Ideally we should remove the incentive all together. Limit it so Politicians can only buy index funds that don’t target any specific industry.

Fundamentally you can classify modern society into two groups: government and commercial citizenry.

The incentives of these two groups are misaligned and that is essentially the origin of all corruption.

The commercial citizen, his goal is to make money, compete and to do so by bending the rules and using any means possible.

The government, his goal is to be fair, to enforce and follow the rules, and to guard citizens.

When you combine these two groups the incentives collide. You get government officials who are supposed to be fair but instead they are incentivized by commercial interests so they make biased laws, take bribes and do all that shit.

To reduce corruption you really need to create societies made up of two different groups with two different sets of incentives.

Dictators are more immune to this effect because all of their commercial incentives are pretty much completely fulfilled as they own the whole country.

In a democracy the closest sort of thing I’ve seen to this is priesthood. Buddhism or becoming a monk is similar but these are not elevated leadership positions like priests.

Basically when you become a government official it should be like becoming a priest. You are removing yourself from commercial society. It changes everything. Your incentives are different and it even filters out all the bad actors.

Such a society can realistically exist. I think the unrealistic part is converting our current society into something like this.

I'm not particularly concerned about unfair gains made possible by insider knowledge. The economy is large enough, and the set of lawmakers (not to mention leadership-level lawmakers!) small enough, that that the overall effect on anything is going to be negligible.

My concern would be that the "skill" we're seeing isn't with using insider information, but with using their power to alter outcomes to make whatever investments they'd previously chosen become profitable post hoc. If they're causing our regulatory landscape to be change to pad their wallets, that's going to have a much greater effect on our overall system than just being able to make a trade a day earlier than the rest of us.

> it is why politicians should be required to put their stocks in a blind trust

Don't these people get a salary already? If "serving the people" isn't enough as an incentive, maybe they shouldn't be in a position for serving the people?

Outlaw politicians owning stocks at all, it makes no sense they ever could in the first place, when the incentives are so obviously misaligned. It simply lives too much room for misbehaving actors, no matter how much bandage you put on top.

Could we just not prohibit lawmakers from investing in particular stocks, but rather to only invest in the market as a whole (e.g. via ETFs) and/or in government bonds?

That's why I don't think they should be able to trade stocks at all. Why are they under less scrutiny than low rung engineering employees at one of the big 4?

Force them to buy nothing but SPY. If you’re in Congress, you’re allowed to get the market return. Or a government bond fund, or cash. That’s it.

I agree that blind trusts don't fix everything, but it is a start.

The situation right now isn't just corrupting, congress-critters are labeled as idiots by their own if they don't actively take advantage of "perks" like free stock tips that would be illegal in any other context.

The "everyone does it" excuse is what keeps this house of cards up. And it is not partisan, both D's and R's inevitably become rich if they stay in the house for more than a couple of terms.

Personally, I think there's a fundamental flaw in insider training law in the same category as the fundamental flaw in copyright and patents.

You are trying to stop people from using knowledge for gain... In a system that is fundamentally designed to reward using knowledge for gain. Fully enforcing insider trading law requires slicing of categories and resolution of ambiguity that creates the same problems it does in the other knowledge market law: decisions that feel unfair even if the letter says they aren't, people getting away with things that feel wrong on a technicality, and the whole category Congress people fall into where it's impossible to do their job and not obtain enough market knowledge to be leverageable.

I don't have enough historical knowledge to know if this was always a problem and we just weren't sensitive to it or if past generations were more modest or magnanimous and either didn't take advantage of what they knew or took advantage of it and spread the wealth around, but I think we might be trying to fundamentally solve the wrong problem.

It is entirely possible that the problem is the asymmetry is the market creates themselves. There may simply be no better, more efficient solution than taxing the hell out of the rich, no matter how they got there.

Yes, that is one solution, but history has shown it is very hard to effectively police it, as there are a million ways to get around it.

The SEC enforcement of Insider Trading laws is also simultaneously both ineffective and created high-profile wrong cases which get people with influence to further weaken it.

Seems to me the best solution to all of the above is to simply require ALL trades to be open and transparent with the ultimate beneficial owner and the trade available in real-time. Pharma scientists & execs start buying/selling their stock unusually? Easy to setup trackers so we know it in the same second and can also take advantage of their knowledge that their new drug trial succeeded/failed, and it will eliminate much of the insider-trading edge. A congressperson buys/sells a bundle of shares of a company in his state? Again, we see they're likely getting/losing contracts soon, and again, much of the margin disappears.

Traders would rapidly setup hedge funds and ETFs to ensure this happens in milliseconds, and much of the advantage and problems of insider trading being unfair disappear, along with a lot of enforcement cost.

Obviously just a concept, what are the holes?

Wouldn't they just trade through their relatives? Or does the insider trading immunity not stretch that far?