The Misguided Rush to Ban Congress’s Stock Trades

U.S. Senators are “as feckless as the rest of us at stock picking,” says a 2020 study by Dartmouth academics, who examined trading data back to 2012. Their analysis found “no evidence” that Senators have “industry specific stock picking ability related to their committee assignments.” The pandemic was no exception: After Congress was briefed about Covid-19, senatorial trades likewise underperformed.

What about the suggested solutions? A bill introduced by Sens.

Jon Ossoff

and

Mark Kelly

would require Members of Congress to put individual stocks (excluding mutual funds and ETFs) into blind trusts. “Covered investments that cannot be moved into a blind trust must be divested,” a fact sheet says. The rules would apply to spouses and dependent children, too.

Say that a woman wants to run for office, but her husband happens to be a professional investor. Is it fair to block her from Congress, more or less, unless her husband gives up his career? A successful businessman who wants to serve only a few years in D.C. might be similarly deterred if it would require handing off his portfolio. Why not let the voters decide?

This isn’t an argument against improving the trading disclosures, and maybe bigger penalties are needed to keep the reporting rules from being flouted. But new restrictions won’t end the populist outrage, such as the fury over congressional stock trades in early 2020. Imagine that Senators then were limited to selling only index funds into the Covid crash. Would critics be any happier about it? The answer is no.

In 2020 the typical defense was for Senators to say they had nothing to do with the trading, but that answer didn’t quell the pitchfork brigades.

Sen. Kelly Loeffler

said her portfolio was handled “without my or my husband’s knowledge.” A spokesman said

Sen. Dianne Feinstein

gave records to the FBI “to show she had no involvement in her husband’s transactions.”

Sen. James Inhofe

posted a letter from his asset managers, attesting that they “make all investment decisions” with “zero consultation.”

The one politician in a tighter spot was

Sen. Richard Burr.

He has denied wrongdoing, saying he traded “solely on public news reports.” As of last October the Securities and Exchange Commission was still investigating. Some articles say Mr. Burr made a phone call to his brother-in-law, who sold stock, too. Yet Congress hardly has impunity:

Former Rep. Chris Collins

was sentenced to 26 months for insider trading, although not under the Stock Act.

Congress can avoid political headaches, and probably get better returns, by picking broad investments. Yet the trading disclosure database is a big haystack, so there will always be something that could look bad. Voters are free to fire politicians even for legal trading that shows poor judgment or a lack of focus.

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Banning Member stock trades won’t make government any better because it misapprehends the real problem. Graft for personal profit isn’t common in Congress. The real corruption is the use of taxation, spending and regulation to stay in power—and expand the size and power of the federal government in the process. Banning stock trades is populist grandstanding that will do nothing to limit government. It will deter candidates who are more likely than political lifers to serve a few years and then skip town for productive work.

People with big portfolios need to play by the rules, but if they do then Congress should welcome the expertise of those who really know how the economy works.