The benefits from having casino gambling in New Orleans and in Louisiana, mainly additional employment and state revenues, have been stressed by the casino backers.  The opponents have driven home the costs of legalizing casino gambling.  Economists David Johnson at LSU, Tim Ryan at UNO and Bill Oakland at Tulane, have produced several estimates of the economic impacts of a single casino in New Orleans, all of which are lower than the figures that the Governor Edwards has been using in his "non­involvement" lobbying for a single casino.

Surprisingly absent from the political debate is any mention from other economists throughout the state of the costs of limiting casino gambling in Louisiana to one MONOPOLY casino.  It should be pointed out that with a monopoly, the price is generally higher and employment lower than with free entry into the market.  Allowing casinos to locate anywhere across the state would likely increase employment and provide better bargains for gamblers (particularly, those from Texas) than if we had a monopoly casino in Louisiana.  These are simple principles that economists teach to college sophomores.

Another simple principle is that large profits can be achieved in two very different ways.  One way is to offer a better product or service than the competition or to produce a lower cost than the competition.  The lure of profits guides producers to benefit society by offering better products or by using fewer resources to make products of comparable value.  Another way that profits can be made is to block  would­be competitors from ever entering the market.  By restricting supply, price can be increased.  Here, the society is harmed because fewer of the goods and services that buyers want are supplied.  Attempting to obtain profits by keeping competitors out of the market leads to costs more severe than the simple effects on the payoffs of casino games and on employment in tourism. 

When entry is artificially limited by the power of the government, the profits from the endeavor increase tremendously, and people will pay large sums for entry into a limited market.  In New York City, the allowed number of taxi cabs is fixed; one must own a taxi "medallion"  to operate a cab.  With these medallions fixed in number, operating a cab requires a capital investment of about $280,000, of which $250,000 is to simply buy entry into the market.  The payment of $250,000 for the medallion represents the profits one expects to make while possessing the medallion.  After purchasing entry into the market, the profits one expects to make end up being transferred to the current owner of the medallion.

During the Mercantilist period, the days of the great explorers, the European monarchs often granted monopoly rights to various individuals and companies.  For example, the Honourable East India Company, importers of tea from India and Ceylon, was given a lower tax rate.  Colbert, the great Minister of Finance of France during the latter part of the seventeenth century, financed much of the French government by selling off the rights to be sole supplier in various lines of trade. 

The expected profits from a single casino in Louisiana are so high that Hilton has promised $100 million dollars to the state and New Orleans the day that a Hilton­run Casino opens, while another group of investors associated with Bally's Park Place in Atlantic City has offered to donate 30 percent of their annual net profit to local charities and public service programs for the poor.  It must be remembered that a $100 personal bribe to a key decision maker is much more effective than a $10,000 bribe to government coffers.

Several years ago in Louisiana a moratorium was placed on construction of new hospitals.  Several would­be hospital operators paid large sums to Edwin Edwards who was a private citizen at the time, but had great influence with those with authority to grant exemptions.  These potential hospital operators were willing to pay these sums because of the high profits they expected with the hospital moratorium.

If the profit potential from having monopoly rights in a certain line of business, for instance a Louisiana casino, for twenty­five years of profits is worth one million dollars, how much do you suppose someone would be willing to spend to get those monopoly rights?  If the monopoly rights to the casino were auctioned off, the winning bid would approach one million dollars.  (Imagine auctioning off an ordinary ten­dollar bill­­no one would pay more than ten dollars, while many would bid up to nine dollars and ninety­nine cents.) 

Granting the monopoly rights through the political process does not change the fact that those seeking the monopoly will still bid on obtaining the monopoly.  The crucial difference is in the bidding process itself.  Bidding for the monopoly in the political process involves convincing the powerful political decision makers that ones plan is superior to the others.  This is done through lobbying, by "buying" influence.  One of the governor's closest advisors, Gus Weill, has become a highly paid lobbyist for one potential casino operator.  Mr. Hemmeter recently flew Mayor Barthelemy and others to Hemmeter's Hawaiian resort (which was surely an expensive undertaking).  Once a bid is made, the money is paid, whether one wins the bid or not.  The would­be monopolist pays the lobbyist whether one gets the monopoly or not.  Funds and resources devoted to getting the monopoly get spent and get used whether the monopoly is won or not. 

How competitive bidding for a monopoly is similar to an ordinary auction is that an increased bid (increased lobbying effort) by a monopoly seeker raises the stakes and leads to increased bids by others.  This competitive bidding, with the resources actually being used in the process, is wasteful from the point of view of the general society.  These resources are not devoted to the production of any good or resource that others find valuable, but are devoted to obtaining this monopoly.  We have less food, shelter, legal services, medical care and so forth, because some people are devoting their time and money to protecting some enterprise from competition instead of producing goods and services that people value.

In the last twenty years or so, economists have begun to look at these social costs of monopolies, the value of the resources wasted through competitive bidding for the protected monopoly, and have given the name "rent­seeking" to this wasteful bidding activity (to explain why the term "rent" is used by economists would take too much space here).   Approving a single, land­based casino will lead to would­be casino monopolists to rent­seeking activities to influence Louisiana lawmakers, Governor Edwards and perhaps Mayor Bartholemy to favor them for the casino monopoly.  I can only hope that the influence buying, the rent seeking, will remain legal.  By its very nature the influence buying (and selling) is highly unethical, but I have come to expect nothing less from Louisiana politics.