Most people, even lottery players themselves, don’t realize the true scope of the lottery system. Many consider it similar to buying a raffle ticket: you spend a few dollars here and there and hope to win the prize. However, the lottery in the United States is a $60 billion industry, spanning 43 states. It is serious business; this isn’t your child’s raffle ticket game. And in order to reach multi-billion dollar status you must have a massive marketing campaign.

According to Gallup polls, 49% of Americans had purchased a lottery ticket in 2003. This is actually the lowest it’s been since 1989. A Gallup poll also revealed that 15% of teenagers between thirteen and seventeen purchased lottery tickets in 1999.

So why do half of Americans, and 15% of teenagers, purchase lottery tickets? For the chance for big money of course. And because they believe it is for the betterment of society. Fifty four percent of those polled believe lotteries keep taxes lower and favored lotteries three to one over more taxes. Forty two percent believe that lotteries are beneficial for society since they provide funding for education. An additional 17% believe the funds help roads/public transportation, 15% believe it keeps taxes lower, and 8% believe it helps create jobs and improve the economy.

People believe this because this is how the lottery is marketed. This isn’t the whole truth, however. As Edward Ugel reveals in his book, “Money For Nothing,” the state markets the lotteries as “helping schools” and “building roads” but in actuality, this isn’t what the government does. And he should know: he spent years of his life making millions of dollars being a broker between lottery winners and investors who wanted to buy out their annual winnings.

So what does the government really do? The government uses lottery funding to re-allocate funds back into the general fund. For example: $30 million is budgeted for schools and the lottery funds raise $10 million for schools. The government will transfer the lottery’s $10 million to schools and add an additional $20 million to complete their $30 million budget. The remaining $10 million that the government would have allocated to schools goes back into the general fund and spent elsewhere. Have you ever heard the government announce “we’re lowering taxes since lottery funds were so high?” Of course not, that’s not how government works. It’s taxation on top of taxation. And it isn’t just limited to schools. The myth of road and transportation funds and job creation are also perpetuated in their marketing.

  1. Taxation

As if the state using the lottery as a means to raise funds isn’t bad enough, it’s important to understand where the majority of lottery funds come from. Rich people rarely buy lottery tickets: they don’t need the money. Poor people buy the majority of tickets: many see it as their only way out of poverty. A recent study shows that the average household in America making under $13,000 spends $645 on lottery tickets. When comparing actual income and actual funds spent (as opposed to just averages), researchers found that the average poor family spends 9% of their income on the lottery. As Jonah Leher put it: “The study neatly illuminates the sad positive feedback loop of lotteries. The games naturally appeal to poor people, which causes them to spend disproportionate amounts of their income on lotteries, which helps keep them poor, which keeps them buying tickets. The saddest part is that these destructive games are run by the government.”

This isn’t just about the numbers. It’s not important exactly what each study finds, what percentage believes this or buys this. It’s about the principle. The government ends up using the lottery as a means to give false hope to poor people, convince them to buy lottery tickets to “get out of poverty and strike it rich” and in doing so, collects tens of billions of dollars in lottery funds and returns a few billion back.

America is the land of the free, no doubt. And people should be free to do whatever they want with their money, whether it’s invest the funds, buy lottery tickets, spend it on fast food or send it overseas for charity. Ultimately it is up to the individual, I believe, to be responsible for themselves and take care of their self and their family.

The problem is, the government touts itself as “for the people.” But if the government really exists “for the people” then they should not be marketing scams such as the lottery but instead encourage saving and investing. If tax dollars have to spent to “help the people” then they should be spent on educating them, not taking advantage of them. But that’s not what they do. Is the government really looking out for the people, or just looking out for their money?

  1. Help

Whenever talk of the lottery comes up it always results in someone saying one thing: “Well someone has to win it right? Why not me?”

The odds of winning the jackpot in the mega-millions: 1 in 175 million. The odds of winning 2nd place ($250,000) is 1 in 3.9 million. The odds of even winning $2 is 1 in 75. Overall odds of winning: 1 in 39.89. This means, on average through all the tickets sold, if you spend $40 on lottery tickets you’ll win $2. And that’s just the mega-millions; Powerball’s odds are 1 in 196 million.

Those in the lowest income bracket in America spend on average 9% on lottery tickets. Just imagine how those funds could have helped them better if they saved it instead. Or spent it on their children. Or took a vacation even. Instead, it goes to the government and the lottery player gets a handful of bills in exchange. 22 cents for every dollar spent on Powerball, actually.

There is truth to the “someone has to win” phrase, though. Somebody does have to win it. And what happens when the person does win? The person who wins will have to decide how they want to accept the funds: a lump sum or annual payments. After that decision is made, they are then either given a check larger than they’ve ever seen or receive annual payments for 20+ years larger than they’ve probably ever received. The government gives a large sum of money to a person who has never managed so much in their life, and few know how to handle it without getting in trouble.

As Edward Ugel shows in his book, he met countless people who would win, for example, $10 million in the lottery with 20 annual payments of $500,000. They usually forget that the government takes a large chunk in taxes so most of the money is either spent or “promised” to friends and family before the first check arrives. Within a year or two they are drowning in debt and need help to make ends meet. Impossible you say? Hardly. Edward gave example after example of people with the kindest heart finding it impossible to say “no” to family and friends. Before they knew it, they bought houses, cars, jewelry, and even paid off debts for them. No matter how strong you think you would be, imagine this for a second: as soon as your family hears you won the jackpot, you will meet friends you never knew you had and family members you’ve never met. This kind of money suddenly landing at your doorstep is an ultimately test of your patience, kindness, and an unrelenting ability to say “no”. And it will show the true colors of those around you as well. Few can handle this pressure. Most crack and end up as poor, or even poorer, as when it all began. Hardly the fairy tale ending most believe in.

Is winning the lottery a “bad” thing? I wouldn’t go that far. But it’s also not all it’s cracked up to be. Countless people have remarked “I wish I never won.” But that’s not the point. As is the case with many government taxing policies: a large number of people contribute very little while very few reap the rewards. The only difference with the lottery and other taxing policies is the government doesn’t admit what the lottery really is and instead markets it as if buying lottery tickets is patriotic. Perhaps I shouldn’t say that. I just might give them more marketing ideas.

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