Big shock: Politicians are corrupt. So what do we do about it?

Clearly not satisfied with their sky high approval ratings, members of Congress seem to be doing everything they can to convince that final 12% of Americans who support them to reconsider. Last week, Peter Schweizer revealed in his new book that a lot of them have been using their offices to engage in insider trading. For example, while most American citizens were debating the merits of Obamacare, John Kerry was busy making sure it benefitted his stock portfolio:

[A]t least $200,000 of stock in medical device manufacturer ResMed was purchased in the $20 to $25 per share range. After Obamacare passed, ResMed jumped to $34, an increase of as much as 71%. “ResMed was a winner in the health care reform legislation—as Reuters declared—thanks in part to John Kerry’s efforts,” says Schweizer. The reason: earlier versions of the Obamacare bill would have slapped companies like ResMed with an “industry fee” tax. Kerry opposed the higher taxes on medical device companies and helped delay the taxes until 2013.

The sickest part is that John Kerry’s behavior here isn’t the exception in Congress – it’s the rule. But as disgusting as that is, there are two important lessons that can be learned from this situation: 1) members of Congress currently have way too much power, and 2) all of our laws must apply to all Americans in the exact same way.

1.) Members of Congress currently have way too much power.

“The Experience of every Age convinces us, that we must not judge Men by what they ought to do, but what they will do; and all History affords us but few Instances of Men trusted with great Power without abusing it, when with security they could”

John Trenchard, Cato’s letters #60

Right now, Congress has an unimaginable amount of power to impact industries throughout the economy both positively and negatively. But beyond that, individual congressmen who land positions on powerful committees can have an incredible influence on each bill – almost single-handedly. Giving politicians that kind of power is exactly what leads to corruption like the current insider-trading scandal.

Getting this Congressional power back under control may seem like a Herculean task, but the solution is really simple. It doesn’t even require some massive government “reform” bill. All Congress would have to do is… abide by the Constitution we already wrote and ratified in this country. How’s that for a radical idea?

When our Constitution was written, the federal government was mainly intended to handle national defense, foreign diplomacy, and ensuring the free flow of trade between the states. This is a point that James Madison made clear:

“The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the state governments are numerous and indefinite. The former will be exercised principally on external objects as war, peace, negotiation, and foreign commerce […]”

Federalist #45

Very clear:

“The powers of the general government relate to external objects, and are but few. But the powers in the states relate to those great objects which immediately concern the prosperity of the people.”

Remarks at the Virginia Ratification Convention

Notice how straightforward Madison is – the federal government is designed to focus primarily on “war, peace, negotiation, and foreign commerce.” Domestic issues were supposed to be handled almost entirely by state and local governments – which are much more effective in those areas.

But for some reason, today’s Congress wastes the vast majority of its time messing around with domestic legislation that it has no real authority to pass. If members of Congress could manage to limit themselves to exercising the powers that were actually granted to them in the Constitution, they wouldn’t have had the inside information they used to make these immoral trades in the first place. Problem solved.

Isn’t it amazing what can happen when the Constitution is read and applied?

Of course, there will be those who say, “The government will still be responsible for funding the military. So Congress will still have insider information about all of those massive defense contracts.”

That’s true, defense spending will still be an area of concern. But if Congress were to actually limit itself to Constitutionally mandated actions, federal spending would be a fraction of what it is today. In that case, it would be much easier for citizen groups to follow and analyze which members of Congress are benefitting inappropriately from insider information.

That wouldn’t completely solve the problem though. That’s where Lesson 2 comes in.

2.) All of our laws must apply to all Americans in exactly the same way.

“The Experience of all Ages may convince us, that Men, when they are above Fear, grow for the most part above Honesty and Shame.”

John Trenchard, Cato’s letters #61

Part of the reason insider-trading became such a common practice is Congress exempted itself from laws that made it illegal. So at some point, the politicians in Washington must have actually gotten together and said, “Wow, this insider-trading is really dishonest. No one should be allowed to make a fortune off of unknowing investors like that… you know, except us.”

When members of Congress are able to act as if they are a privileged class, it’s no wonder why so much of the legislation they pass is complete garbage. They know that they don’t have to live under the laws that they enact, so they are free to make a joke of our legislative process without feeling the effects.

The law that was just passed made the market tank? Don’t worry about Congress, they had insider information so they sold their stocks ahead of time. Obamacare is a disaster? No problem, they made sure they can keep their federal health plan instead. Unemployment is really high? Not to worry, they’ve got lucrative Congressional pensions.

The answer to all of this is to require all laws to apply to every American the same way – including public officials – similar to what Friedrich von Hayek suggests in The Road to Serfdom. No more exemptions. No more loopholes. No more waivers. If it’s wrong for private investors to engage in insider trading (and it is), then it’s wrong for members of Congress to engage in insider trading.

This requirement would also have another benefit besides simply eliminating Congress’ ability to write itself “Get out of jail free” cards. Much of the problem with Congressional insider trading stems from lobbyists and crony capitalists who are trying to “encourage” politicians to give them special tax breaks or legal advantages over their competition (see: Nancy Pelosi and the Visa IPO).

But when laws have to be applied generally, it makes it much more difficult for members of Congress to give those special interests what they want. If Congress isn’t able to give out valuable special favors, there’s no reason for crony capitalists to give politicians access to insider information and exclusive IPOs.

Whenever members of government are abusing their offices, lessons need to be learned from those situations and changes need to be made. In this case, Congressmen are using power not authorized by the Constitution and are exempting themselves from legal consequences to gain an unfair advantage in the stock market.

That cannot be tolerated. If our public officials are allowed to act as if they are above the law it will destroy this country. Members of Congress who are engaging in insider trading need to be held accountable and soon. Otherwise, no “Get out of jail free card” in the world will be able to clean up the mess they’re making.