This view assumes they actually do their job for the good of the people and also happen to profit off of what they privately learn in doing so. Instead of making decisions based on what can get them the better payout or preservation of their investments.

To make it a programming analogy, to someone who has no clue about coding a yearly bonus to each developer based on lines of code written sounds like a good way to reward the more productive developers. But anyone with a couple days experience realizes how trivial that system would be to game.

A member of congress voting for $10B of useless defense spending because they're heavily invested in the relevant aerospace company isn't committing insider trading.

Perhaps this is unnecessarily pedantic, but what you're describing is a "conflict of interest" problem, not an "insider trading" problem. You can have either problem without the other, and depending on how you crack down on insider trading, it could be completely ineffective at solving the conflict of interest problem.

I totally agree with the first part of your comment.

I want to add that there's a real possibility that legislation to address this (totally legitimate) issue goes too far and makes it even harder for non-wealthy people to run for public office - I think it's unreasonable for a new congressperson who owns a home and a small amount of an S&P index fund to have to set up a blind trust for their partner's uncle.

Insider trading improves the efficacy of financial markets actually, since it allows markets to take non-public information into account. The bigger problem is that it opens up avenues of market manipulation and causes conflicts of interest.

It's the same conflict of interests problem here. Are your politicians acting for the sake of the public, or do they have their own financial interests in mind when putting forth a policy? E.g. if they've made financial commitments in expectation of a policy that will benefit that investment, that can most certainly influence their decision on said policy.

Only if you know which insiders to watch. It's just as likely to set off irrational panics. I think the efficiency argument involves a lot of hindsight bias even though it may be made in good faith.

I think the real threat is the already dire state of American faith in its own governmental system. The issue is not that the congress people are in a position to act on insider information. It's that they're in a position to make moves, then enact policies that make those moves more lucrative.

Consider the extreme: a congress person shorts a stock because they know a downturn is coming, then they enact policies that prolong the downturn and in turn increase their windfall.

Insider trading by legislators is also a problem because it could impact how they act in their capacity as public servants. It is not inconceivable that they would then vote based on their financial interest and how they want to game the market, or time critical legislation based on their financial interest.