Politicians may face elections every few years, but stock prices fluctuate daily. Their wealth is on the line much more than their position, and their investments will last longer than their term in office.
Corruption in politics is a tale as old as time, and the pandemic has given us numerous examples of public officials (allegedly) proving this age-old truism by profiting off of their positions.
At the beginning of the pandemic, multiple congresspeople were caught making lucrative stock trades: selling restaurant and hotel shares, investing in remote-work and pharmaceutical companies, and more. While many investors made such trades, these moves were suspect because these politicians were receiving closed-door briefings on the coronavirus and knew way more than the general public. In one especially suspicious move, Senator Richard Burr attended confidential pandemic briefings and then sold up to $1.72 million in stocks—one week before the overall stock market crashed. Several senators were investigated for insider trading but none were ever charged for anything.
More recently, several presidents of the Federal Reserve banks were caught trading stocks and real estate assets in early 2020. This may seem innocuous, but at the same time the Federal Reserve was directly and indirectly buying many of these same assets—pumping up their prices and creating large capital gains for the Fed presidents. Facing outcries of self-dealing, the presidents resigned under pressure.
These recent controversies inspire more doubt in a political system that fewer and fewer Americans trust. The officials involved may or may not have done anything strictly illegal, but these actions damage the credibility of our government and they are, at the very least, unethical. Even the appearance of corruption is damaging, but there are more substantive reasons why politicians owning stocks and other capital is an issue.
The first problem is the most obvious: conflicts of interest. The job of someone in Congress or the Executive Branch is to govern in the interest of the American people. If these politicians have large stock holdings then they have a strong financial interest to govern in someone else’s interest—namely, the interests of whatever companies or industries they are invested in. If the Senator chairing the committee on banking had millions of dollars in Goldman Sachs or JP Morgan shares, how could we trust them to fairly legislate on financial issues? If the head of the FDA was an investor in Pfizer, how could we trust them with regulating that same company? These officials would clearly benefit if they let companies break the law. They could benefit even more if they refused to make any laws restricting their dangerous profiteering. Politicians may face elections every few years, but stock prices fluctuate daily. Their wealth is on the line much more than their position, and their investments will last longer than their term in office. Capital ownership thus motivates politicians to act in favor of special interests instead of the people’s interests.
These investments also impair officials’ perspectives more subtly. Ideally, we would want our elected leaders to be like us and reflect our concerns. Many Americans do not own any stocks. Even though a slim majority do, these holdings are usually pretty modest or set aside in retirement accounts (for use decades in the future). For the overwhelming majority of Americans, their finances are dictated primarily or exclusively by their wages and salaries. Conversely, most members of Congress are millionaires with vast stock holdings. Many of them have multi-million dollar portfolios. Such fabulous wealth distorts the views of these politicians away from the average American. They are simply out of touch. It’s really hard to empathize with a family working paycheck-to-paycheck when you have a huge vault of wealth lying around.
Additionally, most people follow stock market trends only tangentially. The returns of the Dow or S&P, or the profitability of corporations in general, have only minor or indirect effects for many Americans. Politicians with huge portfolios, though, are way more attuned to financial markets and corporations than a normal person. Such investments draw officials’ focus away from the things that matter to most Americans, and they distort our leaders’ perspectives.
Finally, extensive stock holdings encourage politicians to be susceptible to lobbyists and corruption. Given the billions that corporations and monied interests pour into political projects, elected leaders are always facing the temptation to “play ball.” If they are already invested in a company’s success, this temptation becomes even stronger. Stock ownership moves politicians one step closer to lobbyists’ ploys, which is always a problem.
There are some existing rules surrounding stock trading in Congress. The foremost law is the STOCK Act, passed in 2012. This law, which applies to members of Congress, their staff, and top executive branch officials, criminalizes any insider trading done from information they learned because of their office. While banning insider trading is great, this act is mostly superficial. Lawmakers routinely violate the disclosure rules in the STOCK Act with no consequences. Additionally, it is hard to detect insider trading, and it’s hard to convict because it is usually just the prosecutor’s word against the defendant’s.
The rules for Executive Branch employees are much stricter and better. For many agencies, employees are prohibited from owning stocks related to their job. For example, an administrator in the Air Force responsible for purchasing aircraft could not own shares of an aircraft manufacturer. These conflict of interest regulations are what we really need to combat corruption and profiteering in our government.
Knowing all the problems inherent to stock ownership, the only solution is to ban lawmakers and top executive officials from owning stock entirely. Federal employees need to sell stocks if they are in an industry that they operate within. For someone in Congress or the White House, every industry is touched by their job, so they should need to sell every stock. Cabinet-level and most Senate-confirmable positions similarly cover broad areas of our economy, so the same restrictions should apply to them, too. It is simply unacceptable to have such a huge conflict of interest infecting politics. Anyone entering the top levels of our government should be required to sell and divest their entire portfolio.
The benefits of good governance are plainly obvious, and there are no real downsides. Lawmakers already make almost $200,000 per year and enjoy a generous pension and healthcare plan. No one in Congress faces any real threat of financial trouble, and top executive branch officials are similarly comfortable. Their million-dollar portfolios are just excess. If any politician protests these types of restrictions, they're really just whining that they cannot double dip into riches anymore.
Nor is Speaker Pelosi’s recent defense of stock ownership any better. She claimed that members of Congress should be able to buy stocks because “we are a free market economy” and politicians “should be able to participate in that.” The issue is that the free market is where people go to earn money for their own benefit. Public office is where people go to serve the country. Elected officials are there to serve our interests—not their own. If you are in Congress or the Executive Branch, you should not be allowed to enrich yourself like current politicians do.
Stock ownership corrupts the minds of our leaders and drives our government to serve special, monied interests instead of the needs of the public. It’s time to put an end to foul play and conflicts of interest. It’s time to ban these top officials from holding stocks.
Kevin Sciackitano is a a third-year Economics major in the College of Arts and Sciences. He serves as a Managing Editor for the Agora.
Image Credits: Alex Proimos