Now that Martha Stewart has been found guilty of lying to government investigators, it is essential that we examine the causes for this lying that could just as easily have landed you or me in jail.
The problem is that Stewart was being questioned about her actions in relation to an immoral law. That's right, laws preventing insider trading per se are immoral, because their effect is to deny equality of opportunity to the insider. The justification of such laws is to establish equality of opportunity, but the insidious reality is that what they attempt to deliver is equality of outcomes. This fact is underscored by the comments of one Martha Stewart juror, Chappell Hartridge: "Maybe it's a victory for the little guys who lose money in the markets thanks to these kinds of transactions."
A summary of several articles on this topic can be found here, and I recommend the particular article 'Insider Trading,' reprinted from 'Just Business: Business Ethics in Action,' by Elaine Sternberg.
So the end result is that by exercising her moral right to protect her assets with all of her knowledge and ability Stewart has violated an unconscionable law, and her efforts to shield herself from the same immoral fate as Sam Waksal led her to commit perjury. I submit, albeit belatedly, that Stewart should have employed the Howard Roark defense, and admit to breaking the law but then argue the law itself is what is immoral.
Let's not forget, as JK dutifully blogged, that the cause of this entire affair was incompetents implementing government regulations at the FDA. For trying to limit the damage done to them personally by government bureaucrats, Waksal and Stewart get - the slammer.
Posted by JohnGalt at March 7, 2004 09:48 AMI have been hoping for an acquittal for all the reasons you provide. I must admit that I was a little moved last Friday to think that perhaps she was guilty of Obstruction of Justice, that the integrity of the prosecutorial system required meting out some justice, yadda, yadda.
I have always thought President Clinton deserved impeachment for lying under oath, whether or not he was guilty of the underlying "crime" (it was a civil complaint). Why do I want to let one of his big donors walk?
It all comes back to Frederic Bastiat (most things do): Law must be understandable and avoidable to be just. I think we are seeing a capriccios enforcement here. The ultimate cause is that the insider-trading statutes are not understandable and avoidable, nor is Section 1001 of the U.S. Code which she was convicted of contravening. It does not appear that she deserves this level of punishment.
Posted by: jk at March 8, 2004 09:56 AMYou are right of course, JK. Law must be understandable and avoidable (also known as objective) in order to be just. But what does "avoidable" mean in this case? It means holding shares you know will lose value. In effect the law says, "You may buy low and sell high so long as all your investment research comes from the WSJ and the NYT. If you get information from a privileged source, and that source is traceable back to an insider in the company, you're screwed!" In order to "avoid" this law one must act in contradiction to his own interests. In the name of a "level playing field" and protecting the "little guy" we have a law that forbids rational self-interest. That law has got to go.
The Cato Institute opined on insider trading laws back in 1988: http://www.cato.org/pubs/pas/pa101es.html
"The courts gradually moved from vague, incoherent "fairness" justifications of insider trading law toward precise, intellectually defensible contract-based justifications of such law. Recently, however, the locus of lawmaking on the subject of insider trading has shifted from the federal courts to Congress. The result has been the triumph of politics over principle"
"Avoidable" means that you can't outlaw breathing so that you can arrest anyone you feel like.
I think we are on the same side, brother. I say that it is unavoidable to sell your shares when you know something's going down. (I also think that that contributes to efficient markets).
Posted by: jk at March 9, 2004 10:13 AM