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Editorial: Outing Insider Information

“Political intelligence” can be hard to define but profitable to hold. This tension has prompted some members of Congress to ask whether new federal rules are needed to regulate the small, amorphous and growing industry that charges clients a hefty fee for such information.

The answer to that question is easy: No. The harder question is how to strike the right balance between government transparency and the government’s interaction with private industry. The debate is prompted in part by a federal investigation of a relatively obscure investment-research firm, Height Securities. On April 1, it correctly predicted a policy decision by President Obama’s administration on payments to health insurers. As a result, trading in equity shares of some health care-related companies soared in the minutes before U.S. stock exchanges closed. The government subsequently confirmed Height’s prediction.

Political intelligence is as old as politics itself. Lobbyists, lawyers, public-policy advocates and diplomats — not to mention journalists — have long traded secrets, rumors, smoke signals and the occasional lie. Even the dullest capital has its intrigues, and access to the right dinner parties, boards of directors and other power zones is widely (and correctly) understood to provide advantages.

Fully regulating this flow of information is, frankly, impossible. White House officials, like members of Congress, meet with lobbyists regularly, and the right to petition the government is enshrined in the Constitution.

The right to glean potentially valuable investment information in a private meeting, on the other hand, is not. Executive branch employees are prohibited from using nonpublic government information to advance private interests (including their own). So why do investment executives arrange such meetings, as The Washington Post reported last weekend? Presumably because they find them valuable. And if they are valuable to private investors, they have value to the public.

Hence the calls for greater transparency in the political intelligence industry from the likes of Republican Sen. Chuck Grassley of Iowa and Democratic Rep. Louise Slaughter of New York. “When a political intelligence professional is paid to gather inside information from congressional or agency sources that can be used to make investment decisions, that professional should have to register and disclose his or her activities to the public,” they said in a joint statement.

But as a recent Government Accountability Office report makes clear, it’s not so simple. The report cites the difficulty of defining what political intelligence is, what information would need to be disclosed and by whom. “There could also be legal challenges to requiring such disclosure (based on perceived restrictions on First Amendment rights),” the report states.

No kidding. The Internet has enabled an explosion of insider newsletters and websites that strive to give subscribers government information faster and better than the competition. (Disclosure: Bloomberg Government is one such service.) Would this information count as political intelligence? More broadly, political speech enjoys strong constitutional protection; it’s hard to see how political intelligence wouldn’t merit similar deference.

The government has a vital interest in making sure businesses are informed about relevant public policies. That’s especially true in complex areas such as health care, where the economic impact is also great. If members of the White House staff are compelled to meet with investors, maybe they could also post video of their meetings on the White House website, thus transforming these private encounters into public education.

It’s impossible to stop the advantage gained from a strategic seating at a Georgetown dinner party. That’s life. But the White House and Congress aren’t dinner parties. They have an obligation to make sure their information is accessible to all. That’s the abiding principle. New disclosure regulations, however, aren’t the best way to serve it.

Bloomberg View