I can't think of anything in the private sector that even begins to compare to this reverse Robin Hood redistribution from the poor to the rich and the nouveau riche. And remember, in order to pull it off, government first has to establish a monopoly, keeping private competitors (who would at least raise the poor bettor's expected return) out of the market.
If you really care about the ethics of income distribution (more on that in a future Alert), a lottery has wonderful heuristic value. For example, if you're the kind of person who thinks that rich people don't deserve their riches, that their wealth is the result of good fortune and chance, or that income is somehow collectively rather than individually generated--that is, if you are inclined to believe that life itself is one big lottery--then in your search for genuine unfairness, a real live lottery winner is hard to beat.
After all, the lottery winner didn't do anything special. He did what everybody else did: he bought a ticket. His immense winnings are by definition the result of good luck and random chance. He surely did nothing to warrant, merit or deserve his wealth. Unlike in the economy, the winner's winnings really are made possible by the losers' losses. The lottery's rich get rich precisely because the lottery's poor become poorer.
This is from John Goodman, "Inequality," March 21, 2011. Goodman goes on to point out that when his organization, the National Center for Policy Analysis, released a study in Washington on the excessive (excessive relative to the externalities) taxation of tobacco and alcohol, he couldn't persuade any "liberal" think tanks or activist groups to join him, even though those taxes are regressive.
That reminds me of an interaction I had with the late Joe Pechman of Brookings at a large session of the American Economics Association (if memory serves, it was in New York in December 1988 or January 1989). Joe was on a panel of economists discussing tax policy. In his talk he argued passionately that the federal tax system should be more "progressive" than it was, that is, take more money than it did at the time from higher-income people. In the same talk, he advocated substantial increases in federal taxes on tobacco, alcohol, and gasoline. In Q&A, I asked Joe how, if he wanted more progressivity, he justified increases in these regressive taxes. He answered angrily that if people chose to use those goods, then tough. "Tough" wasn't the word--I can't remember the word--but that was the tone.
One critical comment on John's excellent post: He points out that "liberal" academics are among the few people who care about inequality but he doesn't explain why, if they really care, more of them are not critical of lotteries. It does seem strange.