Towards the end of last week, John pointed out the clueless sociopathy of Jay John Carney’s view of insider trading as a victimless crime. (Here, the string “Jay John Carney” should be read as “your liberal media at work”) [update: oops. Apologies to the distinguished White House press sect’y. And how do you spell “brain bubbles?”]
I just want to add that John’s reaction — that someone using private information to gain an advantage in a two-party trade has got a victim all lined up — is not merely obvious; it’s been studied.
That is: you can imagine a hand waving argument that because each party has their own reasons to enter a transaction, then even the “outsider” on an insider trade gains what he or she desires from the exchange, otherwise they wouldn’t make the deal. Since that motivation is untouched by the knowledge that the counterparty possesses and they do not, what’s the problem? That’s my rough approximation of the glibtard case, at least.*
The problems with this crayon-level argument are pretty plain, I’d say. The most glaring, to me, is that assumes that each choice exists only within the narrowest possible slice of time. Or, as an economist friend of mine put it in response to Carney’s “reasoning” (sic!):
The argument that trades are voluntary so everyone benefits is clearly only true ex ante – that is to say on the basis of the original biased information. The guy who gets stiffed clearly wouldn’t have made the trade if he’d had the same information as the insider. You might as well make this argument to justify dodgy second hand car sales or street trading swindles. The guy who buys a lemon from the dealer who has hidden its faults expected to make a gain but that doesn’t mean he actually does or that the dealer isn’t a crook.
Beyond any mere ridicule of the rich-people-can-do-no-wrong that defines the Village view, the point I think John was making is that insider trading has both individual victims — those who were cheated out of what they would have gained had there been full knowledge of what was going on for both parties to a trade — and systemic costs that we all bear.
Surprise! That turns out to be something people actually know something about
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