A decade ago, Congress passed the Stop Trading on Congressional Knowledge Act. This law was supposed to do what it sounds like it would do — stop members of Congress from enriching themselves using inside knowledge that others lack. But unfortunately, the law is toothless, imposing tiny fines for violations.
Some lawmakers from both parties want to fix this problem by simply banning members of Congress and their families from trading individual stocks on the stock market. They are right to pursue this goal, and House Speaker Nancy Pelosi is wrong to block them.
Pelosi’s excuse, that “we’re a free-market economy” and members “should be able to participate in that,” is nonsense. Public service is a choice. If you want to be a member of Congress, you have to be willing to accept certain rules and limitations that other people don’t face.
For example, members of Congress are already required to disclose most assets, whereas the average person need not do so. Members of Congress, even those with law degrees, are also not allowed to represent other people or companies as attorneys. No one considers this an excessive imposition.
Meanwhile, it is worth pointing out that no one consistently beats the market trading individual stocks. Even top hedge fund managers have proven incapable of doing this year after year. You almost need insider information to succeed at it. So there are good reasons to look askance at any member of Congress trading stocks. Members of Congress, after all, have sources of information that most people lack. They know more than you do about how the government is going to affect specific companies. This alone justifies forswearing stock trades as part of their portfolio.
It was very recently that two Republican senators, Richard Burr of North Carolina and Kelly Loeffler of Georgia, came under fire for making investments whose timing seemed related to the COVID crisis of early 2020. This is not a partisan problem either. Democratic Rep. Maxine Waters, for example, has previously admitted to taking official actions involving a bank in which her husband owned stock.
These are just a couple of examples among dozens known in both parties. Regardless of any individual member’s culpability, constituents simply should not have to worry about whether their members’ and senators’ decisions are based on the common good or on their own personal gain.
Members of Congress retain the same option that the vast majority of people select when saving for their retirement. They can invest in broadly diversified mutual funds that allow their owners to benefit from the overall growth of the free-market economy. For example, Fidelity’s no-fee S&P 500 index fund gained 21% last year. Vanguard and Charles Schwab have similar products, as do many other companies. There are dozens of similar funds that follow broadly diversified portfolios and are barely affected by the fortunes of any individual company.
Pelosi should stand aside and allow a vote on one of the bipartisan bills banning the trading of individual stocks by members of Congress and their families. If necessary, House members should circumvent Pelosi’s authority using a discharge petition in order to force a vote on the measure.
Pelosi first became speaker thanks to a wave of Republican corruption scandals in 2006. How cynical she must be to take power in such a situation, only to turn around and protect the corrupt.
And any members of Congress who feel constrained by the idea of a ban on stock trades should probably find another line of work.
