‘Passive-aggressive’ regulators are a growing headache for American business

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“The Future of Independent Agencies: Fallout from Problems at the Federal Trade Commission,” was an event hosted by the American Enterprise Institute (AEI) to alert the public of these agencies’ growing unchecked power and propose solutions. AEI brought academics and former commissioners together at its headquarters in Washington, DC to tackle these problems.

Independent Agencies exist outside of direct executive branch control. Commissioners typically can only be fired for-cause, and many have a bipartisan membership requirement. Some examples include the Federal Trade Commission (FTC), Federal Communications Commission (FCC), and the Consumer Financial Protection Bureau (CFPB).

The event hosted former FTC Chair Maureen Ohlhausen and former FCC commissioner Michael O’Rielly. AEI Senior Fellow Adam J. White also joined the panel with Mark Jamison, another Senior Fellow at AEI, moderating the event. The panel on May 25 started by contrasting how the FTC once worked with what it is today.

Since the eighties, according to Ohlhausen, the FTC had an institutional culture of bipartisanship, a consumer protection focus, and clear guidelines that businesses could look to when making decisions. Today, FTC Chair Lina Khan has centralized more power in the Chair’s office, bringing about a flurry of unprecedented administrative actions.

Additionally, Chair Khan has capitalized on what Adam White called “the weaponization of legal uncertainty” to deter business conduct without having to issue new rules. One example is the withdrawal of old guidance documents, such as merger guidelines, and either offering no replacement guidance or offering new vaguer guidance. The FTC and the Department of Justice (DOJ) rescinded the Vertical Merger Guidelines in 2021 and have yet to replace them.

The FTC can also use the merger review period under the Hart-Scott-Rodino Act to intrusively investigate businesses to an unprecedented degree. Then the FTC can refuse to give an all-clear, even after the review period expires, which raises the general regulatory risk around M&A activity, according to White. He says, “they know that they can deter what they want to deter not through agency action, but more through almost sort of passive aggressive activities.”

Ohlhausen believes this recent conduct is because Chair Khan and the current FTC now consider mergers and acquisitions to be inherently anticompetitive even when a particular merger benefits consumers and competition. She said,

There’s a preference for things to actually be done organically in-house, not to be done through acquisition. Chair Khan has said that expressly. . . . They’re starting from this presumption that mergers really aren’t a good thing, so if we deter them across the board that’s okay and I think . . . there really isn’t a good grounding for that. 

O’Rielly shared similar concerns when asked about independent agency transparency and accountability. He took a generational view of such agencies, worrying less about Lina Khan’s individual violations of past practice. Instead, his concern is about the mores she has now normalized for future FTC chairs.

The panelists listed several problems with the implication of Khan’s conduct. First, directing resources into excessive investigations takes FTC resources away from more appropriate cases. Also, partisan wielding of rulemaking power means that regulations can shift as quickly as the political winds, creating an unstable business environment.   

All the panelists believed there are two things Congress could and should do to help fix this problem.

The first is to pass strict legislation. O’Rielly said it would be “helpful to tell the agencies what they’re not to do.”

Jamison asked the panel if Chevron Deference, the longstanding precedent of deferring to administrative agencies to interpret ambiguous statutory language, will survive in light of how the agencies currently operate. White believes the justifications that Justice Scalia once espoused in favor of the doctrine are no longer persuasive.  “Even Scalia knew that if agencies started flip-flopping wildly from one Administration to the next in significant policy you get terrible uncertainty,” he said.

White analogized the current dilemma to recent changes in baseball for the purpose of reestablishing old norms. In that same vein, new statutes can reestablish the old standards of bipartisanship and arms-length deliberation at the FTC.

Secondly, the panelists all agreed Congress needs to take an active role in oversight and communication with independent agencies. It’s important for lawmakers to stay aware of how the agencies wield the power delegated to them, they said.

After the discussion, the event opened for audience questions. CEI President Kent Lassman asked whether the problems at the FTC and other independent agencies came purely from the culture or if the fact these agencies are nearly exclusively staffed by in-house employees and DC insiders contributes.

The panel agreed the agencies should have more diverse career backgrounds, particularly state government experience. Still, focusing on the staff would miss the underlying issues, some panelists suggested, especially since both Khan and SEC Chairperson Gary Gensler are “outsiders” and yet helped give rise to the current dilemma.