By Mark Jamison
In a recent AEI report, J. Howard Beales III and Timothy J. Muris explored recent efforts by the Federal Trade Commission (FTC) to create a regulatory framework with less public input and more political scrutiny for speed up decision-making processes. Beales, former director of the FTC’s Consumer Protection Bureau, and Muris, former FTC Chairman, convened an AEI panel with former FTC Commissioner Maureen K. Ohlhausen to discuss the report’s findings. AEI’s Mark Jamison moderated the conversation.
Below is an edited and abridged transcript of key highlights from the panel. You can rewatch the entire event on AEI.org and read the full transcript here.
Mark Jamison: Tim, give us some insight into why we should care about FTC rules amidst other concerns like crime, inflation, and a war in Europe. Your report indicates that it is quite urgent.
Timothy J. Muris: One problem with the FTC as the source of these transformative rules is: the FTC is not a specialized agency. The FTC is a general agency. It is responsible for prohibiting methods of unfair competition and unfair or deceptive acts and practices in large parts of the economy. The commission, as we envisioned it — and as it has been for the past 40 years until new leadership — saw itself primarily as enforcing the principles and rules of the road. The rules are so basic that people don’t even think of them as rules. These are rules like no fraud, you must enforce your contracts and rules about truth in advertising.
The FTC’s new leadership takes a different view that the FTC should write rules that are real, prescriptive, industry-wide, and transformative. These are things that would change the way industries operate, because they are fundamentally hostile to the current market, and would create burdens that would be passed on to consumers.
If you want to transform an industry, you have to know a lot about that industry. And to do that, the FTC has to start from scratch. We will see that it is a difficult process. They failed when they tried before, and they nearly crushed the agency in the process.
What specifically has the FTC changed with respect to rule-making procedures?
J. Howard Beales III: They made a variety of changes, the main thing of which is less public participation and more political control in the rule-making process. The only rationale they offered was the need to do things faster – not a word about writing better rules, building better records, or making better decisions. It all depends on how quickly they can get things done. One of the changes they made is to require less explanation of what they do. They only need to state the reasons for their actions under the new rules in general terms, not in specifics. An explanation of what is happening is the key to effective public participation, and there will be less of it.
Second, they effectively gutted the role of the chair who oversees the hearings and the preparation of the rulemaking brief. I would also like to point out that rulemaking always ended with a final staff report that comprehensively summarized the rulemaking record. Even when you disagreed with the staff report, which I did quite frequently, you could see what was in the file, know what evidence was there, and clearly see if the whether or not the evidence supported what they were doing. And the staff made final recommendations on what the rules should look like, which was often very different from what was originally proposed. Chairs have relied on staff reports; review courses relied on staff reports. But this commission abolished staff reports, because apparently no one needs to know what the staff recommends.
Additionally, along with the staff reports, there was another round of public comment on the staff’s final recommendations before the commission made its decision on the rule. It’s gone too. Again, there is less public participation and more political control over the rule-making process.
Maureen, as a former FTC commissioner who now works with private sector clients at a law firm, how do you think these changes will affect businesses?
Maureen K. Ohlhausen: I think the variety of messages sent by the FTC creates a lot of uncertainty. The FTC will engage in these broad regulations, whether on non-competition, privacy, surveillance or advertising. These are all areas in which we already have existing laws. Non-competitions are usually done at the state level, so there is no certainty here as to whether it will be a certain salary, a method of unfair competition, or an act or an unfair or deceptive practice.
Developing privacy rules creates a lot of uncertainty because the FTC talks about using the “unfairness” metric as a guide for privacy. Howard and Tim deserve a lot of credit for how carefully the FTC has traditionally handled injustice. But generally there is a requirement that there be substantial harm. All of this is statutory. Now, the way they talk about unfairness – and the FTC has used unfairness in some privacy cases – goes far beyond those kinds of definitions and boundaries, and far beyond what Congress has considered when considering privacy bills.
Will common business models now be banned? I think this creates great uncertainty not only for existing businesses, which is problematic enough, but also for future uses of consumer information or new technologies. Things don’t just spring into full swing; there is a lot of research and development going on that requires several years of cutting-edge work before a new product or service hits the market. I think the FTC’s rhetoric is confusing whether they or Congress are going to act first. Congress is looking at a very different approach and outcome than the FTC. If they both move, where will we end up? How not to have the worst of both worlds?
What would working in this new environment look like for career FTC staff?
The FTC has a terrific career staff who will do what management wants them to do. They will do this very well and be very supportive of you, especially when you like them and give them good tasks. When I was at the FTC, things were very bipartisan. Our success speaks to the importance of predictability and the ability to find common ground. But when you come in like the current rulers have and basically say, “Everyone who came before us was thoughtless, dumb, and irrelevant in every way,” what are you going to get? These are your resources. The FTC is a small agency. It has a limited budget and is able to outdo itself because it has clear principles, motivated staff and a common base.
We didn’t agree on everything. A commission is not supposed to agree on everything. But I think moving away from those principles so aggressively and explicitly actually creates a situation where they’re trying to do a lot through rule-making, and they’re trying to do a lot through changing guidelines and policy statements because they don’t. Don’t have the interest, expertise, or ability to do the kind of case-by-case enforcement that cements progress in the FTC’s areas of expertise.
What can institutions like the AEI do to encourage the next generation of young people to join agencies like the FTC? It looks like an uphill battle right now.
Timothy J. Muris: AEI nurtures young people and provides space for those who want to do public policy. It’s a whole structure that didn’t exist when I was younger, so I think it’s still possible to captivate people to join federal agencies. I think some prominent conservatives are far too distant from regulators; these institutions are extremely important, and so it is great to encourage young people to participate in them later in places like AEI. It’s something that Maureen was particularly good at in her role; she always had a lot of good young people around her.
J. Howard Beales III: Institutions like the AEI can build the record. When I was in graduate school, I studied regulations and their effects. It was really clear that there were a lot of adverse effects, because the evidence was there. But the evidence base had been built by people before me – and AEI researchers do this daily for the current generation. Because the experts around me were showing convincingly that the FTC was doing crazy things, I felt they needed someone to tell them they were doing crazy things, so I decided to try.
Timothy J. Muris: As Milton Friedman has always said, you do this work because when crisis hits – and it always does – it’s the kind of place politicians and government leaders go to turn.