A Free Market Perspective on the Online Poker Industry

I play online poker for a living. I recently lost a large sum of money as one of the sites I played on, Eurolinx, revealed itself to be of a dubious nature, to say the least, and quietly went bankrupt taking with it all the funds of players accounts held on the site. Without going too much into the details I want to look at this from a free-market perspective. First of all let me make one thing perfectly clear, this loss suffered is my fault. I trusted Eurolinx with my money, they proved to be untrustworthy and now I suffer the consequences. No argument there. I just want to examine the current competitve landscape of the industry and perhaps offer a solution to a superior one.

The situation as it stands right now can very easily be considered and compared to Prohibition. The United States of America's Federal Government has decided to stand alone from the rest of the world's major governments in actively trying to ban online gambling. Similarly to Prohibition simply saying you are no longer allowed to partake in this good, does not eliminate the demand for it. Things are made even more complicated given that the current legislature is muddled, unclear, and widely misinterpreted. However, the reaction to a government's decree that a good is no longer allowed is not unclear but rather is exactly what a student of history would have precisely predicted; we head "underground."

This underground or black market is notorious for being unsafe and filled with all sorts of unsavory characters. However the laws of Economics can not be repealed, no matter how desperately government tries to pretend that they can, and as such as long as there is sufficient demand there will be an attempt to satisfy that demand. Unfortunately for the consumers in these underground markets, the suppliers are oftentimes not of the highest quality that they might otherwise be. I feel the average reader probably understands that pitfalls of the black market well enough, so I will not digress further into extrapolating on this topic, but instead let us imagine an industry in which we require the government to simply do nothing and stay away, a free market industry.

I think the first immediate effect of the Federal Government repealing its laws banning online poker and then doing nothing else, would be that a tremendous amount of new US-based poker sites would begin to crop up, and the current sites would experience a greater volume of players. A common objection I hear to my proposal of removing the government completing from any industry is summed up with the question, "Well, what would keep us safe?" I feel this notion is a result of a lack of proper research and analysis and more a result of what I consider to be the spreading of misinformation and propaganda, namely that without the government we would be lost. If one tackles this subject of the history of regulation, it becomes immediately apparent that the private sector is quite adapt at handling this task, and the public sector (government) is notorious for its staggering failures and inadequacies. For those interested in this subject, a great starting off point is this fantastic article

Now here is where we get to watch the beauty of the free market do its work. Once the freedom is restored to engage in both playing and providing the service to play online poker, we would expect to see an immediate rise in the number of US based poker rooms. The first great thing about this, is the choices of poker rooms based in your own country, whose jurisdiction you are familiar with, increases drastically. And of course when a consumer is presented with a variety of choices, the laws of competition rewards him with a better product at a cheaper price. In this example, the cheaper price may not be immediately evident but certainly the higher quality product would be. For if demand remains high for a poker site that is safe, financially sound, trusted, etc. all the new poker rooms would be scrambling to meet these demands, and those whom were better at meeting them, that is to say, those that are financially sound, that demonstrate reliability and security would prosper, and those that weren't, would fail.

The private sector would even respond to the demand to create an online poker regulatory body. Obviously if financial stability, legitimacy, security and so forth are such big issues for consumers they will express it through their choices and sites certified as reputable by a well known and respected regulatory body would attract many more customers than their competitors. This of course provides profit incentive for competing regulatory bodies to become the most trusted etc, and reap the benefits of selling these coveted marks of certification to the numerous online poker rooms desperately seeking to satisfy the wants of their consumers. Through the eyes of one versed in free market economics we see our friend, profit, reemerge not as a negative concept, but rather as the unifying force which guides the efficient allocation of resources to satisfy the wants and needs of the consumer. Truly, consumer sovereignty is an appropriate term.

Of course, this does not suggest that in a free market there would never be bankruptcies or losses that occur from them and so forth, it simply suggests that far from needing the government we rather need to get rid of the government, in the poker industry. And as the astute reader might have thought to himself by now, you could easily apply this to virtually all forms of industry. Professor Walter Block makes the argument that privatization is superior to government in literally everything.


Regarding Government "Stimulus"

I put stimulus in quotes because its a horrible misnomer and in fact is a major drain on the economy as opposed to ever offering any real stimulus. The most recent example is indicative of the single greatest and underlying error made in virtually all aspects of government stimulus programs. Which is to ignore Henry Hazlitt's one lesson and not look at the effects on all groups for both the short and long term, but simply focusing on the immediate effects of a policy on one specific group.

President Barack Obama and administration officials declared the program a success Thursday, saying it has revitalized the ailing auto industry and finally brought reluctant car buyers back to dealership lots. Originally a $1 billion program, Cash for Clunkers was boosted to $3 billion in early August after heavy customer demand nearly depleted its funds in just one week.

Transportation Secretary Ray LaHood said the program has been "a lifeline to the automobile industry, jump starting a major sector of the economy and putting people back to work." He said the department was "working toward an orderly wind down of this very popular program."

Now please let me know if you disagree with my understanding of this program and its alleged stimulus effects. The car industry is producing more cars than there is demand for. As a result of a lack of demand, the car industry must reduce its production to better align it to satisfy the actual demand for cars. This of course entails shutting down inefficient showrooms, laying off workers, and all the unfortunate negative events that come with a reduction in any industry. Stopping there, and not tracing things further, the government, and apparently the layman, view this as a net negative. People are getting laid off - this is bad! Of course, if we trace it further we realize that to attempt to prop up through artificial means (government deficit spending in this case) the inflated demand for cars to an inaccurately high level we are simply delaying this eventual reallocation of resources. While also either devaluing our currency through inflation, adding to the national debt, or both! If instead we allow this healthy and necessary liquidation of resources to occur, we free them up to be used in a productive and efficient manner to produce goods or services that there is legitimate demand for.

Which to be clear, is to say, allow them to create goods people want, instead of artificially allowing them to overproduce goods that there is not legitimate demand, or at least less demand for, than alternative goods.

In addition we are also increasing our debt while we are at it, both for the Federal Government (which is really the taxpayer as the government's debt will eventually paid for by us through either direct taxation or indirect taxation of inflation), and newly created personal debt for the marginal buyers of these cars whom could not afford to buy them without government assistance.

Viewed in this light, one immediately realizes that while if we look only at one specific group in the immediate term, (being the car industry) we see a stimulus. Yet once we broaden our view to encompass the economy as a whole as well as the long term effects, we see that far from providing legitimate stimulus we are in fact amplifying the original problems and aggressively preventing the necessary and healthy corrections that would otherwise occur in a truly unhampered free market.