The Lottery and Capitalism – Striking Similarities

I was having a discussion with one of my friends, who happens to be a banker, and he mentioned that, when you think of it, there are not many differences between playing the lottery and capitalism. In fact, he pointed out, they are both very similar. It struck me as an odd statement but when I thought about it I realized he was spot on.

Incentives

Playing the lottery offers the incentive of winning a lot of money. At the heart of capitalism is the same incentive to make a lot of money. It’s the American Dream, after all, to become rich in America.

Risk-Reward

Both result in winners and losers. The risk of losing your money when you play the lottery is high, but the reward is also high. According to the Powerball website, the odds of winning the Powerball are 195,249,054 to 1. Capitalism also requires that you take a risk. The reward is that if you win, you get to keep the profit, or wealth, you created. The risk is that if you lose, you lose all of your time and money invested.

Unfairness

The lottery is unfair. Only a few win, whereas millions lose. Capitalism is also unfair because only a few win and become wealthy while the majority don’t win and many become poor in the process.

Success

During fiscal year 2012 lottery sales totaled $78 billion in the U.S., or $1.5 billion in ticket sales a week. Clearly the lottery is a very successful system because millions choose to play the lottery regularly.  Capitalism is also very successful. The U.S is considered the most capitalist of the free market economies in the world and it has the largest economy the world has ever known.

Final Thoughts

It seems so unfair that only a few win at the lottery. What would happen if the winnings were diverted back into the hands of those who played and didn’t win, in order to bring more fairness to the lottery? The lottery would no doubt collapse. When you take away the incentive to become wealthy, the lottery losses its appeal.

That’s another thing the lottery and capitalism have in common. What would happen if you decided to redistribute all the wealth of the few who became wealthy under a capitalist economy? It would die. No one would invest their time and money if you removed the incentive for profit by redistributing those profits, out of fairness, to others who did not win. Redistribution of profits earned under capitalism is particularly egregious because it takes more skill than luck to create wealth via capitalism. The American Dream and America’s continued dominance in the world economy, depends upon capitalism. It is dependent on its major driver, incentive. Anything that takes away this incentive, even just a little, negatively affects capitalism and negatively affects the whole of the U.S. economy.

So obviously, taking 100% of the winnings from the winners of the lottery and 100% of the profits from the winners in a capitalist economy would kill both. But what if, instead of taking all of the winnings and profit, you redistributed only some of it, in order to make it less unfair?  What should that percentage be before those willing to take the risks begin to pull back from their investment? 30%, 50%, 70%? Logic dictates that if too much is taken, we should see fewer people taking risks in both systems. That would hurt the lottery industry overall and would negatively affect those who depend on the lottery for a living or who derive some benefit from the lottery. Taking too much of the profits from the winners in a capitalist economy would hurt the economy overall because there would be fewer willing to risk their time and money on new or existing businesses. It would also negatively affect those who depend upon businesses for their living, such as employees and other businesses. That means fewer jobs, more unemployment and a stagnant economy.

Sound familiar?

 

 

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Thomas C. Corley About Thomas C. Corley

Tom Corley is a bestselling author, speaker, and media contributor for Business Insider, CNBC and a few other national media outlets.

His Rich Habits research has been read, viewed or heard by over 50 million people in 25 countries around the world.

Besides being an author, Tom is also a CPA, holds a master’s degree in taxation and is President of Cerefice and Company, a CPA firm in New Jersey.
 
Phone Number: 732-382-3800 Ext. 103.
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