Lottery is one of the most popular forms of gambling in America. It is estimated that people spent upward of $100 billion on lottery tickets in 2021. Its popularity is based on the idea that winning the lottery is not only fun, but that it’s also a “good” thing because it raises revenue for state budgets. But how meaningful that revenue is in broader state budgets and whether or not the money is worth the trade-offs people make to win it are questions that deserve some scrutiny.
Lotteries have a long history, including several instances in the Bible. The casting of lots to determine fates and property distribution is of ancient origin, although the use of lotteries for material gain is more recent. Modern examples include military conscription, commercial promotions in which property is given away by a random procedure, and the selection of jury members from lists of registered voters. These are all considered to be “gambling” type of lotteries, as a consideration—usually money—must be paid for the chance of receiving the prize.
The first recorded public lotteries to offer prizes in the form of money were held in the Low Countries in the 15th century. A record from 1445 at L’Ecluse refers to a lottery with tickets priced at 1737 florins, which would be about $170,000 today. In the 18th century, lotteries became widely used in colonial era America to fund a variety of projects, including paving streets and constructing wharves. Benjamin Franklin’s lottery in 1728 raised funds to purchase cannons for Philadelphia and George Washington’s Mountain Road Lottery in 1768 sought to raise money to build a road across the Blue Ridge Mountains.
In the 19th century, American states developed their own state-sponsored lotteries. In many cases, a percentage of the proceeds was used for charitable purposes, and the rest was used to pay for state operations. The idea was that the money from these lotteries could be used to expand government services without having to increase taxes on working-class people or middle-class citizens.
However, there were problems with this approach. For one, it was very regressive. People at the very bottom of the income distribution didn’t have much discretionary money to spend on lottery tickets. And the regressive nature of these lotteries meant that even if people won, they didn’t necessarily have the financial freedom to enjoy the prize.
In the 21st century, lottery commissions have moved away from that message and now rely on two messages primarily. One is that winning the lottery is a great way to get a new car or a dream house. The other is that it’s important to support the lottery because it helps children and other causes. The problem is that these messages obscure how regressive the lottery really is. In fact, most of the people that play the lottery are in the 21st through 60th percentile of income distribution—people who have a couple dollars of discretionary spending and not much opportunity for innovation, for entrepreneurship, or to get out of poverty.