Prelude to Candy-O

The state of Iowa considering legalizing online gambling is an interesting question because of the nature of gambling itself. A casino, like any other business, follows probablistic rules to slowly generate profits for the owners of the casino by providing entertainment. That's what gambling is. That's what any economic system attempts to do: redistribute money from one sector to another. 

The question is what happens to this accumulated profit? I don't mean the day to day or month to month revenue, i mean the gradual draining of the surrounding area's savings/money supply. Hypothetically, let's say the actual yearly net profits after payouts and operating expenses amounts to a million a year. If that surplus really is gone forever, then the entire rest of the state money supply decreases by a million a year and all other sectors must increase an equal aggregate to prevent the state of Iowa from going bankrupt.

The problem is that that's as far as we can hypothetically understand the impact. All the people who don't participate in the gaming sector at all have to generate an equivalent increase to compensate for that loss, but it has to come from outside the state of Iowa in the form of increased tourism, allowing national or international business to inject new money, investors selling off their out of state assets and reinvesting it in the local economy, increasing production of some commodity for interstate or foriegn trade, some federal grant or an outright loan from the Fed, etc.

The final number is of course lowered by the actual amount of those casino profits that do recirculate, but any profit for the casino not returned to the state money supply in some way represents a drain on the rest of the state.

You could argue that as the rest of the state feels that burden "the market will correct itself," but that ignores the real impact of a rising crime rate (white collar just ss much as robbery and arson) due to more or less addictive gambling. For a large number of people, the strain of losing money creates more incentive to gamble despite the increased drain. It's a psychological paradox created by the false logic of needing to hit the jackpot; the more money individuals lose over time, the less money available to the rest of the state's economy, even when the payout from spontaneous winnings feels like a gain.