Wednesday, July 12, 2006

Some reasons why the Internet Gambling Prohibition Act is poor law

#1 Certain forms of gambling--stated and unstated--are exceptions to the law
So internet poker is a terrible threat to families, but internet horse race betting merits papal dispensation? Yes, makes perfect vulgate sense. And while internet poker has negative social value, casino poker is a states rights' matter or falls under the Indian Gaming Law, so the positive social value is the positive social value. Tautologies do make the best laws.

Personally, I find the most insidious form of gambling to be state lotteries. They admit taking a huge vig of up to 30%. They don't advertise that the jackpots are taxed another 45%--different state agencies and all, its just too complicated. I'm not sure any internet gambling site can ruin a family as fast as a state lottery, given the same starting bankroll. A 60% rake??? Tony Soprano doesn't model his games after internet gambling sites; he fattens his family by being Mr. Powerball.

UPDATE: Diem says (in comment), "Now lets look at how the Government treats sports gambling. It makes it illegal EXCEPT when they are the sole beneficiaries (race tracks and lotteries). They in effect create their own monopoly on gambling. What are the repercussions of said actions? Exactly what the Sherman Act and Clayton Act was designed to protect us against." caveat says, "Diem For Congress."

#2 Internet gambling is too closely related to securities trading to prohibit one activity and not the other

Risk/Reward :: Risk/Reward
Rake :: Commission
Ante :: Minimum Account Balance
Fold :: Stop Out
Broker Dealer :: Dealer
SEC :: State Gaming Commission
CNBC Squawk Box:: ESPN Poker Championships
Boiler Room starring Ben Affleck :: Rounders starring Matt Damon

I concede that investing in a low-fee index fund has better expected returns than gambling--productivity and innovation are growth drivers; come along with me little girl, on a magic Ricardian ride.

But bond trading is just like internet poker--there is always a winner, a loser, and transaction costs paid out to intermediaries. Society needs credit? Yeah, and baby needs a new pair of shoes.

#3 Internet Gambling and Athletics are both Celebrations of Competitive Excellence
Just ask Mike. Don't ask Pete, though; MLB is majorly beleaguered these days. Who is the best, and how do we know for sure? Title IX niceties aside, we've been expecting our boys to grow better, stronger, faster even before Darwin took a sketchpad to Galapagos. Hunters and warriors, scratchin' and spittin'. Guys are instinctively driven to tell a better joke, relate a higher conquest. We draw a little blood in contest, and we bleed a little. And we trash talk and laugh about it afterwards.

But now the incredulity of John Patrick Mason's, "Your best? Losers always whine about their best. Winners go home and {pluck} the prom queen" (from this aphoristic collection) hits too close to home. I figured the internet gambling arena would be welcomed by the non-violence folks, because the blood is digital now ... but then again, some peaceniks fist pump when they see violence perpetrated upon their sworn enemy, or at least look the other way and snicker when it happens.

Instead of losing a hundred bucks and an eye by channeling my masculinity into a day of paintball, how about just a couple of hours and a 20-spot trading the World Cup in-game? And I can even take out the trash and change a diaper during halftime.

#4 Regulated gambling on the internet will effectively reduce illegal gambling elsewhere
This may not sound very libertarian, which hopefully is out of general character for me on domestic issues. But illegal markets are generally distorted (as are regulated markets, of course). They are also difficult to prosecute, as transactions can take place in dark alleyways with unmarked bills involved. And they are expensive for the state: how many undercovers does it take to shutdown an illegal market? And if the answer is "too many", why have the law in the first place?

See, if the government doesn't take its laws seriously, it sends a confusing signal to its citizens: You are electing and paying us to make and enforce laws on your behalf, but its really just a boondoggle.

A legal supply of online gambling sites accomplishes two things, at least for a government trying to enforce good legislation: One, it diverts participants away from illegal gambling markets, which tend to price higher risk premiums into transactions. The illegal market is creatively destroyed. Two, just as in securities markets (a corollary to Reason #2, above), electronic transactions and events can be stored and investigated without hiring a brigade of cops and transporting them here and there. Just hire a surveillance technologist from an exchange for a few weeks.

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