DURING the past generation, there has been a dramatic expansion of legalized gambling.  Beginning with New Hampshire in 1964, 37 states and the District of Columbia have instituted lotteries. As recently as 1988, only two states allowed casino gambling. Today, 24 states do so, as do a number of Native American reservations. And gambling has become very big business. Total wagers reached nearly half a trillion dollars in 1994. Gross revenues from gambling have surged—to $40 billion annually, from only $10 billion a decade ago. Casino gambling has quadrupled; lottery revenues have registered a sixfold increase; and gambling on Indian reservations, nonexistent until the late 1980s, now brings in more than $3 billion each year. State governments drain off about one-third of total lottery wagers to finance public-sector activities.