Sunday, December 24, 2006

Your after-tax income belongs to you. You are free to spend it, invest it,
waste it, burn it, or tithe it--and none of that is any politicians'
business. But if some lawmakers have their way, soon you won't be able to
gamble your money away on the Internet. In October, the Senate passed a bill
enhancing port security, and attached to the bill is a title banning
acceptance of credit cards or other payment instruments to process gambling
transactions. President George W. Bush signed the bill into law on October
13. Earlier versions of the anti-gambling legislation would have required
banks and Internet service providers to essentially spy on their customers,
sifting through all financial transactions. Unsurprisingly, credit card
companies didn't want to be deputized as online hall monitors, responsible
for ensuring that outfits for which they process card services remain
gambling-free. Thus, the latest version of the bill no longer obliges credit
card companies and banks to identify firms engaged in gambling. Instead, the
Treasury Department and Federal Reserve would be required to collect a list
of online gambling Web sites within 270 days. After that, banks and credit
card companies would be prohibited from making payments to companies on the
list. Dressed Up as a Security Issue
This new approach might address privacy concerns, but it runs roughshod over
individual freedom and fails to address another argument by the
legislation's
advocates. As Rep. Jim Leach (R-Iowa), argues: "Internet gambling is a
national security concern because it can be used to launder money, evade
taxes, and finance criminal and terrorist activities." In the post-September
11, 2001 world, politicians should be concerned about shady financial
goings-on on the Internet. But legislation that enjoins cumbersome
government bureaucracies to determine which companies are officially
considered gambling operators will punish legitimate online businesses. Just
as there have been plenty of false positive identifications in the federal
airline no-fly list, it is highly probable some non-gambling sites will end
up on the government's list. Meanwhile, the measure practically invites
phony, fraudulent operations, whether or not credit card firms work with
them--there is more to the Internet than above-board Web sites, and lots of
places to hide in cyberspace--and new gambling sites are sure to pop up as
soon as the government lists the old ones.

And even if the government were to correctly identify all gambling sites,
punters could still bet using credit cards from foreign banks and other
non-U.S.-based payment methods.

Gambling Web sites are best monitored not by regulators but by online
gamblers themselves. Consumers have the incentive to look for endorsements
and seals of approval of the businesses with which they transact, and to
avoid fly-by-night operators. Most people who choose gambling as a pastime
realize the odds of winning are long and that the house usually wins. And
while gambling is a problem for some, others enjoy the challenge or just
think it's fun, and are able to contain addictive impulses.

Legislation is notoriously slippery. What constitutes "gambling" is often in
the eye of the beholder or legislator. Earlier versions of the bill had
exempted such activities as fantasy sports. Even investing can be a "gamble"
in the sense that "the opportunity to win is predominantly subject to
chance," as the legislation defined "gambling."

'Principle of Autonomy'

Apparently, only some gambling is bad. One gets the impression the real
motive behind the legislation is not to protect against crime or terrorism
but to legislate behavior. As Rep. Barney Frank (D-MA) noted in opposing
earlier anti-gambling legislation: "If an adult in this country, with his or
her own money, wants to engage in an activity that harms no one, how dare we
prohibit it. ... The fundamental principle of the autonomy of the individual
is at stake."

Government should not turn vices into crimes--even granting the notion that
gambling is a vice, which is questionable in the context of today's
Congress. Perhaps pork barrel spending is a more serious vice, one to which
Congress should direct its attention. How significant are gambling losses,
really, when compared to wasteful government spending for which citizens are
forced to foot the bill?

Once we travel down the road of regulating behavior on the Internet, there
is essentially no limit to government's ability to regulate behavior
anywhere. Washington should mind the federal budget casino instead.