Four Reasons Why the U.S. Crackdown on Internet Poker Is a Mistake

Yesterday, I described my own personal moral code regarding government prohibitions, which led me to be outraged by recent actions by the U.S. government shutting down the three major internet poker sites for American players.

Forgetting about my own moral standards, which are probably of interest and relevance only to myself, there are four other reasons why the government’s actions make no sense:

1) Prohibitions that focus on punishing suppliers are largely ineffective. Prohibition of internet poker is no exception.

When there is consumer demand for a good or service, it is extremely difficult to fight the problem through government punishments of suppliers. Illegal drugs are a good case in point. Americans want cocaine. Over the last 40 years of the “War on Drugs,” we have expended enormous amounts of resources locking up drug dealers. (Contrary to public opinion, the punishment of drug users has been relatively limited; by my estimates 95 percent of the prison time served has been by sellers of drugs, as opposed to users.) Especially when the demand for a good is inelastic, squashing supply is ineffective. Making life difficult for incumbent suppliers entices new entrants eager to meet existing demand.

How do I know that the U.S. crackdown on internet poker sites is ineffective? Within 30 minutes of my account on Full Tilt Poker (one of the big companies affected by the crackdown) being shut down, I was able to start an account at a different poker site, depositing $500 via my credit card with no problem.

2) Relative to the consumer surplus generated by online poker, the externalities caused are small. Government interventions should focus on cases where the opposite is true.

Americans love poker. In a given year, Americans pay billions of dollars to be able to play the game online. I don’t think I am exaggerating when I estimate that more than 5 million Americans have played poker online. Professional poker players are celebrities. The typical online poker player is not hurting anyone else, just like the typical movie goer or sports enthusiast. There are, of course, gambling addicts (some might say I live with one). Addicts impose costs on others. But, the nature of internet poker, with readily enforceable limits on how much money can be downloaded in a given period, is actually a much better environment for regulating addictive behavior than are poker casinos.

3) From a moral perspective, it is inconsistent for the government to condone and profit from gambling on the one hand, while criminalizing private providers of internet poker on the other.

It would be understandable if, for reasons I disagree with, the government adopted a consistent stance against gambling of all sorts. But, governments are enormous beneficiaries of gambling income, both through lotteries and sanctioned casinos. So there can be no moral high ground on the issue. I am certainly sympathetic to the government’s desire to glean tax revenue from gambling activities. The right way to do that, however, is not a prohibition, but rather a regulatory framework in which governments take their cut of the action. For all parties involved, that sort of system is more efficient than the current approach.

4) Even under the government’s own laws, it would seem that there is little question that online poker should be legal.

While I personally think the logic underlying the UIGEA (the law governing online gaming) is deeply flawed, it is nonetheless the law of the land. Under the UIGEA, games of skill are exempted from the law, which is supposed to apply only to games of chance. So legally, whether online poker is legal comes down to the court’s interpretation of whether poker is predominantly a game of skill. If you’ve ever played poker, it would seem self-evident that poker is a game of skill. If you need any further evidence, Tom Miles, a professor at the University of Chicago Law School, and I recently wrote a paper that uses data from the 2010 World Series of Poker to confirm what was already obvious with data.