The Hangover: How Las Vegas Explains the Past and Future of the Economy

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The first American city of the new century is a dazzling, dizzying metaphor for our collapse -- hyperconstruction! preposterous gambles! concerted recklessness! -- and, just maybe, the way forward.

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On the plane, after a debaucherous weekend in Las Vegas, or after a tamer mid-week convention, you might look down at the neon and twinkling sprawl and sigh. You're headed home, back to the real America, the America where the main commercial thoroughfare isn't a parade of drunks, gamblers and prostitutes. Vegas, you comfort yourself, is aberrant, a preposterous desert carnivale and one you can forget -- hope to forget! -- as soon as you depart.

The reality, however, is quite the opposite. Las Vegas might be the country's crazy little brother we see only once per year. But now, his ethos is ours. Las Vegas isn't aberrant. It's emblematic.

In Michael Lewis' telling, a Las Vegas ballroom served as the epicenter of the collapse of the world economy. How fitting.

Recall the classic scene in Michael Lewis' "The Big Short" at a subprime mortgage conference at the Venetian hotel on the Las Vegas Strip. While being served by the very type of cocktail waitresses who had likely been given subprime loans they couldn't afford, Lewis's hero Steve Eisman discovers how insane Wall Street had gone in its love affair with subprime, and with collateralized debt obligations and credit default swaps.

"Above the roulette tables," Lewis writes, "screens listed the results of the most recent 20 spins of the wheel. Gamblers would see that it had come up black the past eight spins, marvel at the improbability, and feel in their bones that the tiny silver ball was now more likely to land on red. That was the reason the casino bothered to list the wheel's most recent spin: to help gamblers to delude themselves."

For those of us who live in Las Vegas, this episode had particular resonance, because it seemed entirely appropriate that a Las Vegas ballroom would be the epicenter of the collapse of the world economy. We supplied many of the bad and often phony borrowers to buy the newly built, shoddy homes with mortgages that were later securitized.

WE ARE ALL VEGAS

It's hardly coincidence that financial industry critics have taken to calling Wall Street a giant casino. The results for both of us have been less than ideal. The Las Vegas economy remains a basket case, with an unemployment rate of 12 percent, plus clogged bankruptcy courts and a ravaged real estate market. The American economy isn't doing much better.

The Vegas-ized American economy wasn't always a tragic tale, however. Not long ago, Las Vegas was to be the first American city of the new century, and its growth and broadly shared prosperity considered miraculous in the face of the rest of the country's post-industrial stagnant wages and widening wealth disparities.

In his seminal 2002 book "Neon Metropolis," the late University of Nevada Las Vegas historian Hal Rothman captured Las Vegas as the post-modern city of the age: "Las Vegas now symbolizes the new America, the latest in the American dream capitals....It is the place to be as the new century takes shape, for in its ability to simultaneously attract and repel, it characterizes American hopes and fears. Las Vegas tells us what has happened to American society and what we now aspire to: simple possession of the ethos of status."

As Rothman notes, no matter who you are or what your aims, you can get anything you want in Las Vegas if you're willing to pay for it, so it's no surprise that it was America's fastest growing city in the Second Gilded Age.

But let's step away from the airy sociology. The parallel paths of America and Las Vegas are quite evident and concrete. By changing its gambling licensing requirements, Nevada allowed corporations into the market in 1967. Eventually, the mob couldn't compete, and Nevada's power brokers figured out the real money didn't reside in seedy ethnic social clubs -- it was in the corporate boardrooms.

Over time, Las Vegas would benefit from the libertarian ethos -- both social and economic -- that arose out of the 1960s and 70s. The stigma of gambling lessened, not just card games and dice, but also in the financial markets, where regulators and financiers alike believed risk had been mastered.

As Americans embraced gambling and experiential vacations, Vegas seemed like a sure bet. But where to get the money to build? Michael Milken, the junk bond king, stepped up and helped finance Steve Wynn's Mirage, which opened in 1989 to skepticism. It had to gross an unheard of $1 million per day to stay afloat. It blew through that and then some, and the boom was on.

What emerged is the modern Strip as we know it, from the pyramid to the faux New York City skyline, from the medieval castle to the Eiffel Tower. And in-between their frequent trips to Vegas -- 40 million people visit the city every year -- Americans were increasingly visiting casinos at home, often managed and sometimes owned by the same Vegas companies.

Wall Street and Vegas became locked in a lover's embrace that wasn't always healthy for either. Casino companies consolidated, went public, then private and public again, amassing huge debts in the process. MGM Resorts International has $12 billion in debt; Caesars Entertainment a staggering $23 billion.

Although he recognized that Las Vegas was unique, Rothman posited that Vegas provided a model for post-industrial American cities.

Wall Street and Vegas became locked in a lover's embrace that wasn't always healthy for either

Las Vegas sold entertainment and the "Las Vegas experience," while other cities would have to find their way in the new service economy. Our strong union culture on the Strip pushed up wages and allowed unskilled, uneducated workers -- many of them immigrants -- to achieve a piece of the American Dream.

The population of Clark County, home to the Las Vegas Strip, nearly doubled between 1990 and 2000, to 1.4 million, and then increased 42 percent more in the next decade to nearly 2 million.

There was more to the story of Las Vegas prosperity, however, than the unconventional service economy. Las Vegas actually had a booming manufacturing base, though it wasn't conventional manufacturing. It was the manufacture of homes, strip malls and casinos -- a debt financed building boom.

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J. Patrick Coolican is a columnist for the Las Vegas Sun.

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