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New York’s Gambling-and-Weed Economic Strategy

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New York’s Gambling-and-Weed Economic Strategy

10 Blocks podcast December 1, 2022
New York
Economy, finance, and budgets

MI senior fellow and CJ contributing editor Nicole Gelinas joins Brian Anderson to discuss New York’s promotion of vice, the downsides of gambling and legal marijuana as an economic-development strategy, and the results of the 2022 midterm elections in the Empire State.

Audio Transcript

Brian Anderson: Welcome back to the 10 Blocks podcast. This is Brian Anderson, the editor of City Journal. Joining me on today's show is Nicole Gelinas. She's a Manhattan Institute senior fellow and a longtime City Journal contributing editor. She's been on the show a number of times. Nicole's work focuses on urban economics and finance, and other issues. She's a columnist at the New York Post and the author of the book After the Fall: Saving Capitalism from Wall Street and Washington. In Nicole's latest essay for City Journal, “New Vice City,” which was featured in our autumn issue, she describes New York City's plans to stimulate its post-pandemic economy by promoting gambling and pot use. So Nicole, thanks very much for joining us.

Nicole Gelinas: Good morning, Brian. Thank you for having me on.

Brian Anderson: So as part of her first state budget, which was introduced in the spring, Governor Kathy Hochul called for accelerating the issuance of three major casino licenses for downstate New York. Several developers have jumped in wanting to apply for the licenses to set up casinos in Manhattan. And the mayor, Eric Adams has seemingly gotten on board with this. He's touting the job creation potential of city-based casinos. But as you show, the record of other cities turning to gambling to alleviate their economic problems and as a form of economic development hasn't been all that successful. So I wonder if you can describe what New York could learn from those other cities.

Nicole Gelinas: Right. And New York's embrace of casinos has been a long time coming. We've had the state lottery for more than half a century. And the city supports it, the city has always billed this as we're leaving tax revenue on the table. People are going to gamble anyway, and so let's create a legal and regulatory structure for them to gamble, and then we can reap tremendous tax revenues from this. So we went from modest paper-based lottery to, about a little more than a decade ago, something called video lottery terminals at race tracks. The Aqueduct Race Track in Queens is the one most familiar to New Yorkers and is indistinguishable in many ways from a casino, except for that they don't have the table games. So you can go and play the slot machines and play the video lottery terminal games and help support the education system and also subsidize the racetracks.

But now here we have for the first time this specter of casinos, full-service casinos with table games right within Manhattan. So how did we get here? A big part of it is the desperation on the part of the commercial real-estate owners who own property in Manhattan. The office workers have not come back five days a week. Commercial vacancy rate is the highest it's ever been. And so you have big property developers both at Hudson Yards and within Times Square who just don't know what to do with these large commercial properties. And so now they're saying, we want at least one of these casino licenses to be right here in Midtown Manhattan.

But as you know, it's a little bit depressing, because it sounds just like other cities who have done full-service casinos as economic development because they ran out of other things to do. And those cities haven't succeeded in having casinos create a nexus of job creation and other economic activity. I mean, if you look at cities that have pursued this over the past 40 years, Atlantic City, Detroit, New Orleans, all pursued casinos in their core business entertainment districts because their previous business model wasn't working. Those casinos really haven't brought them any measure of success. And so no, New York is not as desperate as any of those cities for jobs and economic activity, but it's certainly not a good sign that we are so out of ideas that this appears to be one of the only economic development ideas on the table.

Brian Anderson: And it's not as if casino jobs pay particularly well, right?

Nicole Gelinas: Right. And I mean, to be fair, the ones within Manhattan will probably pay better than the jobs in Las Vegas, Atlantic City, at the Native American casinos, upstate New York. But those casinos certainly did not create high-paying jobs. Nationwide, the average worker in the gambling industry only earns about $18 an hour. That's not a lot higher than New York's $15 minimum wage. Gambling managers earn close to $90,000. But in New York, if you are at the management level, hotel management, restaurant management, even retail management, you're making about $90,000 a year. And if you look at Las Vegas, which is the one city that has made a success of gambling as an engine of economic development, the average wage is a $1,000 a week. It's below the national average wage, and it's well below New York City's average wage of closer to $1,400 a week. So, you can say you don't want to turn your nose up at jobs, but the industry argues the jobs in casinos will create other jobs outside of casinos, the job-multiplier effects, in economic parlance.

But that's not the case. Even at the higher end, these jobs will not pay enough to have a high multiplier effect. If you think about Wall Street jobs, for example, paying half a million dollars a year, tech jobs paying more than $200,000 a year on average. Those are types of jobs that Bloomberg pursued, that other mayors have pursued because they do have a very high multiplier effect. I mean, someone making $200,000 to $500,000 a year spending quite lavishly within the city and creating other jobs through that spending, also putting on events, advertising, PR, all kinds of other ancillary jobs. Whereas the casinos are much more self-enclosed, and it's not enough of a high-income job creator to really create multiple jobs outside of the industry. So the question is, okay, you create a few six-figure jobs and a lot of high-five figure jobs, but there's a real cost that comes with that in the casino industry.

Brian Anderson: New York officials have also welcomed a legal cannabis industry increasing the number of licenses for recreational marijuana sales, investing millions of dollars to promote the industry's growth. The mayor claims that the pot industry is going to boost citywide employment too. But you write that while illegal marijuana cultivation and sales are lucrative, the legal industry will not be an engine of good-paying jobs. And then of course, there are the public health and safety costs of expanded pot use. So I wonder if you could describe what your article goes into on this.

Nicole Gelinas: Yeah, I mean, the city and state’s embrace of marijuana as an economic engine in some ways is more disturbing than embracing casinos as an economic engine. And this is a place where the rhetoric has really changed over the past decade. So 10 years ago, when state and city officials started talking about first decriminalizing marijuana and then legalizing marijuana, they always put it in terms of you want to reduce the harm done to the existing users from being caught up in the criminal justice system. So we heard all these stories, really many of them specious, not to oversimplify it, but there's certainly no great number of people languishing in prison solely because they were caught with a small amount of marijuana, either at the state or the federal level. But that was the argument that Cuomo and some of the state legislators and city council people made. You don't want young black teens and young black men to get a criminal record because they were smoking pot.

And so we'll decriminalize small amounts of marijuana and then eventually legalize it. And there was also the medical argument, that if people have a terminal disease or have terrible pain, if they feel comfort in smoking marijuana, they're not doing any harm to anyone. Why not let them have a legal avenue to do this? So those are all fine. It's sort of like the harm-reduction arguments, but that has completely changed to putting marijuana as an engine of economic growth, where you have the mayor, union officials, industry officials, retail officials saying marijuana is going to be a generator of wealth in New York. That this is going to be an industry, that this is going to generate hundreds of millions of dollars in new revenue because successful businesses, they have to grow. And so we are no longer saying, okay, certain amount of people smoke marijuana, let's not send them to jail.

Now we're saying we need more people to be smoking marijuana for this to be a successful business. And of course industries get their customers young. No great regulatory regime on how you're going to get people younger than 21 not to be able to buy marijuana as it proliferates. But even accepting that the customers will start at 21. This is the age where mental illness starts to develop. There's a nexus between psychosis and heavy marijuana use. To actually encourage through marketing new people to smoke marijuana at a young age when they wouldn't have before is certainly not a good thing for New York state and city to be doing, to say the least.

Brian Anderson: New Yorkers who are listening to this podcast probably have noticed the proliferation of stores that are up in the city that are selling pot now, but at least until the first licenses were awarded, they're operating illegally. So what happens though, once you have licensed retailers out there competing against these unlicensed ones, which are, again, popping up all over the place? Is the city going to crack down on those unlicensed retailers, or are the licensed holders going to have to compete with these gray-market competitors?

Nicole Gelinas: Right. And that's an excellent question, and I don't think we know the answer, but we can make a guess at the answer. So, any heavily regulated industry, you can't have a parallel unregulated industry competing against it. We have heavy regulations on cigarette sales, for example, the tax stamps and the age restrictions and licensing and so forth. Same thing for the state lottery. So you don't have a store license to sell tax cigarettes and someone outside selling untaxed cigarettes, at least you shouldn't have that. It creates complete chaos. Same thing with alcohol. You have a state regulatory regime. Getting a liquor license, whether you are a restaurant or a liquor store, have to follow certain rules. Rules are not perfect of course, but there is an attempt to keep bootleg alcohol out of the system, make sure that young people are not buying it and so forth.

And also prevent overserving in restaurants and bars. So you don't have a parallel illegal alcohol industry popping up, or at least you didn't till recently. But here with marijuana, we have this bizarre situation where we have, I think it's safe to say hundreds of stores now all over the city in what look to be legitimate retail operations. They've rented out a store openly selling marijuana products to the public, and there is essentially no enforcements. The only enforcement is when an entity like the Times Square Alliance, for example, just harasses the police department day, after day, after day to shut down the people who were selling marijuana from trucks. But these stores have just proliferated. You'd think it'd be the easiest thing in the world to go shut them down. I mean, they're right there. It's a sitting duck. But the city and state have done essentially nothing.

So I talked to one lawyer who's advising people who were looking for legal licenses to sell marijuana, and he said he tells his clients the state has committed to enforcing the rules, but there's no indication yet that the state is going to enforce these rules. So we'll be in the strange situation that we’ll have both too many legal marijuana licenses and that you really shouldn't have any, but we'll also have too few and that there won't be enough to put an end to this parallel black market. So you won't achieve the goal that marijuana legalization was supposed to achieve, which was to end the black market. But you will be attracting a lot of new smokers. I mean, it seems like it's hard to design a worse system.

Brian Anderson: Yeah. Boy, what a mess. You conclude your piece by describing prostitution as the “next vice frontier” that the city could consider validating. Like casino and pot-sale advocates, the proponents of “sex work,” as they're calling it, claim that legalizing prostitution would advance harm reduction, to use the common phrase, and again, create legal jobs and revenue. Do you really think we're headed in that direction? And would the normalization of gambling and cannabis pave the way for legal sex work?

Nicole Gelinas: Yeah, I mean, it's hard not to see legal prostitution as the sort of third horseman of the apocalypse here. Every time we go through an economic downturn, we add a new vice to try to eke out a little bit more tax revenue for our very large state and local budgets. And you have the same rhetoric now around prostitution that has long surrounded both pot use and gambling. One, people are going to do it anyway. So you should give both the workers and the customers a safer environment in which to do it. And two, you can regulate and tax this and gain revenue for the state. So you have this rhetoric on the part of state lawmakers, on the part of advocates in the prostitution community saying sex work is work. This is no different than any other type of job. That undocumented immigrants in particular, they don't have a lot of job options.

So this is something that they have to do. So you can easily see the same thing unfolding here. First, you decriminalize it, which we've actually already done not in law, but the prostitution laws are really not being enforced, which is pretty bad from the perspective of trying to weed out sex traffickers and sex trafficking victims and so forth. But also, we are moving on from decriminalization to legalization. So are we going to have the same thing where we eventually create some kind of legal market, but because we've just cut off enforcement, we've massively induced demand, and you invite many, many more people to do this in the black market where they're still subject to the same exploitation and problematic issues as they already are. We don't seem to be going about any of these bad activities in the least harmful way to say the least.

Brian Anderson: Let's turn briefly to last month's midterm elections. Statewide, New York's registered Democratic voters outnumber registered Republicans by more than two to one. Yet the GOP candidate Lee Zeldin’s tough-on-crime stance appealed to voters on both sides of the aisle. He ultimately did not win enough votes to defeat Hochul, but his performance was very strong, particularly in New York City where he garnered twice the share of votes that the 2018 Republican candidate won. So, what, in your view, did the election results signal about the city's voter preferences?

Nicole Gelinas: Well, I mean, to have such a close election in New York State, 52 percent to 48 percent, and have that closeness driven largely by downstate voters, both in the city and Long Island suburbs—Westchester stayed very democratic, but both the city and the rest of the suburbs leaned much more Republican than they usually do—is really extraordinary. Zeldin did well among Asian-American voters. He did better among Hispanic voters. He even did better among black voters than previous Republican candidates have done. And Hochul was a little worried there those last couple of weeks. So I mean, I think a rational person comes comes away with a view that people are very worried about crime. They were worried enough to vote for someone that many of them would not ordinarily have voted for because they're driven by concerns over rising crime and listen to that message and try to respond to these concerns.

But unfortunately, the left wing of the Democratic Party and left-wing Twitter and everyone else are trying to spin it as the crime issue was ginned up. It's not real. It's a figment of people's imagination. Notwithstanding the more than 50 percent increase in the murder rate, massive increases in random homicides and other crime both above ground and in the subways, and that this was all sort of a right-wing conspiracy. And because Hochul ultimately won because the left-wing voters turned out, now she really owes the left-wing big time.

And so you see this and the left-wing lawmakers already saying, we need higher taxes on the wealthy next year. We need a wealth tax. All of these sort of ideas that have been floating around. Hochul is a weak governor now, and she is, although she shouldn't be beholden to the left, her best bet for reelection is to tack toward the center. There's a real risk that she will be pressured into feeling that she is beholden to the left and sort of give away this left-wing menu. I mean, we'll see what happens, but still a very uncertain environment here in New York state and city.

Brian Anderson: Thanks, Nicole. Don't forget to check out Nicole Gelinas's work on the City Journal website, www.city-journal.org. We'll link to her author page in the description. You'll be able to find this very powerful article, “New Vice City” there. And you can also find her on Twitter @NicoleGelinas. You can also find City Journal on Twitter @CityJournal and on Instagram @CityJournal_mi. And as always, if you like what you've heard on today's podcast, please give us a nice rating on iTunes. Nicole Gelinas, thanks as always.

Nicole Gelinas: Thank you, Brian.

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Photo by KENA BETANCUR/AFP via Getty Images

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