Drive a few hundred feet north of the Texas border, or east, or south for that matter, and you will find out very quickly that many Texans like casinos. But a familiar if idiosyncratic coalition has so far blocked more gambling in Texas.
When government makes a good or service artificially expensive, the spread between the natural market price and the artificially high price creates an opportunity for arbitrage—taking advantage of the difference in price for personal gain. High taxes on cigarettes, for example, created well-understood incentives for smuggling, theft and street sales of “loosies”—single cigarettes.
But when government makes something illegal, the arbitrage opportunity is even stronger. A famous example is the prohibition of alcohol, which created profit opportunities for bootleggers, smugglers and speakeasies. Similarly, the war on drugs made substances that some people highly prize difficult to obtain. That incentivized criminal networks to exploit the opportunity for profit through this government-created distortion.
We have cartels, drug dealers and violence because of the significant arbitrage opportunity. States that have legalized access to marijuana have done so in part to eliminate the crime—if people want this stuff that badly, let’s make it legal, and regulate and tax it.
Prohibition of substances and services has created what we policy nerds call the “bootleggers and Baptists” problem. There are two very different forces that tend to favor prohibitions—moralizers and criminals who profit from the prohibition. Prohibitions bring these strange bedfellows together, and it’s the moralizers who don’t understand that they are, in effect, being used.
A classic bootleggers-and-Baptists coalition has been prohibiting casino gambling in Texas. Who profits from it? Everyone except Texas and Texans. Oklahoma, Louisiana, Nevada and New Jersey profit, as do unregulated betting parlors, lowlife bookies and the higher-level criminal interests that backstop them. Airlines and tour companies profit, but Texas and its businesses miss out on significant revenue from an activity that Texans are already participating in, legally, in droves.
In a state dominated by politicians who claim to believe in free markets, individual liberty, personal responsibility and limited government, there is absolutely no sound policy argument for continuing the prohibition against casino gambling in Texas. Yes, I’ve seen the “Godfather” movies and “Casino.” But those are not policy arguments.
Leaving the prohibition on casino gambling in place is counterproductive and an affront to individual liberty. But if our Legislature decides to allow casino gambling, there are two areas where Texas could get it very right or very wrong.
The first is the issuing of licenses. This is where the danger of corruption lies. Unlike in “The Godfather” or the real history of Nevada and Atlantic City, casino licenses must be awarded in a manner that is fair, transparent and open. There can’t be backroom deals to give licenses to the parties that make the most campaign contributions or give away the most junkets. There is no reason why Texas can’t do this right and yet again be a positive example to the other states.
The other area is community involvement. Local communities must be partners in the decisions about what kind of casinos, if any, they want. While the state government will have a critical role in licensing and regulating casino establishments, the state cannot simply pick winners and losers. Community involvement will be critical in establishing a Texas model that maximizes the opportunities for the state but also respects local standards and preferences.
We Texans like to tell ourselves that ours is the most freedom-loving state in the nation, but in many areas, it’s just not true. But Texas can live up to both its culture and its aspirations and reap the rewards of both by allowing casino gambling in a prudent way that neither allows political corruption nor violates community standards.
Let’s stop subsidizing our neighboring states and our undesirable elements and allow Texans to do what they are already doing—but here, to the benefit of Texas interests and respectful of Texas culture.