Some number of years ago, I spent a bunch of time running stud poker strategies through a simulation, trying to determine an ideal poker playing strategy. My goal was to work out a strategy that would give good returns over the long haul without the need of counting on big hands to win.
So, after running thousands of simulations, I determined that I had a good strategy and set out for Atlantic City, which was way closer to where I was and at that time the only choice other than Las Vegas. I had called ahead, and so I knew which casino to go to and what to ask for, and soon I was sitting at a table with seven other players.
Here is how it worked: There was no charge to play; in fact, they would give you free drinks (I stuck with non-alcoholic) and finger food as long as you were at the table. Each hand required an ante; the hand would play out, and the dealer would push the pot over to the winner after having raked 10% into a little hole in the table.
Now, we were all aware of this — it wasn’t subterfuge — and it seemed fine to me because of course the casino had to pay for the dealer, the drinks and the little hot dogs etc.
I stayed and played for 10 hours, during which time I stuck to my strategy the entire time.
After 10 hours, my stake was gone as, I assume, you would suspect.
However, during that time I noticed an interesting thing — players came and went, but even the big winners were walking away with less than they came in with.
It didn’t take me long to figure out why this was the case: Let’s say each of eight players sits down with $1000, so there is $8000 at the table to start (of course, this is hidden by the players coming and going). After one hand with, say, a pot of $500, the money is shifted around to the winner — but now there is only $7950 at the table. The $50 was siphoned off by the casino.
If we assume 10 hands per hour, this means that $500 per hour was coming off the table — out of the “table economy” so to speak. With eight players having $1000 each to begin with, the entire table would be totally out of money within sixteen hours.
Now, in retrospect, this was an easy enough calculation that I could have done, but I was so focused on winning the hands that I forgot that there had to be some money in the economy for me to play with. This is why, since that time, those poker people “in the know” have moved toward tournaments instead of betting cash stakes. You pay your fee to play the game, but from then on it’s a fair game.
There is a clear analogy between taxes and the casino rake — in both cases, someone who is not playing the game takes money out of the system just to give you the right to play.
At the time, playing poker was mostly illegal (although of course people still did it), and so the analogy holds even tighter: If you want to play poker, you have to go through us to do it. This is just like every business everywhere in the United States; if you want to start a business, you have to first get permission from at least three governments (local, state, and federal), and each of them will take part of your winnings in a governmental rake.
In the poker game, even the winners were losers; in the broader economy, it’s pretty much the same story. This is why everyone is so fixated on a growth rate of at least 3% — we need that much just to tread water. This, plus the unfettered printing of “money” to make people feel richer, causes a fake economy where no one is a winner except those in power.
Drive through any rural town where the main industry has gone out of business; what you see is a bunch of people trying to sell things to each other: blade sharpening services, garage sales, and bars. No money is being made, it’s just being passed around from person to person, while the governments take their rake.
It’s no wonder that in many of these cases the primary “industry” becomes either a government-run shop (e.g., prison, college) or drugs. A town needs some money coming into the economy from the outside just to stay even. If you are not generating wealth through manufacturing or farming, then you have to rely on these “captive audience” alternatives.