Regulatory Humility or Regulatory Hubris at the Federal Trade Commission?

Cite this Article
Lawrence J. Spiwak, Regulatory Humility or Regulatory Hubris at the Federal Trade Commission?, Truth on the Market (September 19, 2023),

This article is a part of the The FTC's New Normal symposium.

Competition policy at the Federal Trade Commission (FTC) will naturally ebb and flow, depending on its leadership. Over the years, some commissions have taken a more aggressive approach, while others have granted greater credibility to market forces. Still, regardless of the party in power, the agency was generally able to maintain a solid reputation as an antitrust-enforcement agency that adhered to the law and took a dispassionate approach when evaluating the cases before it.

Not anymore.

With the “bait and switch” appointment of Lina Khan as chair, the FTC is now attacking traditional norms. These attacks include, but are certainly not limited to, rejecting the consumer-welfare standard and rule-of-reason analysis, attempting to radically expand its narrow rulemaking authority beyond its statutory mandate, and adopting the view that market concentration is a fortiori bad for consumers (even though few firms may be the efficient-market equilibrium). And on the procedural side, the agency has engaged in an assortment of shady administrative practices that raise significant due-process red flags.

Despite being repeatedly called out, Chair Khan does not seem to care. Instead, she maintains a policy of “the ends always justify the means,” though she appears to have a poor grasp of both the means and the ends.

Kahn’s hostile approach to antitrust norms was largely expected. Prior to her appointment, Khan co-authored an essay with her former boss (and later, briefly, her FTC colleague) Rohit Chopra in the University of Chicago Law Review titled “The Case for ‘Unfair Methods of Competition’ Rulemaking,” in which she laid out her vision for the FTC. As they note, “[a]ntitrust law today is developed exclusively through adjudication” designed to “facilitate[] nuanced and fact-specific analysis of liability and well-tailored remedies.” As it should. Yet the authors disapprove, arguing that “in practice, the reliance on case-by-case adjudication yields a system of enforcement that generates ambiguity, unduly drains resources from enforcers, and deprives individuals and firms of any real opportunity to democratically participate in the process.”

Chopra and Khan blamed this alleged policy failure on the abandonment of per se rules in favor of a “rule of reason” approach in antitrust jurisprudence. In their view, a rule-of-reason approach is nothing more than “a broad and open-ended inquiry into the overall competitive effects of particular conduct that asks judges to weigh the circumstances to decide whether the practice at issue violates the antitrust laws.” Rather than present the facts to a neutral arbiter, Chopra and Kahn prefer ex ante bright line rules to prohibit “unfair methods of competition” (UMC), outlined in Section 5 of the Federal Trade Commission Act.

But as I demonstrated in a 2021 law-review article, Khan and Chopra’s argument lacks any legal or analytical foundation. If anything, the paper revealed a startling naivety about the nature of economic regulation. In the air of ignorance, per se rules breathe freely.

But Khan is never one to let the law get in the way. In November 2022, the FTC issued a new UMC policy statement that formally abandoned the consumer-welfare standard (that is, the well-being of all people) in favor of a far more vague and subjective standard—devoid of any economic foundation—that better suits her political ideology.

The commission’s argument for abandoning the consumer-welfare standard and rule-of-reason analysis was basically as follows: because we can. That is, since the FTC Act does not define “unfair methods of competition” in Section 5, the FTC has the right to define the analytical bounds of this standard any way it sees fit and courts must give absolute deference to the commission’s interpretation.

As I detailed in another law review article (which will be soon republished in the Journal of Law, Economics and Policy), this take on the agency’s legal authority is an overreach. A review of the case law reveals that, while the FTC is entitled to judicial deference when interpreting and enforcing Section 5, this deference is not unfettered. As the independent agency charged with enforcing the nation’s antitrust laws, the FTC must respect antitrust terms of art and economic fundamentals when invoking Section 5. Therefore, many applications of its new and, indeed, vague interpretation of unfair methods of competition are unlikely to survive judicial scrutiny.

As is to be expected, Khan’s “damn the torpedoes” approach is taking its toll on morale at the agency. Prior to her becoming chair, the FTC was the highest-rated federal agency in terms of employee satisfaction. Given its well-earned credibility for adherence to the law and its disciplined approach, it is little wonder the staff was generally pleased with their work.

But due to Khan’s mismanagement and politicization of the once highly respected agency, surveys conducted by the Office of Personnel Management (OPM) and the Boston Consulting Group/Partnership for Public Service’s “Best Places to Work in the Federal Government Rankings” report have both revealed that employee satisfaction at the agency sharply declined in the year following her confirmation.

In October 2022, the Phoenix Center released a detailed analysis of these data. Using the summary-level satisfaction measures from these surveys, our analysis showed that the FTC fell from the highest-ranking federal agency in 2020 to the bottom quartile of agencies in 2021—the largest decline of any federal agency that year, and nearly the largest one-year decline in satisfaction across agencies in the past dozen years.

More tellingly, the survey revealed the reduction in employee satisfaction at the FTC was driven by a lack of respect for senior leadership, due to a perceived lack of honesty and integrity. Ouch. As a small consolation, an increase in satisfaction was observed for direct supervisors, suggesting that staff supervisors were trying to shield FTC line-staff from the mismanagement of senior leadership.

Things have not improved as Khan’s tenure has continued. Last April we updated our analysis with an additional year of data (2022). After the stunning decline in the FTC staff’s views of senior leadership in 2021, satisfaction with senior leadership fell again in 2022, while views of FTC supervisory leadership once again improved. This precipitous decline in employee satisfaction put the agency in last place on these attributes among its peers—an unprecedented decline.

Former Acting FTC Chair Maureen Olhausen was often keen to note that the FTC should act with “regulatory humility.” Khan’s approach can, instead, be characterized as “regulatory hubris.” While hope springs eternal that a regime change—or even remedial actions by the Biden administration—might be able to reverse this slide, history demonstrates that once norms are broken, they are often difficult to repair. If that indeed proves to be the case, then we might be witnessing the proverbial “pride before the fall” of a once highly respected antitrust-enforcement agency. And the politicization of antitrust by an ineptly run agency adds yet another burden on an already-strained economy.