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A proposal to tackle congressional inside trading: Invest in the US

A proposal to tackle congressional inside trading: Invest in the US
© Greg Nash

Reps. Raja KrishnamoorthiSubramanian (Raja) Raja KrishnamoorthiMedical supplies arriving in India amid surge in COVID-19 infections Overnight Health Care: US to share millions of AstraZeneca vaccine doses with other countries | Biden speaks with Prime Minister Modi as COVID-19 surges in India US to share millions of AstraZeneca vaccine doses with other countries MORE (D-Ill.), Alexandria Ocasio-CortezAlexandria Ocasio-CortezOcasio-Cortez hits Biden for taking 'the side of occupation' in Mideast violence Yang: Those who thought tweet in support of Israel was 'overly simplistic' are correct McConnell hits Democratic critics of Israel MORE (D-N.Y.) and Joe NeguseJoseph (Joe) NeguseOvernight Health Care: US to share millions of AstraZeneca vaccine doses with other countries | Biden speaks with Prime Minister Modi as COVID-19 surges in India House Democrats call on Biden to add Medicare-related provisions to economic plan A proposal to tackle congressional inside trading: Invest in the US MORE (D-Colo.), and Sen. Jeff MerkleyJeff MerkleySenate panel deadlocks in vote on sweeping elections bill Senate descends into hours-long fight over elections bill Senate poised for all-day brawl over sweeping elections bill MORE (D-Ore.), among others, have introduced legislation that would prohibit members of Congress and their staffs from trading individual stocks. The Ban Conflicted Trading Act, which has also been floated in past years, was prompted by reports that members of Congress may have traded advantageously based on information obtained in confidential hearings and knowledge of pending actions that could affect corporate future prospects.

The spirit of the proposed legislation – a desire to limit conflicts of interest – may be on the side of angels, but the remedy is flawed. That being the case, I have another idea which, in addition to addressing this issue, may also give politicians a better and more personal sense for the ramifications of their sometimes-less-than-noble legislating and budgeting. More on this later.

Controversies involving conflicted activity have arisen for Sens. Richard BurrRichard Mauze BurrGOP senator urges Biden to withdraw support for COVID vaccine patent waiver Utah county GOP censures Romney over Trump impeachment vote Battle lines drawn over Biden's support for vaccine waivers MORE (R-N.C.), Kelly LoefflerKelly LoefflerGeorgia Republican secretary of state hits Loeffler as 'weak,' 'fake Trumper' Loeffler asks Georgia attorney general to investigate Raffensperger over 2020 election Former Rep. Doug Collins won't enter Georgia Senate race MORE (R-Ga.), Dianne FeinsteinDianne Emiel FeinsteinIf you want Julie Su at the DOL, don't point to her resume Senate Democrats push Biden over raising refugee cap Lawmakers react to guilty verdict in Chauvin murder trial: 'Our work is far from done' MORE (D-Calif.) and Jim InhofeJames (Jim) Mountain InhofeOVERNIGHT ENERGY: Senate nixes Trump rule limiting methane regulation | Senate confirms EPA chief: Biden's climate goals are 'an opportunity to lead' | Fine-particle pollution disproportionately hurts people of color: research EPA chief: Biden's climate goals are 'an opportunity to lead' Senate confirms Pentagon policy chief criticized by Republicans for tweets MORE (R-Okla.), who allegedly sold stocks advantageously after attending specialized briefings on COVID-19 and other matters. In 2017, then-Congressman Tom PriceThomas (Tom) Edmunds PriceA proposal to tackle congressional inside trading: Invest in the US Biden health nominee faces first Senate test Focus on cabinet nominees' effectiveness and expertise, not just ideology MORE, at the time Donald TrumpDonald TrumpWarren says Republican party 'eating itself and it is discovering that the meal is poisonous' More than 75 Asian, LGBTQ groups oppose anti-Asian crime bill McConnell says he's 'great admirer' of Liz Cheney but mum on her removal MORE’s nominee to run the Department of Health and Human Services, got into trouble for investing in medical and health care stocks prior to moving to his new assignment.

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As Ocasio-Cortez puts it in a 2020 press release about the same act: “Members of Congress should not be allowed to buy and sell individual stock ... We are here to serve the public, not to profiteer."

But there’s a problem with the remedy. Reflecting the mistaken belief that mutual funds are less conducive to making or salvaging money through congressionally gained inside information, the proposed law does not prohibit this type of investing. But the number of mutual funds is about as large as the number of stocks listed on the exchanges. Those funds can be so highly specialized that they can perform almost in lockstep with the stock of firms that might benefit from congressional action. I think the mutual fund escape valve should be closed. 

But I have another suggestion — one that I learned about in 1942 when the United States was struggling to fund World War II. Why not require all federal office holders – elected and appointed – to avoid investing in individual stocks, but leave open the option of United States Treasury notes and bonds? Why not allow leading public servants who must reshape their personal portfolios to invest in America? 

The idea came to me as I recalled how we World War II children headed off to school every Friday with dimes and quarters we had saved or fenagled from our parents to purchase U.S. Savings Stamps. A full book of stamps worth $18.75 could lead to the ownership of a $25 U.S. Savings Bond set to mature 10 years later. The effort taught us that saving money was a good idea, and we wanted to do our part to win the war. 

Part of our patriotism was kindled by a wonderful 1941 Irving Berlin song, “Any Bonds Today?” written at the request of Treasury Sec. Henry Morgenthau. The song’s key verse for children said, “Any stamps today? / We'll be blest / If we all invest / In the U.S.A.” 

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So instead of getting bent out of shape about politicians succumbing to the temptation to make quick bucks in the stock market using inside information, maybe we should simply require them to invest in America’s debt, of which there is plenty. Then, as an added benefit, our elected officials would become far more sensitive to what inflation-induced higher interest rates can do to depreciate the value of government bonds. 

We’ll be blest if we all invest in the U.S.A.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson College of Business and Behavioral Sciences.