State lotteries are often justified on the grounds that they raise money for social programs, especially those that target the neediest members of society. However, the poorest members of society tend to spend (and, by design lose) the most on lottery tickets. Some state lottery proceeds fund programs that benefit everyone, not just the poor. Often state lottery money is being systematically redistributed upwards--from lotto players to suburban schools, for example.
So the utilitarian argument doesn't necessarily go through. More good might be achieved by having these poor lottery players instead spend their gambling money on supporting their own families.
But how about the hedonic benefits these individuals receive from their gambling? Presumably they find it fun. (I can't understand why, but never mind that.) So, as Lindsay goes on to suggest, "maybe the fun of playing the lottery combined with the revenue for social programs justifies their existence on the whole." Also, if people are going to waste their money anyway, better to do some good through state lotteries than merely having them enrich private casino operators, I figure. And it would be overly paternalistic to ban all gambling establishments. So, depending on the empirical facts, I think providing a state lottery could, perhaps, be morally permissible.
What seems patently immoral is all the advertising which actively encourages Lotto gambling. (Here in New Zealand we're bombarded with TV ads asking viewers to imagine "what would you do if you won [Lotto] this Saturday?" I imagine other countries are similar.) For the government to spend money trying to manipulate us in this way just seems entirely indefensible. They have lost sight of the public good, and their responsibility to promote it. The government is not a business, and should not be driven by the "profit motive" -- especially if this revenue is coming from those who can least afford to pay it.
So while it might be permissible to provide a state lottery, it seems quite irresponsible for the government to promote it through manipulative advertising. Such actions could be expected to have bad consequences, for the reasons quoted above.
What if the manipulated viewers enjoy it, though? If the Lotto advertisements provide them with an enjoyable (albeit false) hope, are they really being harmed? Well, as in the tricky multicultural cases, I think the answer depends on their counterfactual global preferences, which we can capture most easily through asking what their idealized self would recommend. If fully informed about the falseness of their hope, and the opportunity costs of wasting their money on the lottery, and the way their preferences have been manipulated through advertising - and all the other relevant facts - would these people still want their actual selves to go ahead and gamble? I can't answer that for sure, of course, but it seems plausible to think they would oppose it. And if that's so, then this indicates that the gambling is not really good for them, and that the false "pleasure" they get from it is not worth the costs. And hence the government manipulation is harming them. Bad government!
(As Abbas asks sarcastically, "why doesn't the government also get into the business of hawking Hock? It's legal, after all, and maybe we could raise enough money to start treatment programs for alcoholics. Maybe there would even be enough left over to house the homeless!")