Check Your Premises

“Check your premises” is an injunction that runs as a subtheme through Ayn Rand’s novel Atlas Shrugged , and it is a phrase that seems to be growing more pertinent every day. The meaning of the phrase is this: If you seem to be confronting a contradiction, then at least one of your relevant beliefs is false. For example:

• Airline security requires intrusive universal scrutiny, yet Israel (the country most threatened by terrorism) avoids it. Check your premises.
  
  
• Middle-class entitlement programs cannot be repealed, yet Obamacare was a major issue for the GOP in 2010. Check your premises.
  
  
• Gold is a barbarous relic of interest only to the economically illiterate, yet several legendary investors are large holders. Check your premises.

But the paradox of greatest current interest to the Business Rights Center is this:

• Insider trading is a form of fraud and therefore contrary to the principles of the free market, yet it is rampant among investors in free markets.

On November 20, an explosive story appeared in the Wall Street Journal: “U.S. in Vast Insider Trading Probe.” The report said: “Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare counsultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter.

           “The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illiegal profits totaling tens of millions of dollars, people say. . .

           “The action is an outgrowth of a focus on insider trading by Preet Bharara, the Manhattan U.S. Attorney. In an October speech, Mr. Bharara said the area is a ‘top criminal priority’ for his office, adding: ‘Illegal insider trading is rampant and may even be on the rise.’”

Time to check our premises.

No one doubts that some people sometimes act in violation of their professional code. But when a prosecutor declares that violations of professional standards are “rampant” among a group, and that he proposes to start throwing violators into prison, it is time to ask questions about the alleged phenomenon. Are we agreed on what the relevant standards say? Is the context that generated those standards still applicable? Are we focused on the right group of people? Are the alleged violations really violations of the standards? Those are questions that I will take up as the insider-trading investigation unfolds. But for now, I would offer an analogy.

We have learned, sadly, that American espionage agents may become traitors. But when such behavior is reported, we shrug it off with the slogan that evey profession has “a few bad apples.” Suppose, however, that a U.S. prosecutor announced that treason was “rampant” in the sphere of U.S. espionage and intelligence gathering, and that he intended to start throwing the traitors into prison.  Suppose it then turned out that he included in the concept of “traitor,” every intelligence officer and every member or staffer of a congressional intelligence committee who leaked information to a journalist; plus every journalist who was the recipient of such a leak; plus every editor and publisher who approved the publication of leaked information. It would be time say: He needs to check his premises.

Of course, just such accusations of “treason” were carelessly thrown around by conservative commentators when the New York Times was exposing vital U.S. national secrets. But most people understood that this was not literally treason. Yes, somebody had done something he should not have (leaked information), but that was not treason. And as for the journalists who acted on that information (by publishing it): They were simply behaving in accordance with the rules of their profession.

That is an analogy that deserves be kept in mind when the U.S. Attorney for Manhattan charges that violations of proper business standards by investors are “rampant.” Are they? Check your premises.

Update: My analogy, posted on the day that Wikileaks revealed an enormous cache of U.S. intelligence, may lack the clarity that I aimed for. Agents of the U.S. government who leak vital secrets are evil and should be punished harshly. But their crime lies in their betrayal of trusted access to national secrets, a trust formalized by law. The betrayal of corporate secrets, I suggest, lacks the gravity of betraying national intelligence and should be handled as a form of contract violation. And though journalistic recipients of information injurious to national security may sometimes have the moral duty of not acting on such information (by not publishing it), the bar is very high, and it seems unlikely that a bar that high would resuslt in any comparable moral duty on the part of an investor not to act on information obtained by an insider's violation of his corporate trust.

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