In his most recent New York Times column, my GMU Econ and Mercatus Center colleague Tyler Cowen – citing the work of sociologist Alice Goffman – explains yet another, and typically neglected, uncivilizing and inhumane consequence of the ‘war on drugs.’ A slice:
As every friend or relative becomes a potential informant, cooperation plummets and life degenerates into a day-to-day struggle to remain outside the reaches of the law. Professor Goffman offers a chilling portrait of tactics used to encourage relatives to turn in possible lawbreakers: For example, the police may tell mothers that if they don’t report their errant men, the authorities will yank their children, a threat that may be backed by a charge of harboring or aiding and abetting a fugitive. “Squealing” thus becomes more likely. A community becomes divided between those who are on the clean side of the law and those who are not. And trust breaks down in personal relationships.
Prohibitions on insider trading clearly benefit government agencies by providing a ready source of power and money. For the rest of us, these prohibitions are costly. Taxpayers pay the salaries of prosecutors like Preet Bharara—and for his wiretaps, investigations, lawsuits, etc. If people are convicted, even though they are nonviolent, they may spend time in jail and be unable to continue working, earning, and paying taxes. Many people, even if they are not true insiders, do not trade because they fear prosecution. That fear is a real cost, as it puts a damper on their portfolios and spills over into the larger stock market, where shares are not priced based on the best information. Consequently, the market operates below peak efficiency. Also, corporations must train and monitor their employees to avoid running afoul of insider-trading laws. There is also a cost to our privacy. All of these costs are substantial.