Those governors and state legislators who are foolishly looking to casino gambling as a politically cheap new revenue stream should turn their eyes to Delaware, which is considering a multi-million-dollar bailout of three casinos. As Lydia DePillis notes, what we have here is a combination of first-mover advantage and diminishing returns. The success of Las Vegas was a one-time opportunity predicated on the fact that gambling was illegal most everywhere else. New Jersey’s experiment in Atlantic City, which has government and weather inferior to Nevada’s, was launched a generation later to mixed results. Casinos in Delaware were built under the assumption that nearby states such as Pennsylvania and Maryland would continue to prohibit gambling, which of course turned out to be mistaken. New Jersey’s big bet on the new Revel casino has been less than a stunning success.  

The popular argument for gambling is a lot like the popular argument for marijuana: Legalize it and tax the stuffing out of it. (I embrace one half of that policy.) The problem with that is that casino “taxes” are really more accurately described as profit-sharing arrangements, making states in effect business partners in gambling operations, a recipe for crony capitalism, favoritism for politically connected businesses, and, now, to no one’s great surprise, bailout considerations. And there are as always real economic limits to how much you can tax any given enterprise: Delaware’s casinos face an effective tax rate eight times that of establishments in Las Vegas, and they do not have the cultural infrastructure that Nevada has developed since legalizing gambling in the 1930s. Nobody says mischievously: “What happens in Wilmington stays in Wilmington!”

But when the state is a partner, every business is too big to fail.

Gambling is in many ways like tourism in that it is a popular revenue source for politicians, because it gives them a chance to tax somebody other than their constituents. If you hold elected office, the best taxpayer is one who does not have a vote. This leads to a great deal of ridiculous thinking: Some years ago I quite nearly fell out of my chair laughing when a candidate for mayor of my hometown of Lubbock, Texas, suggested that the city could depend on tourism rather than traditional taxes to increase revenue. It was only slightly less funny when the mayor of Philadelphia said the same thing a few years later. Most cities have a more or less steady revenue stream associated with visitors of various kinds, generated mostly by hotel taxes and the like. But there are limits on that: Texas A&M has only so many home games a year; after that, the next biggest attraction in College Station is . . . either the George Bush Presidential Library or the Dixie Chicken, depending on your tastes.

In reality, the number of cities that can plausibly rely on growing tourism as an important economic driver is pretty low: New York and Washington, arguably, Los Angeles, Las Vegas, New Orleans, Orlando, Nashville, and some smaller places such as Branson, Mo., and Aspen, Colo. But if you are counting on a tourism renaissance to sustain Philadelphia or Milwaukee, think again.

And if you think that casinos are going to make Delaware a significant tourist destination, you are welcome to sit in on my poker game any time. Bring lots of money.