My post on March 7th about Martha Stewart's entrapment associated with the unjust laws against insider trading did not prompt much discussion on these pages. This surprises me since it has precipitated a firestorm of debate - or more accurately, chest thumping and table pounding - among my family members about the justifications for insider trading laws. My arguments in the blog and in private emails were obviously unpersuasive to them, although none of them have taken the tack of posting a measured and reasonable rebuttal to my blog.
Another outcome of this clash of opinions was the presentation to me by family members of several newspaper columns discussing these issues. A notable one was 'Plain and Simple, Stewart Cheated.' Rob Reuteman (business editor of the Rocky Mountain News, a graduate of the University of Wisconsin and has a master's degree in journalism from the University of Colorado) spins out in newsprint some popular misconceptions and reinforces the attendant pop mythology. For example, of Waksal and Stewart he says, "She knew the negative news was coming because she was friends with the company's founder, who is now in jail for a long time for acting similarly [selling shares in the company.] They dumped their stock and left the mess with average investors like me and you. That's not how the game is supposed to be played, and she knew it."
So apparently it is only acceptable to Mr. Rueteman if insiders or their associates sell their stock when they expect it to rise in value (or alternately, if they are genuinely clueless about its future worth). What kind of idiocy is this!? (Collectivist egalitarian altruism idiocy, to answer my own rhetorical question.) If that's the kind of "game" that he wants to play then I, and I suspect most all of the productive businessmen who take great risks to start and run the companies that fuel our economy, don't want to play along.
Another perspective on this topic can be found in Chapter 9 of Ayn Rand's important but overlooked book 'Capitalism: The Unknown Ideal." The chapter, entitled, 'The Assault on Integrity' was written by our current Fed Chairman Alan Greenspan and begins thusly: "Protection of the consumer against "dishonest and unscrupulous business practices" has become a cardinal ingredient of welfare statism." He goes on to make the case that the best and indeed the only reliable method of protecting consumers is the reputation of individual businesses and businessmen for quality, honesty and integrity. Government regulation, he says, actually destroys these values because they are no longer required when the government "guarantees" the quality, honesty and integrity of corporations and their products.
"Government regulation is not an alternative means of protecting the consumer. It does not build quality into goods, or accuracy into information. Its sole "contribution" is to substitute force and fear for incentive as the "protector" of the consumer. The euphemisms of government press releases to the contrary notwithstanding, the basis of regulation is armed force. At the bottom of the endless pile of paper work which characterizes all regulation lies a gun. What are the results?
To paraphrase Gresham's Law: bad "protection" drives out good. The attempt to protect the consumer by force undercuts the protection he gets from incentive. First, it undercuts the value of reputation by placing the reputable company on the same basis as the unknown, the newcomer, or the fly-by-nighter. It declares, in effect, that all are equally suspect and that years of evidence to the contrary do not free a man from that suspicion. Second, it grants an automatic (though, in fact, unachievable) guarantee of safety to the products of any company that complies with its aribitrarily set minimum standards."
Regarding government regulators he says, "The guiding purpose of the government regulator is to prevent rather than to create something. He gets no credit if a new miraculous drug is discovered by drug company scientists; he does if he bans thalidomide."
Regarding the effects of governmental regulation he says, "Government regulations do not eliminate potentially dishonest individuals, but merely make their activities harder to detect or easier to hush up. Furthermore, the possibility of individual dishonesty applies to government employees fully as much as to any other group of men. There is nothing to guarantee the superior judgment, knowledge, and integrity of an inspector or a bureaucrat - and the deadly consequences of entrusting him with arbitrary power are obvious."
Indeed, suppose a low-level bureaucrat "little guy" investor in the FDA owns Imclone stock and sells on the inside knowledge of Irbitux's denied approval. Does anyone honestly believe that particular "insider" would be prosecuted to the full extent, if at all? Worse yet, suppose a mid or high level bureaucrat intentionally scuttles approval of a drug he knows to be safe and has his broker short the issue, and then buys to cover shortly before its ultimate approval thereby making a killing. There are no procedures in place to detect such a thing because the government, after all, is there only to protect us.
Greenspan concludes, "It is this superlatively moral system [free-market capitalism] that statists propose to improve upon by means of preventive law, snooping bureaucrats, and the chronic goad of fear."
Posted by JohnGalt at March 14, 2004 12:30 PMI guess we're all just efficient market capitalists. People forget hat the markets' Raison d'Etre is to direct capital to its most efficient uses -- CALpers is a player but not a reason. If Erbitux is not gonna make it, Martha's money will be needed elsewhere.
Martha has found a lot of support in these pages, though she wouldn't agree with a word.
No, she wouldn't agree with a word and that's the greatest irony here isn't it? Here we have a supposedly well-meaning individual who contributed $170,000 toward putting Democrat politicians in office, who in turn consistently support extensive government regulation to "protect the people," and winds up getting nabbed by the nanny state do-gooder ideas she probably used to think were a good idea. Of course, liberals always think forcing someone to throw away perfectly good money is a good idea until it is THEIR money we're talking about.
Posted by: johngalt at March 15, 2004 10:06 PM