Savings Account Lotto

I heard a great idea in a podcast called Freakonomics. It was about a new way of gambling called a Prize Linked Savings Account (PLS). Technically, it's a lottery, but the way it works is that you put money in a savings account that has a "save to win" feature. The interest from the entire pool of these savings accounts goes to a lottery pool. Individuals get no interest from the account, but as long as they are in the pool by saving some money in their savings account, they are eligible for the monthly rewards which are the interest generated by the sum of the accounts. You can take your money back out at any time. So you save money, but while you keep it in the account, you are also eligible for winning a great deal more money. This provides an incentive and encourages people to save. It also provides an irrational hope that someone will win big, changing their life.

The problem is that it is illegal in most places. In the U.S., states run lotteries under a state law which also makes them a lottery monopoly. States make a huge amount of money on their lotteries, and the profit margin is huge. These states won't allow this good idea which is a win-win for the consumer, because they do not want the competition with these prize winning savings plans.

People don't get up-in-arms about this kind of thing because most people don't pay much attention to situations like this. The State Monopoly on lotteries is similar to the way that political parties do not allow good ideas because it threatens their special interests. I believe this is a form of corruption. Some good laws will never be enacted because it spoils the control exerted by their campaign contributors, that are often big corporations hoping that their contributions will keep the laws that favor them and insure that any new laws written will will provide them a benefit or at least not harm them.

You've seen examples of this. The trial lawyers always fight off tort reform. The unions work to insure that people do not have the choice to work for non-union companies in some areas. Large corporations are notorious for protecting their interests. Energy producing companies do not like price control or pollution restrictions or even conservation measures to be enacted into law.

This reminds me of the way that America became a big textile power. Around the time that the industrial revolution was kicking into gear, the textile trade in England was set up as a series of protected trades, where each step in making animal furs or plant fibers into cloth and finished clothing goods was controlled by a separate very powerful trade. Any attempt to make textiles in a new or innovative way was not allowed by law, because these powerful trades lobbied their parliamentary representatives to prevent any change in the way things were done.

In New England, innovators determined how to make textiles in a single big factory driven by water power. These new textile mills ran circles around the English industry and practically broke them. This is a perfect example of people stubbornly standing for keeping things the same while the world changes around them and almost crushes them. Sometimes it's very difficult to change the system without practically breaking it.