Skip to main content

Las Vegas made a big, bad bet on casinos

By David Frum, CNN Contributor
April 1, 2014 -- Updated 1150 GMT (1950 HKT)
David Frum says the recession hit Las Vegas hard and it hasn't fully recovered.
David Frum says the recession hit Las Vegas hard and it hasn't fully recovered.
STORY HIGHLIGHTS
  • Nevada senator says his state is "nowhere close to a normal economy"
  • David Frum: The state made a big bet on the lavish casinos of Las Vegas
  • Since the recession, crowds at the casinos have fallen off, hurting job market, he says
  • Frum: Families that benefited from refinancing their mortgages have had to cut back

Editor's note: David Frum, a CNN contributor, is a contributing editor at The Daily Beast. He is the author of eight books, including a new novel, "Patriots," and a post-election e-book, "Why Romney Lost." Frum was a special assistant to President George W. Bush from 2001 to 2002. The opinions expressed in this commentary are solely those of the author.

(CNN) -- The expensive casinos of Las Vegas look crowded. Tickets to the popular shows sell out. To the tourist, things look back to normal.

Yet as the state's junior U.S. senator lamented in February, "I can tell you right now Nevada is nowhere close to a normal economy." Nevada's unemployment remains the second-highest in the nation, nearly 9%. The housing market there still languishes. New Federal Reserve Chair Janet Yellen acknowledged to Nevada Republican Sen. Dean Heller that full recovery for Nevada glimmers "years away."

Nevada's troubles are more than a local concern. They reveal something important about the condition of the whole U.S. economy.

David Frum
David Frum

Nevada makes its living from tourism, the state's most important industry, and the tourists come -- or came -- for the casinos. Before 1990, the state of Nevada and Atlantic City, New Jersey, enjoyed something close to a monopoly on the casino industry.

As more states legalized casinos, the Nevada casino industry -- and especially the Las Vegas industry -- responded by moving up-market. Dazzling theme hotels housed lavish theatrical shows and outstanding restaurants. Las Vegas, once a rather seedy place, repositioned itself as a center of glamorous entertainment.

Building the new hotels generated jobs. The people who worked in the hotels needed places to live, and building those homes generated more jobs. All that construction shaped an unusual local economy: Here was a state with low average educational attainments (only about 22% of Nevadans have a college degree, 45th in the nation), yet a median income higher than the national average.

The Barrymore is pure, old-school cinematic Vegas, with handmade wallpaper, blue-tufted booths, and a ceiling lined with antique movie reels. The Barrymore is pure, old-school cinematic Vegas, with handmade wallpaper, blue-tufted booths, and a ceiling lined with antique movie reels.
The Barrymore
HIDE CAPTION
<<
<
1
2
3
4
5
>
>>
Las Vegas\'s best new attractions Las Vegas's best new attractions

Nevada's blue-collar prosperity was built on a faulty premise. All those glitzy Las Vegas hotels and resorts, containing typically up to 5,000 rooms each, depended on a huge influx of high-spending visitors.

So long as homeowners could pay for vacations with some of the proceeds of their home refinancings, all was well. But when the refi boom stopped, Las Vegas suddenly discovered it had built a destination too expensive for its customer base. Everything else going on in the city -- the jobs in the hotels, the homes for the people who worked in the hotels, the malls where those people shopped, the homes for the people who worked in the malls -- all that crashed around Las Vegas' ears.

And now, six years after the crash, it's hard to see a way forward from the disaster.

Nationwide, the casino industry has more or less recovered from the recession. Americans left behind $37.34 billion in casinos in 2012, only a shade below the 2007 peak of $37.52 billion. But they are spending that money in casinos closer to home. Gross revenues of Nevada casinos languish 20% below their 2007 peaks. Because of the higher cost of Las Vegas-style amenities, a 20% drop in revenues translates into a 50% drop in profitability.

So even as the industry nears recovery, the promise of a middle-class economy supported by gambling revenues has proven a mirage. Casino employment dropped in Nevada between 2012 and 2013. These were the best casino jobs in the country, which explains why total national casino wages lag 7% behind the 2007 peak even as industry revenues have nearly caught up to the 2007 level.

Nor is there much likelihood of any early return to the old ways. Americans have grown cautious about gambling. While only about 14% of Americans express a consistent moral disapproval of gambling, according to industry surveys, there has been a sharp increase in the proportion who reject gambling for themselves personally: 27% in 2004, 38% today. Unsurprisingly, 2008 was the year of the biggest change of national mind on this subject.

Meanwhile, those who do gamble are gambling in new ways that don't support the style of industry for which Las Vegas is famous. Younger gamblers are attracted to online forms of gambling, which create jobs only for computer programmers. Older gamblers increasingly prefer bare-bones casinos that offer free transportation and cheaper meals.

Las Vegas' opulent palaces for the affluent gambler seem increasingly unsupportable in a country where more and more people have less and less disposable income. That's a social trend that should concern us all, however we feel about this particular pastime.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

ADVERTISEMENT
Part of complete coverage on
December 27, 2014 -- Updated 0127 GMT (0927 HKT)
The ability to manipulate media and technology has increasingly become a critical strategic resource, says Jeff Yang.
December 26, 2014 -- Updated 1617 GMT (0017 HKT)
Today's politicians should follow Ronald Reagan's advice and invest in science, research and development, Fareed Zakaria says.
December 26, 2014 -- Updated 1319 GMT (2119 HKT)
Artificial intelligence does not need to be malevolent to be catastrophically dangerous to humanity, writes Greg Scoblete.
December 26, 2014 -- Updated 1505 GMT (2305 HKT)
Historian Douglas Brinkley says a showing of Sony's film in Austin helped keep the city weird -- and spotlighted the heroes who stood up for free expression
December 26, 2014 -- Updated 1303 GMT (2103 HKT)
Tanya Odom that by calling only on women at his press conference, the President made clear why women and people of color should be more visible in boardrooms and conferences
December 27, 2014 -- Updated 2327 GMT (0727 HKT)
When oil spills happen, researchers are faced with the difficult choice of whether to use chemical dispersants, authors say
December 25, 2014 -- Updated 0633 GMT (1433 HKT)
Danny Cevallos says the legislature didn't have to get involved in regulating how people greet each other
December 23, 2014 -- Updated 2312 GMT (0712 HKT)
Marc Harrold suggests a way to move forward after the deaths of NYPD officers Wenjian Liu and Rafael Ramos.
December 24, 2014 -- Updated 1336 GMT (2136 HKT)
Simon Moya-Smith says Mah-hi-vist Goodblanket, who was killed by law enforcement officers, deserves justice.
December 24, 2014 -- Updated 1914 GMT (0314 HKT)
Val Lauder says that for 1,700 years, people have been debating when, and how, to celebrate Christmas
December 23, 2014 -- Updated 2027 GMT (0427 HKT)
Raphael Sperry says architects should change their ethics code to ban involvement in designing torture chambers
December 24, 2014 -- Updated 0335 GMT (1135 HKT)
Paul Callan says Sony is right to call for blocking the tweeting of private emails stolen by hackers
December 23, 2014 -- Updated 1257 GMT (2057 HKT)
As Christmas arrives, eyes turn naturally toward Bethlehem. But have we got our history of Christmas right? Jay Parini explores.
December 23, 2014 -- Updated 0429 GMT (1229 HKT)
The late Joe Cocker somehow found himself among the rock 'n' roll aristocracy who showed up in Woodstock to help administer a collective blessing upon a generation.
December 23, 2014 -- Updated 2115 GMT (0515 HKT)
History may not judge Obama kindly on Syria or even Iraq. But for a lame duck president, he seems to have quacking left to do, says Aaron Miller.
December 23, 2014 -- Updated 1811 GMT (0211 HKT)
Terrorism and WMD -- it's easy to understand why these consistently make the headlines. But small arms can be devastating too, says Rachel Stohl.
December 22, 2014 -- Updated 1808 GMT (0208 HKT)
Ever since "Bridge-gate" threatened to derail Chris Christie's chances for 2016, Jeb Bush has been hinting he might run. Julian Zelizer looks at why he could win.
December 20, 2014 -- Updated 1853 GMT (0253 HKT)
New York's decision to ban hydraulic fracturing was more about politics than good environmental policy, argues Jeremy Carl.
December 20, 2014 -- Updated 2019 GMT (0419 HKT)
On perhaps this year's most compelling drama, the credits have yet to roll. But we still need to learn some cyber lessons to protect America, suggest John McCain.
December 22, 2014 -- Updated 2239 GMT (0639 HKT)
Conservatives know easing the trade embargo with Cuba is good for America. They should just admit it, says Fareed Zakaria.
December 20, 2014 -- Updated 0112 GMT (0912 HKT)
We're a world away from Pakistan in geography, but not in sentiment, writes Donna Brazile.
December 19, 2014 -- Updated 1709 GMT (0109 HKT)
How about a world where we have murderers but no murders? The police still chase down criminals who commit murder, we have trials and justice is handed out...but no one dies.
December 18, 2014 -- Updated 2345 GMT (0745 HKT)
The U.S. must respond to North Korea's alleged hacking of Sony, says Christian Whiton. Failing to do so will only embolden it.
December 19, 2014 -- Updated 2134 GMT (0534 HKT)
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
ADVERTISEMENT