Friday, June 17, 2005

Let's Take Stock of Our Various Addictions

One of the best things happening in West Virginia is the reporting by West Virginia Media’s I-Team. I can say that because a.) I am a news junkie and analyze the news, and b.) The State Journal pays me not a cent for my opinion. This is not a paid endorsement for West Virginia Media.

In the past months, the I-Team has presented in-depth investigations about drug and gambling addiction. I was most surprised to learn of the extent of Methadone use across the state. Even by charging addicts about $11 per day, state-sanctioned Methadone clinics are very profitable.

The number of Methadone addicts is particularly telling as they are not part of the underground market. They have chosen Methadone primarily to try to escape their addiction to prescription painkillers. With this level of what can be called "legitimate addiction", what can we deduce about the underground market for narcotics?

That question is best answered by another I-Team report that revealed "meth" labs are busted daily. Crystal methamphetamine is an entrepreneur’s dream-the cost of capital and raw materials are remarkably cheap. The moonshiners of old didn’t have it this good-they needed corn which meant an investment in land. If a Methadone clinic, with its investment in a facility, its taxable status, and burdensome paperwork requirements, is very profitable, then meth lab chemists must be raking it in.

Gambling has always thrived in our state. But the nature of gambling has changed dramatically since the voters approved the lottery in 1984. All one needs to do is review the growth in personal bankruptcies resultant from gambling to understand this change. Though not reported in this light, the ever-increasing arrests for embezzlement around the state often are the result of the bookkeeper’s drug or gambling habits.

There are moral issues with addiction. There is also the undeniable charge that state government is culpable in many ways for these addictions. Workers Comp was the leading purveyor of Oxycontin until it changed rules last year. And as for gambling, politicians are the true addicts. But as Professor G. H. Dorr once noted during an endless dialogue, "And what, to flog a horse that if not at this point dead is in mortal danger of expiring," is the point of this column? Economic impact is.

It has always been difficult for economists to value the underground economy. However, since a state-owned computer now tracks nearly every gambling transaction taking place in West Virginia, we have a good data source to calculate the total dollars that West Virginians bet. Using a myriad of other clues, such as drug bust results and Methadone sales, we can also better estimate the amount of cash leaving people’s wallets to pay for illegal drugs.

I would suggest that $1 billion per year is a good starting point in estimating drug and gambling addiction spending.

In our current situation, the multiplier effect of this spending is minimal at best. Though gambling money balances the state budget, let’s examine what it buys. Our brand new jails and prisons are overfilled. The courts are clogged with drug cases. A certain portion of Medicaid and welfare benefits is spent helping addicts to either pursue or recover from their addictions. In all, the state’s legally-derived gambling revenue doesn’t offset the direct economic cost of drug and gambling addiction let alone provide for economic growth.

On the other hand, look at the effect that spending $1 billion per year on new housing would have. Or spend it on new cars. Or spend that rich sum at WalMart, Target, and Best Buy. Then you would have job creation and a multiplier effect as high as 6:1. The taxes levied on this new business growth alone might exceed the state’s current gambling take. Plus, the economy would continue to grow year by year and we would not have to be 49th again (and again.)

If West Virginia hopes to have any kind of economic turnaround at all, drug and gambling addiction have to be all but eliminated. Moving Sudafed to different shelves and voting down table games won’t solve the dilemma. It will take political outrage, the kind currently directed at the Pentagon over 8 aircraft, to make even a dent in the situation.

In a year or two, or perhaps even three, offshore Internet gambling will likely obliterate state gambling franchises. In its greed to raise taxes, the state has conditioned its citizenry to gamble via the video terminal. Someday soon, our gamblers will realize that Cyberspace pays better odds and the state will learn the true cost of its gambling addiction.

Stay tuned to the I-Team for that report.

Professor G. H. Dorr is the character played by Tom Hanks in "Ladykillers".