By Mark Jamison

In a recent AEI report, J. Howard Beales III and Timothy J. Muris explored the Federal Trade Commission’s (FTC) recent efforts to create a rulemaking framework with less public input and more political control to speed up decision-making processes. Beales, a former director of the FTC’s Bureau of Consumer Protection, and Muris, a 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 re-watch the full event on AEI.org and read the full transcript here.

Mark Jamison: Tim, give us an overview of
why we should be concerned about FTC rulemakings amidst other concerns like
crime, inflation, and a war in Europe. Your report indicates this is quite
pressing.

Timothy J.
Muris: A problem with the FTC as the source of these transformative rules is:
The FTC is not a specialist agency. The FTC is a generalist agency. It’s
charged with prohibiting unfair methods of competition and unfair or deceptive acts
and practices over wide parts of the economy. The commission, as we envisioned
it—and as it was for the last 40 years up to the new leadership—saw itself
mostly as enforcing principles and rules of the road. The rules are so basic
that people don’t even think of them as rules. They’re rules like no fraud, you
ought to enforce your contracts, and rules about truth in advertising.

The new FTC leadership
has a different view—namely, that the FTC ought to write actual, prescriptive,
industry-wide, transformative rules. These are things that would change how
industries work, because they’re fundamentally hostile to the current market, and
would create burdens that are passed on to consumers.

If you want
to transform an industry, you ought to know a lot about the said industry. And
so to do that, the FTC needs to start from scratch. We’ll see that this is a
hard process. They failed when they tried it before, and they almost crushed
the agency in the process.

What specifically has the FTC changed regarding
rulemaking procedures?

J. Howard
Beales III: They made a variety of changes, the thrust of which is less public
input and more political control in the rulemaking process. The only justification
they offered is the need to do things faster—not a word about writing better
rules, building better records, or making better decisions. It’s all about how
fast they can get things done. One change they made is to require less explanation
of what they’re up to. They just have to generally state the reasons for their
actions under the new rules, not with particularity. An explanation of what’s
going on is the key to effective public participation, and there will be less
of that.

Secondly, they
effectively gutted the role of the presiding officer who oversees the hearings
and the preparation of the rulemaking record. I’d also like to highlight the
fact that rulemakings always ended with a final staff report that comprehensively
summarized the rulemaking record. Even when you disagreed with the staff
report, which I did somewhat frequently, you could see what was in the record, know
what evidence was there, and clearly see whether the evidence supported what
they were doing or not. And the staff made final recommendations as to what the
rules should look like—which was often very different from what had been
originally proposed. Presiding officers relied on the staff reports; reviewing
courts relied on the staff reports. But this commission abolished staff
reports, because apparently nobody needs to know what the staff is
recommending.

Also, with
staff reports, there was another round of public comments on the staff’s final recommendations
before the commission made its decision about the rule. That’s gone too. So
again, there is less public input and more political control of the rulemaking
process.

Maureen, as a former FTC commissioner who
now works with private-sector clients in a law practice, what’s your sense of
how these changes will affect businesses?

Maureen K.
Ohlhausen: I think the variety of messages being sent from the FTC are creating
a lot of uncertainty. The FTC is going to engage in these broad rulemakings, whether
it’s on noncompetes, privacy, surveillance, or advertising. These are all areas
in which we already have existing laws. Noncompetes are generally done at the state
level, so there’s no certainty here about whether it will be at a certain
salary, an unfair method of competition, or an unfair or deceptive act or
practice.

The privacy
rulemaking is creating a lot of uncertainty because the FTC is talking about using
the metric of “unfairness” as their guide for privacy. Howard and Tim deserve a
lot of credit for how the FTC has traditionally used unfairness carefully. But
generally, there is a requirement that there will be substantial harm. This is
all statutory. Now, the way they are talking about unfairness—and the FTC has
used unfairness in some privacy cases—goes far beyond those kinds of
definitions and limits, and far beyond what Congress has been considering when
looking at privacy bills.

Will common
business models now be outlawed? I think it’s creating great uncertainty for
not just existing businesses, which is problematic enough, but also for future
uses of consumer information or new technologies. Things don’t just spring out
full-blown; there’s a lot of research and development going on that requires several
years of advanced work before a new product or service comes to market. I think
the FTC’s rhetoric is creating confusion on whether they or Congress are going
to move first. Congress is looking at a very different approach and result than
the FTC is. If they both move, where do we end up? How do we not get the worst
of both worlds?

What would working in this new environment
be like for career staff at the FTC?

The FTC has
a wonderful career staff that will do what the leadership wants them to do.
They will do it very well and be very supportive, particularly when you
appreciate them and give them good tasks to do. When I was at the FTC, things
were very bipartisan. Our success speaks to the importance of predictability
and the ability to reach common ground. But when you come in like the current
leadership has and basically say, “Everyone who came before us was feckless,
foolish, and off-base across the board,” 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 punch way above its weight because it has clear principles, a motivated
staff, and a basis for common ground.

We didn’t
agree on everything. A commission is not meant to agree on everything. But I do
think that moving away from those principles this aggressively and explicitly
is actually creating a situation where they’re trying to do a lot through
rulemaking, and they’re trying to do a lot through changing guidelines and
policy statements because they don’t have the interest, expertise, or
capability to do the kind of case-by-case enforcement that cements progress in the
FTC’s areas of expertise.

What can institutions like AEI do to
encourage the next generation of young people to join agencies like the FTC? It
sounds like an uphill battle currently.

Timothy J.
Muris: AEI nurtures young people and provides a place for those who want to do
public policy. That’s a whole structure that did not 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 standoffish toward regulatory
agencies; these institutions are extremely important, and so nurturing young
people to participate in them down the road at places like AEI is great. This
is something 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 AEI can build the record. When I was in graduate
school, I studied regulation and its effects. It was really clear that there
were a lot of bad effects, because the evidence was there. But the evidentiary
base had been built by people who went before me—and scholars at AEI are doing
this daily for the current generation. Because the experts around me were
making a convincing case that the FTC was doing crazy things, I felt they
needed someone to tell them they were doing crazy things, so I decided to give
that a try.

Timothy J.
Muris: As Milton Friedman always said, you do this work because when the crisis
comes—and it always does—this is the kind of place that policy people and
government leaders turn to.

The post “Back to the Future” at the Federal Trade Commission: Highlights from an Expert Panel Discussion appeared first on American Enterprise Institute – AEI.