The Washington Examiner reported Friday that House Speaker Nancy Pelosi and her husband Paul had bought “millions of dollars in call options for stocks including Disney, Google, and Salesforce.” This came only days after she had angrily pushed back against those asserting that membership in Congress is perhaps incompatible with such transactions.
Her excuse was that “we’re a free market economy, and [lawmakers] should be able to participate in that.”
This is nonsense. Public service is a choice. It is very reasonable to expect those who choose it to give up some freedoms. For one thing, they have to “settle” for a roughly $174,000 salary, whereas a successful business or professional career could be much more lucrative.
But more to the point, investments in individual stocks should be viewed with skepticism. Smart, regular people investing in the United States, especially for retirement, don’t trade individual stocks. They buy diversified mutual funds (ideally index funds or target-date retirement funds), they keep buying on a regular basis, and they hold these funds for decades.
Why? Because unless you have special insider knowledge that is unethical and perhaps even illegal, it is impossible to beat the market in the long run. A 2020 study found that over 15 years, nearly 90% of actively managed funds failed to beat the S&P 500.
So if you insist on conducting peculiar transactions like the ones that Pelosi is engaged in, you are probably either a fool, or you have inside knowledge and you are doing something unethical.
Would you want your congressman to behave this way? I certainly wouldn’t. I’ll go further than that — none of us should have to wonder whether our member of Congress is doing something sneaky to make money. This is the simplest argument for imposing restrictions on how members of Congress invest their money.
Why is Pelosi defending unethical behavior? Why can’t members of Congress adopt the simple investment portfolio that the average retiree settles for? Why do people making $174,000 a year need to engage in such shady transactions instead of just buying diversified index or target-date retirement funds? Maybe, if you’re an ordinary person just getting by and hoping your members of Congress are honest, Democrats just aren’t that into you.
