The regulation of insider trading by members of Congress and other government officials should be abandoned in favor of rules that apply equally to all sources of income. After writing about it for almost 10 years, I’m convinced that opposition to any insider trading is ultimately motivated by two pernicious commitments: (1) a lack of respect for income earned by trading securities and (2) an opposition to unequal economic opportunities.Only in finance do we punish making money based on secrets. Journalists and for-profit newspapers regularly rely on non-public information to outcompete their rivals. Sometimes, this means publishing illegally disclosed information, as was the case with the Pentagon Papers. Companies engaged in mineral exploration can buy land rights without disclosing their mineral discoveries to current land owners. And manufacturers can use trade secrets about their production processes to maintain a competitive advantage. Why is trading in public securities different?
Many see securities markets such as casinos and think that every investor should have an equal chance of winning “the game.” Moreover, examples of unequal economic opportunities can make some of us very upset. Many were bothered by LeBron James using his clout to secure his son a place on the Los Angeles Lakers. Others were put off by Warren Buffett choosing one of his sons to replace him as chairman of Berkshire Hathaway’s board. But no one suggested putting any of these men in jail for taking advantage of opportunities that were not also available to the rest of us. And no one should.
