Brian McGraw

Once again, despite the GOP’s alleged commitment to freedom and liberty and all those nice sounding words, we are reminded that these freedoms rarely extend beyond those which gain the approval of social conservatives. From the just completed 2012 Republican Platform:

Making the Internet Family-Friendly

Millions of Americans suffer from problem or pathological gambling that can destroy families. We support the prohibition of gambling over the Internet and call for reversal of the Justice Department’s decision distorting the formerly accepted meaning of the Wire Act that could open the door to Internet betting. (P 32)

This is especially cute given the number of words the platform dedicates to “Internet freedom” which in this case does not include the right to play a card game with your friends over the Internet.

For a slight dose of irony, note that last night’s keynote speaker, New Jersey Governor Chris Christie, signed a bill earlier this summer legalizing online sports betting. At the time, he proclaimed:

“We intend to go forward and allow sports betting to happen,” Christie said. “If someone wants to stop us, then let them try to stop us.”

But first Governor Christie must battle the federal government in court,  since in 1991 the feds passed a likely unconstitutional law limiting sports betting to states that were willing to pass a state law supporting it shortly after passage of the federal law.

Post image for CEO of Land-Based Casino Morally Opposed to Online Gambling

File under Hypocrisy 101.

Sheldon Adelson, the CEO and Chairman of Las Vegas Sands Corp., which owns some of the largest casinos in the world including the Venetian in Las Vegas, is “morally opposed” to online gambling. Adelson is the 8th wealthiest man in America, and the 16th wealthiest man in the world. His wealth is only relevant because he got wealthy through the casino business and is now engaged in what is likely blatant protectionism under the guise of moral opposition to an incredibly slight variation of an industry he’s been involved with for the majority of his adult life:

Last week, Adelson went to Asia to lobby for legalization of casinos in Japan and Vietnam. Las Vegas Sands is also pushing for a casino site in Miami, should Florida legalize gaming.

Before heading to Asia, Adelson visited Washington, D.C., to tell Sen. John Kyl, R-Ariz., and American Gaming Association President Frank Fahrenkopf Jr. of his opposition to Internet poker legalization. He reportedly told them he doesn’t believe technology can prevent underage gamblers from betting online, and that he is “morally opposed” to Internet gaming.

Strip rivals visited with Adelson recently to try to change his opinion toward a potential industry that many believe is worth more than $5 billion annually in gaming revenues.

The arguments fell on deaf ears.

Most major casino companies have deals in place with online gaming providers to start up U.S.-based Internet poker websites catering to Americans if Congress approves online poker legislation.

Las Vegas Sands spokesman Ron Reese said the company’s board of directors has not yet developed a strategy for Internet gaming, so Adelson’s sentiments are his personal views.

But let’s face reality. The board is not going to oppose the company’s chairman, chief executive officer and majority shareholder on this issue.

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Post image for Will the Super Committee Legalize Online Poker?

Online poker enthusiasts are betting the house (or insert other painful pun here) on the possibility that Internet poker legislation will be added to the congressional super committee as a means of coming up with revenue that will help to achieve the $1.5 trillion in deficit reduction the committee is required to come up with by November 23. Internet poker legislation is, in this case, a subset of Internet gambling which would include games like blackjack, roulette, online slot machines, etc.

The evidence for passage via super committee is mostly circumstantial, but there is quite a bit of it:

1. Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Jon Kyl (R-Ariz.) recently co-wrote a letter to the Department of Justice asking them to “reiterate the Department’s longstanding position that federal law prohibits gambling over the Internet, including intra-state lotteries.” Speculation continues over the purpose of this letter, but the smart money is that Reid and Kyl have reached a deal whereby Kyl will not stand in the way of some form of regulated online poker, as long as it excludes other forms of online gambling as Kyl still hates freedom. Kyl has been a historical enemy of online gambling, though he has recently weakened his stance on online poker. It’s also worth noting that Kyl is serving his last term in the Senate, so he might view a deal that he has control over as better than a deal written without him after his retirement.

2. Reid was recently quoted as telling the Las Vegas Review-Journal that Internet poker legislation “will get done” and that it will be “good for Nevada.” Harrah’s Harry Reid is earning those campaign contributions. There aren’t comprehensive estimates of the potential revenue to be gained by gambling legalization, but the estimates I’ve seen place revenue somewhere between $20-40 billion over the next decade. Not a huge dent by any means, though it might be preferable to $40 billion in spending cuts that will be highly contested by a variety of interest groups. (Side note: Internet poker players across the nation are looking desperately at the Las Vegas Review-Journal reporters for a more substantive article on that giant tease of a tweet.)

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Post image for Police Celebrate Seized Online Gambling Funds

Roughly one week ago, an article appeared in The Odenton Patch covering an Anne Arundel County Police Department press conference where our benevolent ruling class is seen gleefully celebrating their “reward” in assisting a federal investigation which seized over $30 million dollars in internet gambling funds. They even ordered a giant Tiger Woods sized check for a photo-op. Note that though the operation was named “Operation Texas Hold’em,” it is unrelated to the recent crackdown on online poker sites such as Full Tilt and Poker Stars.

The gist of the story is that the police force set up their own online payment processor and processed payments for internet gambling sites as if they were a real legitimate business. The federal government used this evidence to seize funds belonging to those companies. If you visit the website of their now defunct business, they attempt to direct your outrage to the gambling sites:

NOTICE

Linwood Payment Solutions is a Department of Homeland Security Undercover Business set up to identify and prosecute companies accepting and paying out funds for U.S. customers who gamble online illegally.

If you have questions regarding funds withdrawn from your bank account for gambling purposes contact the online gambling company you provided your banking information to.

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He writes:

But it’s insane to legalize an activity on the grounds that some tiny fraction of the people doing it are very successful at it. After all, the vast majority of poker players never go pro, and the vast majority of poker pros never become champions. Overall, the number of people who lose money playing poker is much larger than the number of people who make money at it.

It’s equally insane to outlaw an activity on the grounds that some tiny fraction of the people doing it are very unsuccessful at it. I realize he was responding to Steve Levitt, but the argument for the legalization of online gambling has very little to do with the fact that a subset of poker players are “professionals” who are able to make money consistently through gambling. The argument in support of online gambling (aside from the whole we live in a free society thing, which he casually tosses aside) is that its an activity that a large number of Americans clearly want to participate in. Gambling is a form of entertainment. I haven’t heard of many moviegoers who consistently turn a profit after a night at the cinema, yet we seem to still allow Americans to watch movies (these days you can even watch them online, which is again, something you lose money doing).

Continuing on:

The point here is that it’s the job of the government to look after the weakest members of society. Ultimately, if someone becomes a drug addict or loses their life savings gambling, it’s society as a whole which has to pick up the pieces and support that person. And so the government has an incentive to circumscribe such activities and even make them illegal — even if a handful of people could engage in them successfully.

It’s also the job of the government to protect the basic rights and freedoms of Americans. The paragraph here also implies that only a “handful” of people can engage in Internet gambling successfully, which is nonsense. Successful Internet gambling does not necessarily mean you won, it means you voluntarily choose to participate because its an enjoyable activity, just like regular casinos, which if Felix hasn’t checked are still quite popular in America. This link indicates that less than 1 percent of the adult population can be defined as having problems with gambling, so even if that’s off by a large amount its still a small fraction of the population.

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Post image for Freakonomics Author Steve Levitt on Internet Poker

Steve Levitt, author of the well known pop-economics book Freakonomics, has a recent post explaining his opposition to the crackdown on Internet gambling. The whole post is worth reading, but here is a shortened summary of his arguments:

1) Prohibitions that focus on punishing suppliers are largely ineffective. Prohibition of internet poker is no exception.

2) Relative to the consumer surplus generated by online poker, the externalities caused are small. Government interventions should focus on cases where the opposite is true

3) From a moral perspective, it is inconsistent for the government to condone and profit from gambling on the one hand, while criminalizing private providers of Internet poker on the other.

4) Even under the government’s own laws, it would seem that there is little question that online poker should be legal.

Levitt notes that he also recently completed a paper intending to explore the skill v.s. luck argument as it relates to poker. Levitt gathered data from a sample (n=57) of poker tournaments and compared the average ROI for players that had been considered “skilled” based on data from previous years with data from the rest of the field (i.e., unknown players). Levitt found that on average the “skilled” players earned an ROI of positive 30 percent, while the unskilled earned an ROI of negative thirty percent.

(ROI represents the average return on an “investment.” In this case ROI is referring to the average amount of money a poker player wins as a percent of his/her investment, investment equaling the total sum spent in tournament entry fees. So if a player enters 10 tournaments at $100 each, and wins a total of $1500, his/her ROI would equal 50 percent, as the player wagered or “invested” $1000 to earn the $1500.)

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Today the U.S. Attorney for the Southern District of New York released criminal charges against a number of online poker websites operating in the United States as well as charges against a number of companies involved with processing payments to and from these sites. A DoJ release describing the lawsuit can be found here.

As a result, the largest sites offering poker in the United States have immediately suspended players from the United States from participating. There are millions of dollars that belong to United States citizens tied up in these sites that have also become immediately unavailable. It is unclear if/when any of this money will be able to be recovered.

A law was passed in 2006 which made it illegal for financial institutions to process payments that would be sent towards online gambling sites. This law was not particularly effective, as it was still fairly easy to find organizations that either believed (1) that they were still operating legally, or (2) didn’t care that they were operating illegally. This has now changed.

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In what should be a satirical piece from The Onion, Reuters has an exclusive interview with former Michigan Governor Granholm who boldly proclaims that green-jobs are driving the “economic recovery” in Michigan:

Former Gov. Jennifer M. Granholm, whose second term ended in January, said in an interview that Michigan businesses are expected to create more than 150,000 clean energy jobs in the next decade from $14 billion of projects in the pipeline.

Of all places, Michigan doesn’t exactly stand out as the shining example of economic success in the United States. With a state unemployment rate of 11 percent and 12.7 percent in Detroit, the rest of the U.S. might consider looking elsewhere for examples of truly innovative economic policies that lead to recovery.

Though the job numbers are likely optimistic (as they often are, both green and fossil-fuel projects tend to oversell and under-deliver on job promises: here and here), 15,000 jobs over the next decade only amounts to 1,500 per year. The situation in Michigan is very unfortunate, but I don’t see how making the price of energy more expensive will lead to a quicker economic recovery:

Granholm began her clean energy approach with the $2 billion 21st Century Jobs Fund, a ten-year program started in 2005 to encourage venture capital investments and R&D funding for 1,500 startups or existing firms looking to transfer skills from the old economy to the cleantech industry.

Two years later, Granholm signed the state’s renewable portfolio standard requiring utilities to get 10 percent of their electricity supply from clean energy generation, renewable energy credits and energy efficiency programs by 2015.

President Obama was in Brazil over the weekend:

“The United States doesn’t simply recognize Brazil’s rise; we support it enthusiastically,” Obama said in Brasilia, the capital, after meeting with President Dilma Rousseff as he began a five-day trip that also will take him to Chile and El Salvador.

This is true. The taxpayer is still sending Brazilian cotton farmers millions of dollars per year because the WTO ruled in favor of Brazil when they sued the United States over our farm subsidy program. Rather than try to support Brazil by ending this (which is, admittedly, likely impossible for President Obama at this time), meaningless speeches will be given and some silly inter-bureaucratic program will potentially be set up to focus on economic development.

Obama might also support ending the tariff on Brazilian ethanol (but please don’t do that without ending the renewable fuel standard).

Post image for New Hampshire Experiments with Lower Cigarette Taxes

File this under “Adventures on the Laffer curve.” The New Hampshire House is seeking to lower its cigarette tax from $1.78 per pack to $1.68. Almost every other state has increased cigarette taxes over the past few decades. In New York, an individual pays an extra $4.35 per pack (minimum, not including any local taxes) of cigarettes, about $.20 per cigarette.

Some legislators believe it will bring increased revenues, through increased cigarette sales and other economic activity near the border, among other things. The opponents do not believe this:

But state Rep. Christine Hamm, a Hopkinton Democrat, called the move “fiscally stupid.”

“No state has cut their tobacco tax and seen a revenue increase,” she said.

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