So by that logic, the government could benefit society by selling credit card numbers and fake identities, by executing ransomware attacks, creating open marketplaces for military weapons, and creating a GitHub for espionage documents.

The lottery does not undermine law and order or property rights, while depriving organized crime of revenue.

The same cannot be said for any of the things you mention.

You clearly don't realize how fluid "law and order" is. Numbers was an illegal activity, until state governments realized it was enormously profitable, decided to run it themselves, and voila! Now it's legal. Selling cannabis could land you in prison for a long time, just a few years ago, now it is sold legally by companies listed on NASDAQ. Further, tons of actions and activities have "selective prosecution" and now, openly, we have "sanctuary cities" where governments actually welcome people who have engaged in illegal activities (not making a moral judgment, but there would be no need for "sanctuary" if they hadn't broken any laws) and shield them from prosecution.

Oh heck yes! Low-cost government pen testing! The gov already does weapons deals to catch criminals, probably leaks other countries' secrets on the interwebs, so it sounds like you're on the right track!

The government actually does some of those things, just not openly. Add to the list drug smuggling and trafficking by the CIA, etc.

The "not openly" is key, though. The OP's point was that suppressing the funding of organized crime was the "net benefit to society". The activities you mention, because they are done in secret, do not provide an outlet to reduce organized crime by establishing legal marketplaces. In fact, you could argue that by engaging in smuggling, arms trading, etc, that the government is increasing organized crime... every time the US sells, some criminal is buying.

the mafia had competition though, so probably offered better odds. In Vegas, even under the mafia, the house edge was small...way smaller than the lotto.

They sometimes rigged the game even if it was already very profitable to start with.

This begs the question for what to do about illegal drugs.

Pennsylvania has a state monopoly on retail liquor sales. Liquor is at least as bad as most illegal drugs.

That is probably better than the approach of some states which make obtaining licenses to sell alcohol or marijuana expensive. In most cases they are capriciously controlled by politicians and bureaucrats, involving prohibitive fees and outright bribery. At least PA's approach is more equal in effect.