The Lotto Symbolizes the False Promises of Barracuda Capitalism, and it Won’t make you Happy to Win

Late capitalism in the United States is a process whereby more and more of the national income is going every month to a smaller number of people at the top, while the average wage of the average worker has been virtually static in real terms since 1970. All the extra money the US has made in the past 40 years, in other words, has gone and is going straight to the 1%. (Actually, the top 1/10 of one percent has experienced even more gains). From 1979 to 2007, the top 1 percent experienced income growth of 275 percent. In contrast, 90 percent of us saw a raise of $59 in our annual incomes from 1969 to 2011. This new, extreme income inequality is becoming entrenched and the US now has less opportunity for upward mobility for its young people than many countries in Europe.

Why people put up with this gouging is a great mystery. But hope is the great social stabilizer. Corporate media in the US constantly send the message to people that they are around the corner from getting rich. Failing that, just buying a new pair of jeans can raise your status among your peers. Most people don’t compare themselves to those in higher income groups. They make their friends, typically, among those who earn roughly what they do. So apparently if you’re up $61 from 1966 you’re happy enough to be two dollars ahead of the average of $59.

One of the social control mechanisms deployed in a plutocracy to keep people quiet while their pockets are being picked is the lottery. It is a scam. Not only are you more likely to be hit by lightning than to win one, but the institution itself is regressive. If you started at 20 and put $5 a week into the stock market, you’d likely get 12% return on your money, so when you were 70 it would be a very substantial amount of money ( try it here). Put the same 5 dollars a week into a lottery, and you likely get nothing at all. So the lottery punishes the poor, both absolutely and in terms of opportunity costs, and its main social function is to create false hope that the billionaires will let you join them.

What makes people happy is still somewhat mysterious. But a circle of supportive relatives and friends seems to be important to most people. Then, rewarding work helps, especially work where you get to choose your own projects and be in control. Having projects in life that are creative in nature and which you yourself shape is the ultimate high. (Orchestra conductors and college professors are among the happier people for this reason). Getting better off financially is not in itself bad, but has limited returns. In the US, once you reach $75,000 a year (admittedly only a minority do), going on up from there doesn’t seem to add substantially to your happiness. My guess is that at that income level, about twice the national average, you are avoiding the depression that comes with straitened circumstances, meeting bills, etc., and are then freed to pursue the things that make you happy– hobbies, art, etc. More money won’t make you more creative after that point and won’t relieve by then minor economic anxieties, so it becomes irrelevant to happiness for most people. (Of course $75,000 a year doesn’t go very far in some parts of the country, and is a fortune in others, but we’re talking averages)>

The first thing that happens when you win the lottery is that you typically lose all your friends. Some of them resent your good fortune. Some have unrealistic expectations in sharing it. Some are embarrassed to hang around with people who dress so much better than they. Some have nothing in common with someone who doesn’t have to struggle. Then, there is the temptation to quit your job and become essentially idle, which produces depression. For an entrepreneur or film maker, maybe the extra money could be put to good use, but for most people the $75,000 limit on happiness is operative, and having $200,000 a year wouldn’t make them three times as happy; probably it wouldn’t make them happier at all. Not to mention the traps of not managing the money well, or developing expensive addictions that waste it all, or being targeted by criminals. All the social science research suggests that winning the lottery just doesn’t make most people happier, and in many cases makes them miserable.

So the whole lotto phenomenon is a huge social scam. Good public policy would strive to give everyone in the US that $75,000 basic level of well-being, if what we wanted was more happy people. Instead, we are hollowing out the middle class, limiting upward social mobility, keeping the poor poor, adopting tax and other policies that make the rich richer, and then throwing the sop to the hoi polloi of an occasional lotto exemplar allegedly made happy by the opportunities of the system, but who will actually likely end up depressed and friendless.

29 Responses

  1. This column gave me a good laugh when Prof. went off the rails.

    “The first thing that happens when you win the lottery is that you typically lose all your friends.” Followed by this gem, “…winning the lottery just doesn’t make most people happier, and in many cases makes them miserable.”

    I think that everyone who has thought about it agrees that lotteries are essentially a tax on the poor. Still, it’s much, much better to be rich & miserable than poor & miserable. Plus, there is a good chance that by winning the lottery you will graduate to a better class of friends.

    So, despite the impossible odds, I will be buying a Powerball ticket and hope to win $500 million or whatever tonight and take my chances by being miserable if I win.

    • “Plus, there is a good chance that by winning the lottery you will graduate to a better class of friends.”

      What in the world is this supposed to mean? And what does it reveal about the beliefs of the person saying it??

      • Vicious, vicious comment! Whereas, my line about “getting a better class of friends” was just a flip comment. Although, come to think of it, who couldn’t use more and better friends?

        Prof. Cole’s column, and your reply to my comment, both are completely humorless. It’s just the lottery you guys, lighten up!

        As some of the further comments show, we live in an era of Casino Capitalism (see SAC Capital Advisers, et al.). The lottery is just part of this ethos. Sort-of Casino Capitalism for the rest of us.

        Also, our state governments take a cut of over 50% of the amount wagered from every lottery drawing. The worst casino game takes much, much less. Talk about exploiting the poor and downtrodden! Taking over 50% off-the-top is criminal.

  2. Contained within your diatribe against the lottery, Professor Cole, is actually a piece of advice that, if followed by everyone, from those in the lower socio-economic class to wealthier individuals, would lead many more individuals and families to a reasonably well-off financial future. I refer to your following quote.

    “If you started at 20 and put $5 a week into the stock market, you’d likely get 12% return on your money, so when you were 70 it would be a very substantial amount of money.”

    If individuals and families would invest in the stock market, using “dollar cost averaging” strategy, from the time they begin their careers and increasing the amount over a working lifetime, it would lead to a very nice nest egg. It is the power of compound interest at work. And the stock market is not as dangerous as it seems, in spite of crashes such as occurred in 1987 and 2008. Over a lifetime they are mere blips on the screen.

    The problem with many people, including those in the lower socio-economic class, is that they want instant gratification. They want their 52-inch flat screen TVs, a new car, they max out their credit cards for their little shiny baubles and bling, not to mention a $200 pair of sneakers, and they thus end up with no savings and no investment. And we shouldn’t blame Capitalism and advertising. Individuals have minds and are capable of independent thought and decision-making. The short-sighted approach and lack of personal responsibility inherent in the attitude of satisfying instant gratification and to hell with the future is no one’s fault but their own.

    • Conservatives always want to take the spotlight off social *outcomes* (inequality, food insecurity, etc) and put the spotlight on individual character.

      The outcomes are important and they are more often produced by law and policy than by character (which anyway can’t be measured; your assertions that the poor are spendthrift are just a bias.)

      • “(…your assertions that the poor are spendthrift are just a bias.)”

        My comment about many people lacking investments and savings was not directed against just the poor as being spendthrift. I stated that the cult of “instant gratification” practiced by “many people, including those in the lower socio-economic class,” was the cause of their lack of investment and savings. In other words, I include much of the middle class and upper middle class, as well as the lower socio-economic class, in my observation. We are basically a nation of strivers after instant gratification, whether it be for a new car, the latest fashion, a 52″ flat screen TV, or a pair of $200 sneakers. The result has been documented in many studies: A majority of Americans have saved very little. I am simply suggesting that that result is a function of their own decisions and choices.

        • You mean “their own decisions and choices” after Madison Avenue gets through bombarding them, every second of their lives, with paeans to exactly the instant gratification you decry? Do you have a solution for stopping the brainwashing, or are you just too busy being a moral scold?

        • They are representatives of the culture that capitalists created in America, in fact the very reason they created America in the first place. Recall the role of English joint-stock corporations in financing the American colonies looking to make a quick kill in tobacco.

          Where would General Electric, General Motors, the TV networks, the housing industry, and the energy industry, as a small sample, be without the indoctrination of the American people in instant gratification through consumption? Ever heard of GM founder Al Sloan, who developed planned obsolence by endless trivial design changes that were indoctrinated into national crazes by mass advertising?

          Everything, including the stock market, is built on a short-sighted demand for the quick kill. When the workers were getting very revolutionary in the early 20th century over the boom & bust economy that resulted, it was necessary to co-opt them by giving them the illusion of a piece of the action. It is a fact that after WW1, Secretary of Commerce Herbert Hoover chaired a commission of industry leaders who determined that social stability would require the cultivation of a culture of mass consumption, via mass advertising.

          Logically, how could any values of thrift survive once, as Keynes realized, over-saving could cause a closed economy ( no free trade then) based on durable goods purchases (which can be deferred) to suffer a catastrophic, unending contraction?

        • “You mean “their own decisions and choices” after Madison Avenue gets through bombarding them, every second of their lives, with paeans to exactly the instant gratification you decry?”

          So, Tehanu, do you support the cult of instant gratification by purchasing every bauble and piece of bling that is the fashion of the season? More importantly, do you think so little of an individual’s ability to think for himself that you ascribe the cult of instant gratification to simply “brainwashing”?

          The vast majority of the public can, in fact, think for themselves. That they choose to have what “all their friends have” is a choice they make. It is more important to them to appear to be “in” than to use their money more prudently. Yes, they act like lemmings, but not because they cannot think for themselves; rather, They choose to do so.

          As for being a “scold,” you seem to be one yourself when it comes to assigning blame to “Madison Avenue,” rather than to the individuals themselves.

        • As usual, SUPER390, you make some interesting points that appear just plausible enough to be valid…until one probes a bit deeper.

          “They are representatives of the culture that capitalists created in America, in fact the very reason they created America in the first place.”

          That English joint stock companies IN PART (emphasis) financed the colonies is only a part of the story. Just as Europeans IN PART provided financing for the development of the railroads in America is only part of the story of America’s development. There were many reasons why British colonists, and later American revolutionaries, founded America and created the resulting society. Your economic determinism is a very old fashioned Marxist view of history.

          “Where would General Electric, General Motors, the TV networks, the housing industry, and the energy industry, as a small sample, be without the indoctrination of the American people in instant gratification through consumption?”

          Agreed that corporations and advertising have successfully attempted to create our culture of consumption and “instant gratification” I mentioned in my original post. Where we disagree is, whereas you appear to think the American consumer is an indoctrinated, brainless creature unable to resist advertising, I think the American consumer readily embraces the concept of “instant gratification” as a conscious decision on his part. He wants the baubles and bling because he wants them (if you will forgive the tautology).

          “When the workers were getting very revolutionary in the early 20th century over the boom & bust economy that resulted, it was necessary to co-opt them by giving them the illusion of a piece of the action. It is a fact that after WW1, Secretary of Commerce Herbert Hoover chaired a commission of industry leaders who determined that social stability would require the cultivation of a culture of mass consumption, via mass advertising.”

          What really gave American workers a piece of the action (not the illusion of a piece of the action, but a piece of the action itself) was the union movement, and the resulting bargaining power that unions provided the workers in their face-off with management. That more than anything, as well as manufacturing pulling us out of the Great Depression during World War II, created the post-war strong middle class in America.

          “Logically, how could any values of thrift survive once, as Keynes realized, over-saving could cause a closed economy ( no free trade then) based on durable goods purchases (which can be deferred) to suffer a catastrophic, unending contraction?”

          The logical fallacy in your above cited statement is that you seem to think of “saving” as simply putting money under the mattress, where it does no good. When individual investors put their money in the stock market, for example, that money is invested in business expansion and other activities that increase the stock value to the individual investor. Having more value and equity, the individual tends to spend more on consumer goods. As a result, the overall economy expands.

  3. …….give everyone in the US that $75,000 basic level of well-being…..

    One problem with all the blarney we hear from the republicans is that when they make a reasonable observation it gets lost or applied in a self-serving way. So, when they speak of makers & takers, that over-simplification detracts from the truth that people do need a motivation to take risks and there are more than a few who are use any excuse to keep on slacking, with a chronic psychological mindset of amazing tenacity. As usual, things are not so black & white.

    In Europe there are a variety of ways in which they’ve tried to get this balance right, and it’s a moving target that can never be taken for granted, even with apparent success. To be objective about it the Swedes are doing a pretty reasonable job. Come to think of it, they were able to effectively sort out their problem with irresponsible bankers a couple years before the US essentially caved-into ours.

    People naturally want and need to stratify, but money makes a nominal contribution to that process. There are still plenty of rich people living rich lives in Scandinavia. And there’s no reason the controls on social services cannot be administered more rigorously. The industry supporting social services could be managed to build capacity rather than to support, as it is largely now handled.

    But these things all become a matter of good management once there is broad-based support and buy-in. As usual, it becomes a matter of politics and a need to develop policy based on the greater good.

  4. There seems to me to be a logical falicity with the idea that if everyone saved and invested more we would all be better off.
    First if every saved more they would buy less that would lead to an increase in inventory which would lead to a decrease in prices, and therefore profits, at first, and possibly if people kept on saving more a decrease in production and a redcution in employment, at least temporarily. Therefore at first dividends would be lower and return on investments would be lower.
    Second of all if people are bringing more and more money to bankers and the like and telling them to invest it there will be more and more money chasing at best the same amount of investments, Now as returns on investements drop and borrowers have to pay less investment might pick back up
    if the business climate is optomistic. But then again the investors will make less the more people that they are competing with to invest their money.
    Therefore the whole system only works when some people do it not every one, or when everyone does it a just the right level. This is all connected with the idea that in a finite world the stockmarket can continue to rise in the long run forever. To believe that you have to either be a Protestant Minister, a Catholic Priest, a Jewish Rabbi, a Muslim Imam, or an American Economist.(or have faith that mankind will develope fussion power and all mankinds material obsticals will mechanically disappear.):<)

    • The paradox of thrift is that what’s good for the economy is bad for individuals. As I understand it, the Japanese culture of thrift has accounted for their extended economic doldrums; the German culture must be every bit as frugal, but they’ve had to spend huge amounts (and very carefully) to fix the old DDR and the East in general.

    • You are correct, C, but part of the problem is that modern economies trade with each other. If everyone saves and invests, in theory the resulting surplus goods will have to be exported in order to bring in real money to then trigger greater domestic consumption. However, this has to be seen in the context that the values of the currencies of the trading countries are expected to move to counter these surpluses, such that this exporting country’s currency will rise against that of the importing country until the former can no longer sell goods competitively there.

      The problem is that no one accounted for one country, the USA, running infinite trade surpluses and then having its currency artificially propped up by the global capitalist class because of their fear of American decline and loss of its import markets. This allows US capitalists and workers alike to get away with short-sighted behavior, while Chinese capitalists and workers have to deal with the complex effects of suppressing the value of their currency.

  5. Thanks, Dr. Cole.
    I will be printing this out and sending it to Fortuna, the goddess of luck, to help her decide whom to grace with this windfall.
    See, I already have a PLAN, a copy of which I will include with the column I send.

  6. Professor, as an Englishman I can’t do the American lottery. If I could, I would and take my chances of whether or not it brings me any happiness. Look at it this way: poverty definitely bring despair, misery and unhappiness. So logically, lots of lovely dollars must bring happiness.

  7. The nicest thing about any lotto or lottery or super-powerball is that you have the same chance of winning, whether you play or not.

  8. Speaking of “Barracuda Capitalism” and the height of Wretched Excess, yesterday I saw the movie “The Great Gatsby.” The Great Gatsby, of course, is F. Scott Fitzgerald’s classic novella of the 1920s, the “Jazz Age,” a decade filled with scams, con men, and wealthy poseurs. And the greatest poseur of all (at least in literature) was Jay Gatsby. It was an age that screamed excess, real Wretched Excess.

    The movie is very well done, and Leonardo DeCaprio portrays Gatsby perfectly. All the other actors are good as well. Highly recommended.

  9. The argument may be moot as I have never heard of a stock fund that would accept as little as $5 a week (could just be my ignorance I guess). Usually they require an initial investment of a thousand or more.

    • You can do $5 trades at lots of online stock sites. Besides, you could wait a few weeks to make the first trade without deeply damaging your lifetime earnings.

      • Since we’ve seen extensive evidence of manipulation of all sorts of markets recently I would say that the stock market is only a slightly better place for those of us who aren’t well connected insiders to put money than the lottery:-)

      • Please correct me if I’m wrong, sir, but that “$5 trade” is the transaction cost of a trade, not the purchase, the investment, that we are told we ought to be making weekly. link to brokerage-review.com If we just were smart enough to “make good choices.”

        There are of course stocks priced under $5 a share, and there are folks who assure us that the “million dollar mark” is only 9, count ‘em, NINE trades in penny stocks away, and for a small fee will tell us how to get rich quick too. link to pennystockdreamteamreview.net

        Is it a good or a bad thing that not all of us can apparently afford to be, or are prudent and smart enough to be, as “prudent” and sharp as some of us?

  10. In the past, before US state governments embraced legalized gambling, lotteries were associated with societies where people had lost hope in economic reward for virtuous behavior. In the ’70s, we all chatted about the Irish lottery, and sometimes Latin American lotteries. Even the Soviet Union had lotteries! None of these were places where the rich were perceived ever having been anything but oppressive, exploitative, and parasitic. I think their perceptions were not without merit.

    So what does it mean that America is now a place where, according to The Economist (a right-wing magazine), inter-class mobility has become slower than in Europe? And now we look to the lottery, as European peasants under the thumb of feudalism looked to fairy tales about magic rewards, for the hope to get through each miserable day?

  11. The justification for these lotteries in many states is to support education – and the budget, for example here in Texas, is structured to reduce other sources of support accordingly, making it entirely impossible to eliminate these state-supported gambling operations! Ironically, Texas does not allow other entities to operate gambling, and the destruction of the Tigua Indians casino by then-State Attorney General Cornyn, at the behest of Jack Abramoff et al has greatly impoverished the tribe – while money flows from El Paso and other border cities to neighboring states that do permit casinos.

  12. There is one thing that concerns me about every American with a job earning 75,000 dollars a year. We live in a global economy. There is one global economic pie. By world standards 75,000 dollars is a heck of a lot of money.

    I think a person has realize that everything that the US, or for that matter any industrialized country, imports whether it is oil or computers is oil or computers that can not be used by less developed countries to develope their populations.

    There is a concept known as misappropriation of resources.
    The American worker deserves to have a good life. But so does the worker in Kenya or Bolivia or Laos. T think that Bill would agree that people need to think about what material possesions are neccessary for a good life. I would
    suggest that the people who can teach us that are the Hutterite religous minority found in Canada and perhaps elsewhere.
    I came to the conclusion in 1985 that to lead a good responsible life in the Chicago area would require 50,000 dollars a year for a family of four. I bet that would be
    more than 75,000 in todays terms. But at that time my priorities were different.

    One the other hand if the economy was different. If the economy was geared to meeting the needs of the middle class rather than the affluent class then the price structure might be different than it is today. Under the conditions in which the ecomony was geared to meet the needs of the middle class 60,000 might be plenty good, without causing an obstical to the economic developement of less industrialized countries.

  13. In 1970 tuition in the California State University system was $158.00 per year (less than $1,000.00 in inflation adjusted dollars). In those days you might have had a tough life, but there was hope for the future. Through your hard work your children could get a good education and have a better life. Today, with tuition at $12,000.00 per year what hope is left?

  14. Speaking of morality tales concerning class and the social-climbing nouveau riche in the movies! Finally got around to catching Kubrick’s Barry Lyndon. I suspect a modern Great Gatsby would best it in terms of Eye Candy, but Kubrick’s care and wit still connects (even with Ryan O’Neal starring).

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