The Power of the Lottery

The lottery is an ancient ritual with a history stretching back at least to the Low Countries in the 15th century, where town lotteries were common for raising money for town fortifications, helping the poor, and other purposes. The word lottery may have originated in Middle Dutch, a diminutive of the verb loterijen (“to draw lots”), or it could be a calque on French loterie, itself derived from the Middle Dutch noun lot “fate.” Whatever its origins, the modern state-run lottery is a powerful force in American life.

The first states to adopt the lottery did so in response to an era of declining economic prosperity for most Americans. In the nineteen-sixties, rising inflation and the cost of the Vietnam War had pushed government budgets to the breaking point; it became difficult for most states to balance their books without raising taxes or cutting services. In this context, lottery advocates argued that people were going to gamble anyway, so why not give them the chance to win some money?

As the popularity of the lottery grew, so did the federal government’s interest in it as a way to raise revenue. Federal officials, concerned about the growing numbers of problem gamblers and the proliferation of state lotteries, looked to the industry for help.

In the United States, federal law requires all state-regulated lotteries to pay out at least 24 percent of winnings in federal income taxes. That might seem like a good deal, but if you won the jackpot prize in a big-state lottery, federal tax rates can eat up half or more of your winnings. When you add in state and local taxes, it becomes clear that lottery winnings are a very expensive form of entertainment.

Cohen’s book is a history of this remarkable period of change, in which a public obsession with unimaginable wealth collided with a desperate need for state revenues. He isn’t shy about criticizing the tactics used by lottery commissions to boost sales, which are not unlike those of tobacco or video-game manufacturers.

But he’s also clear that the lottery does deliver on its promises, especially when it comes to bringing in money for state governments. It has been a major source of revenue for Alabama, and the state government has wisely invested much of that money in education.

But the lottery has not been so successful in boosting overall economic growth in the state. Certainly some Alabama residents have won substantial prizes, but most of the ticket sales are to out-of-state residents. The state benefits from this flow of cash, but it doesn’t benefit the economy as a whole. The same goes for the individual winners: Rich people spend a lower percentage of their income on tickets than do the poor, but they still win a lot more money than do the poor. In fact, those who make more than fifty thousand dollars per year buy fewer tickets, on average, than do those who earn less than thirty thousand.