Congress should be able to trade stocks: Is Nancy Pelosi right?
- On December 15, 2021, House Speaker Nancy Pelosi asserted Congress lawmakers should not be banned from trading stocks saying, “We are a free market economy. They should be able to participate in that.”
- The 2012 Stock Act hinders Congress members and employees from using “nonpublic information” to make investment decisions and requires all stock trades to be reported in 45 days.
- The preexisting law to the Stock Act was the Ethics in Government Act of 1978 which mandated the “public disclosure of financial and employment history of public officials and their immediate families” after the Nixon Watergate scandal and Saturday Night Massacre.
- The United States is a mixed economy, combining capitalism and socialism. The system “protects some private property and allows a level of economic freedom in the use of capital, but also allows for governments to intervene in economic activities in order to achieve social aims and for the public good.”
Nancy Pelosi sees nothing wrong with members of Congress engaging in stock trading, stating, 'This is a free market, and people—we are a free-market economy. They should be able to participate in that.' Speaker Pelosi's defense of the capitalistic ability for Congress members to trade stocks while simultaneously representing the party pursuing socialism is quite ironic.
Firstly, insider stock trading is against the law. The STOCK Act, passed by Pelosi's own Congress in 2012, was created to combat insider trading and conflicts of interest among its members. A recent investigation revealed that 52 members of Congress and numerous congressional staffers violated the STOCK Act, engaging in conflict-of-interest trading.
Members of Congress are in a unique position to be able to affect the price of stocks (positively or negatively) through legislation. They often have access to company information, including confidential data, that other people, including stockholders, may not have. For example, several senators dumped stocks in early 2020 after receiving privileged information showing COVID would be a major problem. The public, however, was mostly unaware of what lay ahead for the country and the world. The average investor just simply doesn't possess the information or access available a member of Congress has.
It may seem like a quaint notion, but the job of Congress is to serve the people, not to personally enrich themselves. Congress frowns upon and has enacted laws against insider trading in the public sector, and the Justice Dept is quite willing to prosecute it. Congress members should be made to obey the same laws they enact on the people who elected them. Congress often seems to play by its own set of rules, even when the laws, the ones that it passes, say otherwise.
There is no denying that before the STOCK Act of 2012, insider trading among Congress members was rampant. However, since the STOCK Act was enacted, insider trading among the 535 Congress members has dropped significantly. While a portion of Congressmembers do trade and hold stocks, they do it legally and are transparent about their activity by declaring it publically each year.
There has not been a single criminal charge of illegal trading among any member of Congress to date. Several years ago, the two Georgia Senators—Kelly Loeffler and David Perdue—were investigated and cleared as no criminal activity was found. Aside from these two, no other Congress member has been charged with ethical violations in recent years.
Stock trades aren’t always made personally by members of Congress but by their investors, who continue their financial plans throughout their terms. Perhaps why Speaker Pelosi was questioned on this, thus giving this story extra attention, was because a substantial amount of Congress and their staffers were late in 'disclosing personal stock trades,' which does violate the conflict-of-interest laws. But that doesn’t mean any wrongdoing was involved in the trades themselves.
Additionally, the US Securities and Exchange Commission has state-of-the-art computer-based statistical models that evaluate everyone who trades stocks. Any person who makes big, sudden gains is investigated. Illegal trading among House and Senate members is rare due to trade transparency; It's not wise to risk one’s job trading illegally.
Nancy Pelosi has been involved in trading stocks for years and believes America's free-market economy allows everyone to participate, provided they declare their assets and report what stocks they invest in. Deterring members from doing what many Americans do will deprive the country of good politicians in the future and is unfair.