Government Regulation: Pandering to Special Interests

Online Gambling

On October 13th, 2006 George W. Bush signed the SAFE Port Act into law. As a bill intended to combat terrorism on American soil, the bill had unanimous support in the Senate and near-unanimous support in the House.  Snuck into the bill was the Unlawful Internet Gambling Enforcement Act (UIGEA).  The new law forbids transactions from financial institutions to online gambling sites.  The grand majority of online gambling sites, which all operated on foreign soil, forbade American players from gambling on their sites.  The UIGEA effectively prevented Americans from gambling on the majority of online gambling sites, though there are still a handful that still do cater to American players.

Many arguments have been made in favor of outlawing online gambling.  One of the most pragmatic arguments in favor of outlawing online gambling is that it takes money out of the US economy.  There are no legally operating online gambling sites operated from the United States.  The fact that all online casinos operate in foreign land leads to money American money going outside of the United States.  Many argue that the money that is going to companies overseas, should be staying in this country, where the government is able to reap the benefits of those dollars through taxation.

While the keep-your-money-here argument makes sense on its surface, the holes are large enough to drive a car through.  If the goal in prohibiting online gambling is purely to keep American dollars in the United States, then there is no reason to allow any financial transactions with foreign companies.  Yet, people in this country are able to freely pay subscription fees to play foreign computer games such as Lineage II.  One can easily, and legally, purchase products from overseas vendors, and there is no prohibition on such transactions.  To say that online gambling should be outlawed because it sends money overseas is an absurd notion, given how much money is sent overseas, legally, every single day.

Even if there was any truth to the argument that online gambling is harmful because it sends money out of the country, the common-sense solution would be to allow such transactions to take place in the United States, where the government has the right to reap the financial rewards.  Online gambling is a huge industry.  It has been estimated that over $50 billion could be raised in tax revenue over ten years by the government if online gambling sites were allowed to operate in the United States.  $50 billion would go a long way to putting a dent in the enormous national debt that has been plaguing the United States and the falling value of the dollar.  This notion of legalizing online gambling in the United States has been put forward a handful of times since the passage of the UIGEA, most recently by Barney Frank.

So finally, we come upon the real reason that online gambling has been attacked so viciously by our representatives in Congress: pandering to special interests.  It is no secret that there are many special interest groups that have been extremely hostile towards online gambling. Indian casinos, the National Football League, and the religious-right have attacked online gambling for their own special reasons.  Indian casinos are hostile towards online gambling because they are afraid that the money gambled online will not be gambled at their casinos.  The NFL is worried that people will gamble on NFL games, and that can somehow hurt the integrity of the sport.  The religious-right attack the notion that people can freely gamble with their own money as immoral.  These groups either consist of a large amount of votes, or deep-pocket lobbyists fighting in their favor.  When compared to the relatively small and fragmented group of online gamblers in the United States, there is little wonder as to why there have been steps towards outlawing online gambling.

What government regulation in this area basically boils down to are the concerns of special interest groups over the freedom of Americans to spend their money as they wish.

Digital Millenium Copyright Act

The Digital Millenium Copyright Act (DMCA) has quite a few provisions, but we will only take a look at one of those here. A provision of the DMCA states that any circumvention of a security measure put in place by a copyright holder is against the law.  An example would be using a computer program to facilitate in the copying of a DVD on to your computer.  This provision creates a huge conflict of law with the Fair Use doctrine.

It has been held in Sony v. Universal that the recording of a television program for personal use does not constitute copyright infringement.  The logical extension has been that copying your personal movie or music collection for back-up purposes also falls under the Fair Use Doctrine.  With the arrival of the DMCA, those activities remain legal, but the means of making those copies suddenly became illegal.  Suppose one wishes to copy a DVD unto a computer for back-up purposes.  The actual copying of the DVD is legal, but the production or use of a program that allows one to copy a DVD would be illegal.  This is because the DMCA prohibits the circumvention of the security measures placed in DVD’s that prevent copying.  Therefore partaking in your legal right to copy a DVD for personal use becomes legally impossible.

Like the online gambling ban, the DMCA is a result of pressure from the strong lobbying efforts of the recording and movie industries.  Between the two industries, there have been challenges against the existence of VCR’s, MP3 players, YouTube, and much of the things that we now take for granted.  While piracy of movies and music is rampant, there are honest people who simply want to protect the investments of the movies and music that they have legally purchased.  Unfortunately, the lobbying muscles of a select few have prevented common sense from prevailing in this area.

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~ by freddiesuarez on October 6, 2009.

7 Responses to “Government Regulation: Pandering to Special Interests”

  1. That’s very interesting about the special interest groups. UIGEA reminds me of Prohibition, which was also morally motivated and hard to enforce. You’d think we would have learned by now that outright bans on things like alcohol and gambling are impractical, and that some things are better suited to regulation than total prohibition. The fact that gambling is a pleasure activity, combined with the fact that it occurs in the slippery, nebulous arena of the Internet, means any ban would probably be very difficult to enforce. So if people are still going to find ways to gamble online, why not lift the ban and subject the industry to regulation and taxation?

  2. Certainly banning online gambling on the grounds that it drains money out of the US economy is ridiculous – there are many more money draining activities that are perfectly legal. For example, migrant workers in the US send more than $100 billion dollars to their home countries each year.. Yet, it is not clear why online gambling should be treated any different than regular gambling – both have the same social costs and negative externalities and should therefore be subject to the same type of regulations. Even though online gambling is more convenient, it is also easier to recognize and prevent. Both are addictive, and can result in negative societal consequences like divorce, bankruptcy, money laundering, fraud, etc. Both have difficulty enforcing the minimum age requirements. I am sure that special interests did have something to do with the outright ban of payments to online gambling cites. WTO has ruled that the ban is a violation of fair trading practices and has allowed Antigua and Barbuda to retaliate by violating U.S. copyright laws for up to $21M. It seems that it is in U.S. best interest to allow online gambling, but subject to necessary regulations. It is true that the method of delivery and the international actors make enforcement more difficult, but it is not impossible…

  3. I have great difficulty linking the concepts of online gambling with illegal conduct, not because I have any personal desire to see online gambling legalized but because I don’t see how it’s enforceable. It is one thing to prohibit online gambling sites from being based in the United States, but it seems impractical to prosecute individual citizens of the United States that participate in foreign-based sites. Identifying those individuals, particularly if the online gambling sites are based in countries with more stringent privacy laws (such as France and other European nations), would be incredibly difficult if not impossible. Consequently, if half of your law is unenforceable, having it on the books seems redundant.

    I agree that there are some flaws in the concept that online gambling should be completely legalized because money is being sent outside the United States, but the part of the argument that holds merit is that it is silly for the United States government to ignore taking their “slice of the pie” in terms of tax revenue on online gambling. If the government acts as its own special interest group, and seriously examines how much revenue can be generated by legalizing online gambling, I suspect the members of Congress will find a way to sell the benefits of such a change to its constituents. Betting on sporting events already occurs across the country, albeit in a more limited fashion than online gambling would permit, but it probably wouldn’t be a revolutionary change. It’s true that casinos owned by Native American would probably take a hit, but there would be nothing from stopping Native Americans from creating their own online gambling sites and establishing their own foothold in the new market. The objections that the religious-right present are more difficult to appease, and they are a more widespread constituency, but I suspect Congressional representatives could craft some argument to counter their concerns.

    The more I read about the DMCA, the more I find myself puzzled over inconsistencies within the statute like the one you’ve pointed out. However, it seems as if the movie industry has recognized the desire of the general public to protect their DVD and Blu-ray purchases by making archival back-up copies. The increasing number of “digital download” codes that are accompanying new releases seems to provide a mechanism through which consumers can protect their investments in DVDs/Blu-rays by having a back-up copy available without needing to violate the DMCA by using a copying program.

  4. I think there is another, and I believe more important, argument for banning online gambling in the US. As we have all seen with our foray into Second Life, it’s easy to change your online identity, whether it be changing your hair color, skin color, gender…and age.

    What’s to stop a 14 year old, who has rudimentary skills at surfing the web, to create an online poker account and risk real money. Sure, there are some checks, like a credit card validation, or an e-mail validation, but nowadays, think how many young Americans are given emergency credit cards. And who doesn’t have their own e-mail account? Sure, banning online gambling is a pandering to the special interests action, but there are some benefits.

    I signed up for a Pokerstars account when I was 17. I used my debit card, for my bank account from my summer job. Do you know how I “beat” the system? In the drop-down menu for birth-year, I just said 1980 instead of 1985. It was devious of me. But, without the Bush’s Congress slipping in the Gambling act, those actions would still be occurring.

    Further, for those who really, really want to gamble online, it’s simple enough to goto an international bank, and set up an account. I don’t believe the act of gambling online is illegal if the funds you are using are outside the jurisdiction of the US.

    My point with all of this is that while it is snazzy to point to the bogey-man of “special interests”, there are a lot of valid reasons for banning online gambling, and there really is no current deterrent to those who try and do it.

  5. I’m going to go against the majority and agree with the principal blooger that online gambling should be legalized. I think that it makes sense for the U.S. to tap into the $50 billion market, especially since making gambling illegal does not stop people from going elsewhere to do it. In other words, the moral argument fails when the person can easily gamble through another country without penalty, so what is illegalization preventing? I understand that it is easier for an underage person to access an online gambling site than to get into a casino, and that it may be easier to become addicted to gambling if you’re doing it online. However, again, the underage person and the addict can access a foreign gambling site and spend their money there. I don’t mean to sound heartless, but the parents of the underage kid should be paying more attention and the addict will be an addict whether it’s illegal or not. Congress is naive to think that outlawing online gambling is effective to actually stop the practice, and I think they should do the opposite and capitalize on it like other countries.

  6. I have always thought the DMCA to be problematic, especially because the very fundamentals of computer and internet usage today is based on copying. Technology also advances too quickly for most policy makers to recognize what the core of the problem is. A couple of years ago cassette tapes and vhs tapes were seen as the forefront of media piracy, yet those mediums are near obsolete in modern day media piracy. I don’t think there’s any solution in sight for allowing users to enjoy their fair use right to make backups of their songs while preventing widespread piracy and bootlegging without a major overhaul of assessing copyright laws in relation to electronic material.

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