Perhaps Walter Williams and I are the only two people on earth who can see the hypocrisy of insider trading laws. I somehow doubt it, though. Williams wrote a column about a year ago, lambasting these laws and I’m going to pick up where he left off. These laws run counter the notion we accept in every other aspect of society that life is unfair. In every facet of life, there are people who have access to advantages that others do not have. However, we don’t attempt to make these advantages illegal except when it comes to insider trading.
I’ve often heard the argument that it is not so much about fairness as it is about trust of the system, i.e., that people will not invest their money knowing that others have advantages they don’t have themselves. Baloney! The advantages people have in other things do not cause those without these advantages to not participate. I will cite several examples to show how the lack of similar laws in other aspects of life does not cause any real problems. They will also show how hypocritical it is to create special laws just for the world of investment and not apply the same logic anywhere else.
Let’s look at fraternities, sororities, and other private clubs and organizations. It’s completely legal to join them even though many of them are exclusive in nature and do not allow just anyone to join. Of course, this right is covered by the freedom of association guarantees in the U.S. Constitution. However, being a member often gains a person access to benefits that he or she wouldn’t have by not being a member. One of these benefits is access to desirable high-level positions within major corporations. Many of these positions are not available to non-members. That’s not fair but I have yet to see a law against it. Despite that, people still apply for good jobs within corporations every day. They don’t sit on the sidelines and not apply just because they believe the insiders are getting all the best positions.
What about inherited wealth? It’s not fair for someone to take advantage of their inherited wealth when most people don’t have this kind of access. However, it’s perfectly legal. Many people with inherited wealth have a brand new car given to them as soon as they are old enough to drive. They have their college tuition paid for. They usually have a nice cushy job awaiting them when their college days are over, regardless of how well (or poorly) they performed academically. They don’t even have to work at all if they don’t want to. How can this be fair when many other people have to work for everything they get? Until there are laws against it, everyone else will refuse to go to college, work, or pay for anything they get, right? Wrong! Most people realize that there are people with inherited wealth who don’t have to work for anything. People accept that as a fact of life and go on with their lives. They go to college (for which they have to most of the tuition themselves), go to work, and pay their bills every day. Life goes on and no fairness laws are needed here.
What about people who are attractive and/or have charming personalities? Having these assets is just fine, but it’s unfair for people to use them for personal gain when others like me, who are ugly and blunt, don’t have this privilege. However, I’ve never heard of any attempt (in this country anyway) to make a law against using good looks and positive personality traits to one’s advantage. People use these assets to help them land desirable jobs and work their way up the corporate ladder. They use these assets to help them win friends and get favors the rest of us can’t get. They use these assets to attract higher quality mates than those of us who are lacking can attract. How does this make the rest of us feel? It makes us feel so discouraged that we never apply for a job, attempt to make friends, or perform any normal daily activity, right? Of course not, that would be silly. We go on with our lives just like the folks with the good looks and charming personalities. We are not going to sit out on life, waiting for laws to be passed to restrain all the pretty and charming people from getting a better deal in life.
I could go on and on, of course, but it seems to me that if insider trading is illegal because of the unfairness aspect, we ought to outlaw all other forms of unfairness as well. Sure, insider trading is unfair and very unethical. However, I doubt that the lack of laws against it would cause the markets to collapse. Other areas of our daily lives have not collapsed under the weight of unfairness that legally occurs every day. Also, when we outlaw some forms of unfairness while ignoring or even encouraging other forms of it (some of which are just as unethical), isn’t that in itself unfair?