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Today,
14 Dec 04
How
to 'prove' anything
by Larry Haverkamp mail@AskDrMoney.com
IF you were hoping for a casino, then too bad for you. There is 'no
case for casinos'. Why? Because 'from an economic standpoint a casino
will have an adverse impact on Singapore in the long term.' These
are the headlines from a study published in The Business Times on
Dec 3 by SMU and NUS economists Hoon Hian Teck and Ho Kong Weng. They
conclude: 'Our recommendation is not to build the casino.'
I spoke with Assistant Professor Ho who was kind enough to explain
the workings of this study. After telling me how they did it, he gave
me a surprise. Very few have questioned their study. I think it's
because statistics are intimidating. Who is going to argue with fancy
methodologies like present value, simulation and regression analysis?
In the face of such powerful tools, only a fool would disagree. I
disagree.
These guys have built a clever economic model, but it is based on
two shaky assumptions. First, Professors Hoon and Ho assume a casino
will lower Singapore's institutional quality because of higher bankruptcy
cases, embezzlement and fraud. Second, a casino is assumed to lower
work productivity by 0.5 per cent. That's because poor productivity
results from 'employees with gambling problems and their adverse effects
on teamwork'. Here is a simple and shocking example of how economic
models really work. Let's say your model of the Singapore economy
looks like this: $80 billion x 2 = $160 billion = Singapore's GDP.
Next, let's ASSUME gambling reduces productivity. It changes the equation
to $70 billion x 2 = $140 billion. Now, let's review our results.
With no casino, GDP was $160 billion. With a casino, GDP declined
by $20 billion to $140 billion.
The obvious conclusion: Scrap the casino. You may say that I practically
assumed the conclusion.' I agree. But that is how economic models
work. Conclusions depend largely on the assumptions. Once you assume
that a casino lowers productivity and institutional quality, the outcome
is certain. A casino is doomed.
Of course a better approach is to focus on the reasonableness of the
assumptions.
CASE FOR CASINOS The facts about casinos may surprise you. They defy
conventional wisdom.
Unemployment: Las Vegas, Nevada in the US has more casinos per capita
than any US city. Yet Nevada is among the 10 states with the lowest
rate of unemployment. (It is 3.6 per cent vs. 5.5 per cent for the
national average.)
Crime: Las Vegas, Nevada - with 40 million annual visitors - has a
lower crime rate than US tourist destinations with no casinos such
as Miami, Honolulu, New Orleans and Phoenix. A University of Maryland
study said: 'In no case is there any evidence that casinos have had
a major impact on the crime rates.'
Embezzlement and Fraud: Professors Hoon and Ho called this 'a well-known
problem associated with having a casino'. The FBI crime reporting
unit, however, found that from 1988 to 1996, casino jurisdictions
reported a DECREASE in fraud and forgery whereas the nation as a whole
reported significant INCREASES. A study at Virginia Commonwealth University
in the US also found that casinos did NOT lead to an increase in 'embezzlement,
forgery and fraud'.
Bankruptcy: The National Opinion Research Centre (NORC) at the University
of Chicago found that instances of bankruptcies were no greater in
communities with casinos than in those without casinos.
Compulsive gambling: The Harvard Medical School's Division of Addictions
estimated that only 1.29 per cent of the population could be classified
as having serious pathological gambling problems. Another study by
NORC said: 'The availability of casinos within driving distance does
not appear to affect prevalence rates (of compulsive gambling).'
Social Cost: NORC estimates that in the US, the social cost of alcohol
abuse is 33 times the social cost of casinos.
Tourism: NORC found that cities with casinos had 43 per cent higher
earnings in their hotel sectors than cities with no casinos.
Economic impact: A US congressional study concluded: 'The gambling
industry has emerged as an economic mainstay in many communities and
plays an increasingly prominent role in economies.' |
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