William
William recently graduated from his Honours in economics at the University of Melbourne. William is an occasional blogger with Economists at Large, writing about gambling, rent seeking and other economic issues.
Posts by William
Politics beats economics. Such is life in Canberra.
Mar 7th
Back in January I wrote about the economics of gambling in Australia and the proposed pokies reforms. As most of you would have no doubt heard by now, independent MP Andrew Wilkie’s bill which would have implemented a number of measures to address problem gambling, most notably mandatory commitment and $1 maximum bets on pokie machines, has fallen through. In its place, the Gillard government has offered a half-hearted one-year trial of the changes in the ACT to see if it would work. Oh, and the participating clubs will receive $36 million in compensation for their lost earnings.
…Really? There’s a lot of things that I could say here, most of it garbled and incoherent noise at the incredulousness of the whole thing. Ultimately, this is a story of politics, with the farcical trial a political move whose results will probably end up being of little value. We live in a world where economics and politics are so heavily entangled that for most people, the two are synonymous. For my naïve young heart, weaned on the romance of objective and academic economics, this is an unacceptable result because the hate by association that it lumps on economists is undeserved. Roderick mentioned in a previous post the absurdity of this idea that economists are cold, number crunching monsters who only care about the bottom line and could never hope to understand the nuances of human emotion (which is crazy, because that’s accountants). Unfortunately, as long as people confuse economics with politics, this idea will continue to persist.
Maybe I’m just mad that yet another example of really good economics got brushed aside by the petty power plays in Canberra. The trial will run for a year, probably produce middling results, and mandatory commitment will fall off the agenda for whichever party is running the country, quashed under threat from rent-seeking pokies venues. There’s no denying that this type of thing isn’t a problem specific to economics, or that not all economic research is going to be good, but it’s sad that it is the politics and bickering and not the economics that’s getting all the news.
Tim Costello had a great piece where he compared the fight against pokies to that against slavery. Of course, he is quick to note that there is no moral equivalence between the two, but the ideas rings true all the same. This shouldn’t be a topic about the politics; it should be about what’s best for our society, the moral responsibilities we hold and yes, economics.
Jiggery Pokery – The economics of gambling in Australia and proposed pokies reforms
Jan 16th
The ongoing debate over mandatory pre-commitment on pokies is big on hype, but at the heart of it all is the Productivity Commission’s (PC) inquiry into gambling. The report is an in-depth look at the economics of the gambling industry in Australia, and provides an insight into the sizeable benefits and costs of the industry. Despite these insights, the findings of the inquiry may often fall by the wayside when the debate switches to a war of politics, and arguments turn towards sentiment and emotion more than research and data. As such, I believe it would be useful to review some of the key findings of the inquiry to understand what has motivated this latest push towards pokies reform.
The key policy issue regarding gambling is a question of balance between preserving the enjoyment that many people receive from gambling against the considerable harms that gambling poses. While this is no simple task, the PC has also chosen to focus on policy options that provide Pareto improvements, that is:
- Policy measures that can reduce the cost of gambling without reducing the benefit, or
- Policy measures that can increase the benefits of gambling without increasing the cost
The benefits and costs of gambling
The PC estimated the tax and consumer benefits of gambling to be in the range between $12.1 and $15.8 billion AUD. This includes the tax revenue that state governments receive, social contributions and the consumer surplus that non-problem gamblers receive from gambling. One finding of note is the dispelling of the myth that reduction in gambling revenue would hurt the ability of clubs to provide sporting and community support, with the PC finding that clubs with more reliance on income from pokies actually provided less community and social support. Similarly, the PC points out that while the gambling industry may employ a large number of individuals, the net employment that the industry creates is relatively small, given the skills of many of these workers would be heavily demanded in other industries.
Estimates of the cost gambling were between $4.7 billion and $8.4 billion AUD. This was primarily composed of social and financial costs of problem gamblers and their families and friends, and is actually considered a conservative estimate as the PC has not considered possible costs arising for non-problem gamblers.
The result is an estimated net benefit from the gambling industry between $3.7 to $11.1 billion AUD. This re-iterates the idea that banning gambling outright would not be an optimal decision (and would actually result in society being worse off), something that the PC duly notes. However, one other caveat to this result is that the PC states this net benefit could be much larger if effective harm minimisation measures were put in place; they estimate that a sustained 10% reduction in the costs associated with problem gambling would generate benefits to society in the range of $450 million AUD (in 08-09 prices), as well as producing long term benefits in the billions.
Introducing mandatory pre-commitments
The PC makes a number of recommendations, but the two recommendations which received the most fanfare were the introduction of full mandatory pre-commitment to all pokies machines and limiting the maximum bet on all machines to $1, both by 2016. It cites pre-commitment as a “strong, practicable and ultimately cost-efficient option for harm minimisation” and would allow for other government regulations to be relaxed or removed. Moreover, the introduction of mandatory pre-commitment would have little impact on recreational gamblers, and so would not reduce the sizeable consumer surplus that these consumers enjoy.
Despite this, there are still many opponents to the introduction of mandatory pre-commitment. Clubs Australia has been quick to (repeatedly) claim (bringing in high-profile personalities such as former AFL Star David Schwarz and Youth Off The Streets Founder, Father Chris Riley) that mandatory pre-commitment will not deter problem gamblers from seeking loopholes or workarounds to beat the limits, which is likely to be true. However, if anything this means that effective and thorough design must go into creating a better system rather than rejecting this idea until “something better” comes up or relying on the status quo of education and counselling which conveniently do not seem to harm club gaming revenues.
The full report discusses gambling in much greater depth, as well as offering a number of additional recommendations. Nonetheless, it is clear that much of the solid economic research in the report is getting drowned out by the noise of rent-seeking clubs. Given that we are talking about the possibility of reducing harm to tens of thousands of individuals, it would be a real shame if the lobbyists won this particular battle.
For those interested in reading the full report, it is available at the link below.
References
Productivity Commission (2009), Gambling: Productivity Commission Inquiry Report No. 50, February 26 2010, Last accessed on 22 December 2011 at http://www.pc.gov.au/projects/inquiry/gambling-2009/report
Coorey, Phillip (2011), “Pokies clubs play an ace in battle to prevent changes”, The Sydney Morning Herald, December 7 2011, Last accessed on 22 December 2011 at http://www.watoday.com.au/national/pokie-clubs-play-an-ace-in-battle-to-prevent-changes-20111206-1oha5.html
Craven, Jessica (2011), “David Schawrz says mandatory pre-commitment won’t help gamblers”,Herald Sun, December 5 2011, Last accessed on 22 December 2011 at http://www.heraldsun.com.au/news/more-news/david-schwarz-says-mandatory-pre-commitment-wont-help-gamblers/story-fn7x8me2-1226213824606
