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That’s Wrong! When You Do It.

Parents often say to their children, do as I say not as I do. That’s because parents make the rules and they can punish their children for doing things that parents do everyday. It’s easy to see how having power allows the powerful to define their behavior as normal or at least acceptable while at the same time defining the actions of the less powerful as being abnormal or wrong. In this piece Nathan Palmer illustrates the sociological concept of labeling theory by discussing how members of Congress, up until recently, were able to legally break the law to make millions of dollars using insider trading schemes.

Hey, come over here. Look, I got this inside information about a law that is about to get passed. If I hook you up with this juicy piece of intel, you could make millions of dollars. Do you want to know more? Before you answer that question I should tell you, if you say yes you may face 20 years in jail and up to a $5 million fine. So, keep that in mind.

Trading stock based on information that is not publicly available is the textbook definition of insider trading. Many people including home decor guru Martha Stewart, have done time for this serious crime. It’s a big deal and if you dabble in some insider trading, you can expect the Department of Justice to hunt you like a Wall Street dog. That is, unless you are a member of Congress.

U.S. Senators and members of the House of Representatives trade on insider information all of the time. As discussed in a 60 Minutes exposé late last year, because of a legal loophole members of Congress are not able to be charged with insider trading.[1] And let me be clear, there are recent examples of both Democrats and Republicans cashing in on the inside information they come across while writing the nation’s laws. In fact, this is such a large issue that an industry called “political intelligence” has sprung up around members of Congress to buy their insider information and sell it to the highest bidder.

So to reiterate, if you buy or sell stock based on insider information you better like the taste of prison food. However if you are a member of Congress, it’s all good; play on playa.

This is a fantastic illustration of what sociologists call labeling theory. But before we get to that we have to talk about deviance. When someone breaks a social norm it’s called deviance (A handy way to remember this is, when you “break the rules” you are deviating away from the norm). Deviance takes lots of forms and includes everything from punching someone to smearing sheep placenta on your face; you know, for that youthful glow, right?

But here is the thing, no act is inherently deviant. That is, no act is always considered deviant by everyone everywhere. “But what about murder,” you may be asking. We kill people all of the time, but as long as the person taking the life is an executioner, police officer, or soldier it’s not considered deviant. “Okay, but what about incest,” you may want to counter with. Royals have been inbreeding for generations to “keep their blood pure” and in many states in the U.S. you can marry your first cousin. If no act is inherently deviant, than that means as a community we have to decide what is “normal”.

So who gets to decide what is normal? The answer to this question gets to the heart of labeling theory. Those in power and/or those who are the majority tend to have the most influence on our social definitions of “normality”. They use this power to define their behaviors as normal and the behaviors of others (specifically social minorities) as abnormal, deviant, wrong, or gross. In this case, lawmakers are able to define their insider trading as legal, but everyone else’s as illegal.

When the 60 Minutes story started making waves in the national news support grew for the Stop Trading on Congressional Knowledge (STOCK) Act which criminalizes Congressional insider trading. The bill was signed into law in April 2012, but critics point out that the bill does little to stop the selling of information to “political intelligence” operatives. It seems that this example of labeling theory was, at least partially, brought to an end.

In the wake of this blatant double standard the sociologist in all of us should be asking, how does the criminal justice system and our social definitions of “normality” favor some and disadvantage others?

Dig Deeper:

  1. Think of some other double standards where the socially powerful or the majority are able to define their behavior as normal, but define those same behaviors as abnormal when they are carried out by the non-powerful or social minorities.
  2. If no act is inherently deviant, then no act is inherently normal. How does that change your perspective on the world around you? Does it change your view of the legal justice system? Explain your position.
  3. Labeling theory argues that we use labels to define some behaviors as normal and others as abnormal. Can you think of some labels (i.e. the words, terms, and language) we use to communicate what is normal and what is abnormal? For instance what do we call someone who is deviant?
  4. Crack and powder cocaine are nearly identical substances. However, the 1986 Anti-Drug Act required judges to sentence people arrested with crack to have longer sentences than people arrested with powder cocaine. Read this short article about the 2010 Fair Sentencing act and explain how the unequal punishments for crack and powder cocaine represent an example of labeling theory.

  1. To be precise, members of Congress have never been exempt from insider trading laws, but because they do not have a confidential relationship with the sources of their information, their actions did not meet the criteria of insider trading as it was defined.  ↩