This is the Cato Daily Podcast for Wednesday, November 25th, 2009.

I'm Caleb Brown.

Insider trading is the dastardly act of using special secret information to make a killing in the market before the public has a chance to do the same,

but preventing insider trading does nothing to stop insider non-trading,

restraining oneself from buying or selling because of special secret information.

The government can't do anything about insider non-trading.

That according to Don Boudreau, Professor of Economics at George Mason University and Cato Institute

Adjunct Scholar.

The conventional thinking about insider trading is that it's unfair to outsiders.

And it's unfair to outsiders because allegedly it allows insiders

to profit at outsiders expense. I'm a corporate insider I know that my company is going to merge with another company and so I buy shares

with the other company before you as an outsider can do so and so I profit and you don't and that's unfair. That's I

think why the man in the street doesn't like in such a trade. They think of the

stock market in particular in capital markets in general is more like

casinos it's like Vegas without the drinks and the slot machines it's a kind of

casino and you don't want the casino rigged in favor of the people who run the casino.

Of course, the real purpose of capital markets is not to allow people to gamble.

It is to allocate capital from less productive to more productive

uses.

That's the justification for it.

The more sophisticated criticism of insider trading builds upon the man in the street understanding

and that more sophisticated case against insider trading goes like this.

...