Zera's Blog

A Citizen's View from Main Street

New Jersey to Double Down on an Industry in Decline?

Christie’s plan. To reach right past “moral hazard” and “let them fail” to hit the “government intervention” button.

Welcome to the progressive side of the street. Maybe. Let’s kick some tires here.

First of all, there is that pesky drop in market share. Do you have a root-cause analysis of why that happened? Has anyone done a feasibility study? Or is he blindly supporting what may prove to be a buggy-whip economy? At least he acknowledged that it would increase crime.

The first businesses to return to New Orleans after Katrina were the casinos and hotels, even before housing. Around here, conservative candidates are talking about adding racino and riverboat gambling to Indian casinos, the failing horse track, and a whole array of lotteries and scratch-offs.

Las Vegas is struggling.

“(Steven) Horsford says the local economy is struggling not because fewer tourists are coming to Vegas, but because the people who do come are spending less money. Horsford said Vegas needs to switch from relying on casino tourism to green energy and medical tourism.”

“‘Coming Soon’ signs have been pulled down across the city, because nothing is coming soon other than more foreclosures. The Nevada landscape is pockmarked by empty condos and casinos, some of them fully built and sitting there empty, others are shells frozen in time. When analysts talk abstractly about Wall Street sucking capital out of the real economy, these stalled construction projects are the on-the-ground reality. ‘60% Reduced Prices’ promises one empty condo development.”

“The $3.1 billion Fontainebleau Las Vegas construction project sits nearly complete but the lender pulled out and everybody is suing everybody else. The first Ritz-Carlton in the company’s history to shut down is in Las Vegas.”

Nevada’s Economic Misery May Be America’s Future

It is not just a matter of market share, but more importantly, a matter of market size. Other local economies are trying to play the gaming card, and that completely ignores online gaming. Investing heavily in a declining market when competition is growing does not strike me as a responsible policy. Christie needs to learn to recognize an industry in the product stage of ‘saturation and decline’.

Secondly, there is the problem that the gaming industry is fundamentally parasitic. It exists for the sole purpose of separating people from as much of their money as possible for as little return as possible. Working America has not been saving enough over the past several years, which is one reason this recovery is so difficult and prolonged. Disposable income for working America is drying up. That dwindling resource is expected to drive the recovery even while people are expected to save for emergencies, college, retirement, … Siphoning off much of those dollars into an industry as unproductive as gaming is not in the interests of the country. Middle class wages have stagnated or declined. Rebuilding an economy that depends on large amounts of disposable income is counter-intuitive at best. Investing in an industry that is so vulnerable to recession also seems unwise.

Furthermore, this pits the economies of one community against another. Liz Peek writes:

Over time, expanded train routes and the advent of the automobile began to siphon traffic off to other costal resorts like Cape Cod and Martha’s Vineyard. The arrival of casinos in 1978 gave the town a much-needed boost, but since then the city has seen its population and income recede as it has lost market share. It remains, however, an important source of state revenues.”

Cape Cod and Martha’s Vineyard, and NJ was on the losing end of the economic tug-of-war, then again when she mentioned that casinos put NJ back on the winning side. This does not promote the general welfare or insure domestic tranquility. Nor does it grow the economy as much as it shuffles wealth around. Again, not good.

Also, there are reports from California that welfare cards are being used in casino ATMs. The problems with this should be obvious.

“The governor will push the casinos to develop new products and to attract summer crowds who, presumably, would see the Atlantic Ocean as a better place to beat the heat than Las Vegas.” – Liz Peek

If free-market capitalism worked the way conservatives seem to think it does, then the casinos would already be taking care of business without needing direction from the government. Coming from the governor, this smells of government intervention and economic cannibalism.

I would have to give Christie’s plan a failing mark, and encourage him to explore new industries that would diversify the NJ economy and tax base in ways that would make it less vulnerable to recessions instead of more vulnerable – industries that are not designed to prey on the prosperity of surrounding communities. Perhaps that will draw new blood back into the state.


July 30, 2010 - Posted by | Capitalism, Direction, Economics | , , , , , , , ,

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