Sin City on the Potomac Wounds Nevada Bordellos

April 7 (Bloomberg) — "What happens in Vegas stays in Vegas," the phrase goes. But some things that happen in Vegas are a result of action taken in that other Sin City, Washington.

Nevada has no income tax, and it takes two-thirds of the vote in the state legislature for any new tax to become law. For a long time, such business-friendly policies produced fabulous growth. In 1970, some 6.8 million visitors came to Vegas; in 2007 that figure was 39 million. Population grew 25 percent in this decade alone.

Some might quibble with the quality of growth that's based on an afternoon with a one-armed bandit or an evening soaking up Neil Sedaka. Retail spending doesn't usually yield breakthroughs that can increase productivity and therefore living standards. Then there's our ambivalence about making money off gambling and other forms of sin. Prostitution isn't legal in Las Vegas, but it is in rural parts of the state. Recently a state senator, Bob Coffin, talked up legalizing and taxing prostitution in Las Vegas.

While the state's racier businesses serve as a draw, a big share of Nevada's job creation comes from booze, food and hotel rooms. Nevada's prosperity also has enabled it to help the rest of the nation. According to the Tax Foundation, Nevada gets back from the federal government far less than it sends to Washington in federal taxes — unlike, say, virtuous Utah, which has, historically, been a net taker.

The economic slump hit Nevada hard. The number of visitors dropped sharply last year. Home foreclosures have been among the highest in the nation. Nevada was already sending out SOS messages, when, in February, President Barack Obama dropped his fatal comment.

'Can't Go'

Speaking of the banking industry during a town hall in Indiana, Obama said, "You are not going to be able to give out these big bonuses until you pay taxpayers back. You can't get corporate jets. You can't go take a trip to Las Vegas or go down to the Super Bowl on the taxpayers' dime."

Any company that received government bailout money — or hoped to — knew instantly it ought to cross Vegas off its list. Tens of thousands of reservations were canceled, according to the Las Vegas Convention and Visitors Authority. State Farm rebooked an event. Goldman Sachs paid a hefty cancellation fee to move a technology conference to San Francisco. You have to wonder into what line on the ledger economists would place kill fees: Stimulus? Quasi-stimulus? Lost opportunity?

Employers, already in firing mode, were horrified. Since this time last year, MGM Mirage, a big presence in Vegas, has dismissed 6,100 employees, according to its public affairs office. Nevada's unemployment rate reached 10.1 percent in February, making it one of seven U.S. states to attain double digits. Industry officials assigned some blame to the White House.

Impact on Workers

"The unintended casualty here is the workers of Las Vegas," Bill Hornbuckle, chief operating officer of Mandalay Bay, an MGM Mirage resort, told me last week. Mandalay Bay alone has laid off 700 workers in the last year.

Especially irritating to Nevada's tourism executives is the precious preoccupation in Washington with tailoring stimulus projects to be "shovel-ready." Las Vegas hotels are more than shovel-ready; they're occupation-ready. The sheets are already turned down. If Washington wants to see money spent right now, guaranteed, all it has to do is issue hefty travel vouchers for use at resort hotels across the country.

That sort of stimulus might even have the kind of multiplier effect lawmakers so love to talk about. MGM Mirage has been leading construction for years on CityCenter, a giant complex in downtown Vegas. But that $8.5 billion project, a stimulus in itself that's expected to create 10,000 jobs, can be completed if the companies that fund it aren't knocked out by sanctimonious asides from politicians.

Junk GDP

The point here is as obvious as a neon sign: Government pork tends to produce junk gross domestic product, because even really smart government doesn't allocate capital optimally. To dismiss what GDP Nevada generates as junkier than what Washington might generate is misguided, since Nevadans most of the time probably know better what investments make sense.

Recently, following pressure from Nevada representatives, Obama carved out time to meet with leaders from the state's big tourism companies. White House spokesman Robert Gibbs even uttered something of a clarification: "I don't think the president said, 'Don't go to Las Vegas or don't go to Hawaii or don't go to the Super Bowl.'" Vegas is now telling itself that its problem with Washington is history.

Of course, it isn't. Everyone has a problem with Washington. As Bloomberg News reported, the same U.S. Senate that passed a measure limiting "luxury" corporate travel by recipients of federal bailout funds saw many of its members subsequently head off to Florida hotels for political meetings.

In the future, Vegas-style dining will become more frequent in Washington, as Vegas lobbyists feed shrimp and Chivas to politicians in hopes those lawmakers never let the words "Las Vegas" cross their lips again.

"What happens in Washington stays in Washington" — that summarizes the new hope of Las Vegas boosters. They must know it's a wish that can never come true.

(Amity Shlaes is a senior fellow at the Council on Foreign Relations and a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2009 Bloomberg

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