Jewish World Review April 22, 2004 / 1 Iyar, 5764

Thomas Sowell

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Criminalizing business

http://www.NewsAndOpinion.com | The recent conviction of Martha Stewart for lying to federal investigators looking into "insider trading" is one of the sad signs of our times. If you create enough laws, everyone will be a criminal.


Perjury should of course be a crime, even when it is committed by a President of the United States. But insider trading is something else.


The big objection to insider trading is that it is not fair that one side in a stock trade has knowledge that the other side does not. Some have analogized it to selling a car that is a "lemon" or a house with termites or other hidden defects.


There is one fundamental difference, however. Stocks are not sold with warranties, express or implied. They are always sold "as is." Risk is the very reason stocks exist in the first place — and nobody is forced to buy them.


The very reason for stock sales, in many — if not most — cases, is that the buyer and the seller have very different assessments of the future value of that stock. Both of them know this, though neither may know on what information the other's assessment is based.


It would certainly be a better world if everyone knew as much as everyone else and had an equal ability to analyze the information. But a moment's sober reflection should show how virtually impossible that is in the real world. We are nowhere close to that in any aspect of human life, from the most frivolous games to the most serious life-and-death crises.


Differences in knowledge are among the innumerable imperfections of the world. If we are going to pass criminal statutes to deal with every imperfection, we may as well go straight to totalitarianism, without passing "GO" and without collecting $200.

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Politicians are forever coming up with "solutions" to virtually every imaginable imperfection in life. But, if we give them more power and more of our money, we are very unlikely to end up better off on net balance.


The history of 20th century despotism is a history of leaders claiming to solve their people's problems for them — and then creating tragedies worse than any of the problems that they were supposedly going to solve.


Eternal vigilance is only part of the price of freedom. The maturity to live with imperfections is another crucial part of the price of freedom.


Human beings can be fair in the sense of having rules that apply to everyone alike. But life itself has never been fair, or anything close to it. Circumstances can be very different, even for people born to the same parents and raised under the same roof.


Criminalizing the unfairness of life is not the answer. Utopian dreams have led to despotic nightmares in too many places and times for us to repeat such old mistakes. In the case of insider trading, caveat emptor is preferable to criminal statutes, at least for those who take the imperfections of the world as a given.


There is another aspect to this. The political left has increasingly vented its hostility to business by creating criminal statutes for things that do not do nearly as much harm as the activities of the career criminals whom liberals are so willing to excuse or to let off with light or suspended sentences.


Liberals like to equate crime in the streets with "crime in the suites." But nobody is afraid to go out at night in their own neighborhood for fear that Martha Stewart will sell them some stock. The verbal parallels of the left have little to do with the realities of life.


Recent decades have seen the criminalization of everything from foreign policy to farm practices that inconvenience some worm or toad. Donating money to political candidates has become so enmeshed in criminal laws that the advantage is given to those who can afford to pay lawyers to tell them how to avoid getting trapped — or even how to circumvent the intentions of the law.


When your response to everything that is wrong with the world is to say, "there ought to be a law," you are saying that you hold freedom very cheap.

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JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author of several books, including his latest, "Applied Economics: Thinking Beyond Stage One." (Click HERE to purchase. Sales help fund JWR.)

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