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Khan’s Crusade

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Khan’s Crusade

The FTC chair presses on with her quest to structure markets from the top down—to the detriment of the economy, consumers, and her own employees. June 22, 2022
Economy, finance, and budgets
Politics and law

Lina Khan, the chair of the Federal Trade Commission (FTC), is learning some hard lessons about central planning. A recent report concludes that Khan’s relationship with FTC employees is “in tatters.” Many of the dozens of people interviewed describe a “‘toxic environment’ at the agency.” “Staffer after staffer” complained that “Khan’s hierarchical leadership style and lack of organizational experience is leading to a poor use of the FTC’s limited resources.” In a recent survey, almost 30 percent of the agency’s employees said that the “FTC’s senior leaders lacked honesty and integrity”—a sixfold increase from the year before Khan took over.

Khan is a self-styled crusader for the oppressed, but at the agency she runs “even expert staffers say they feel marginalized and afraid to speak truth to power.” Her concern for worker well-being, one individual acidly remarked, does not seem to extend to her own organization, where people are now expected “to work all hours.” Many of the officials interviewed for the report were “notably emotional.”

Khan aspires to expand the FTC’s authority. As one of her supporters puts it, the agency should be “in charge of the entire economy.” How is Khan supposed to run markets when she can’t even run a government office? It’s no idle question. Khan couldn’t foresee how a thousand or so bureaucrats would react to her diktats. She can’t imagine how a $25 trillion economy would react to them, either.

As its name implies, the FTC is, first of all, a regulator of trade (commerce). It stamps out deceptive advertising claims, false product labels, and marketing scams. The agency also has the authority to review mergers and bring antitrust cases. But that is not a license to try to reshape markets along progressive lines.

If the FTC were to use aggressive new theories of antitrust law to pursue explicitly political ends, it would lose the grounds for its insulation from political accountability. The FTC is an independent agency that neither Congress nor the president formally controls. In theory, this democratic deficit serves a purpose, enabling the agency to act as an expert body, rather than as a partisan one. But in all events, ours remains a system of checks and balances. Would-be autocrats are free to make sweeping pronouncements, but reality tends to intervene—and quickly.

Take the FTC’s attempt to break up Facebook (now Meta). Facebook and Instagram (which Meta owns) once dominated social media. Yet by the time Khan’s predecessor sued to break them apart at the end of 2020, their market power was already faltering. By that point, TikTok and Snapchat had become the go-to social media apps for more than 60 percent of American youths. Since then, Meta’s position has weakened further. Today, less than a quarter of young people prefer Instagram or Facebook to other apps. As usual, the market has outpaced litigation. More than 18 months into the lawsuit, Meta and the FTC are still in the early stages of discovery. Few documents have been produced. No depositions have occurred. To get even this far, the FTC had to plead facts in its legal complaint that made its case sound plausible. To that end, the agency concocted an arbitrary market definition: “personal social networking services,” which includes Snapchat but somehow excludes TikTok. Meta is pressing the FTC to identify “what activities on Facebook and Instagram are and are not included” in its artificial product category. The FTC is struggling to answer.

Khan has also revived and refocused the FTC’s probe of Amazon. She made a name for herself as a law student by writing an article attacking the company. Now she is drafting questions for her investigators, including queries about Amazon’s recent acquisition of MGM Studios, which passed FTC review unchallenged at a time when the commission lacked a fifth member and was deadlocked 2–2. Khan has since regained a 3–2 Democratic majority, and it appears that she will seek to unwind the MGM deal.

Reversing Amazon’s acquisition of MGM would be folly. The video-streaming market is intensely competitive. The industry leader, Netflix, has seen its stock drop more than 70 percent in the last six months. The firm is battling for eyeballs not only with Amazon Prime Video, but also with Apple TV+, Disney+, HBO Max, Paramount+, Hulu, Peacock, and others. Under any conventional understanding of antitrust, the FTC should welcome, or at least accept, Amazon’s effort to keep pace in the “streaming wars” by vertically integrating its distribution platform and MGM’s content library. Even the regulatory fussbudgets at the European Commission cleared the deal without reservation.

Khan belongs to a “neo-Brandeisian” school of antitrust reformers. The name comes from Louis Brandeis, the early-twentieth-century lawyer, legal scholar, and Supreme Court justice. Brandeis lamented the “curse of bigness” in the economy—in the banking and railroad industries, in particular—and championed Jeffersonian democracy. His contemporary acolytes, too, abhor “bigness”—at least in the private sector. They want to use antitrust law to punish big firms for being big. And not just that. Antitrust policy, in their view, should support organized labor, reduce wealth inequality, promote social justice, and more.

Neo-Brandeisian antitrust policy is likely to raise prices, to the detriment of the poorer Americans progressives claim to care about most. For the last half-century, antitrust law has focused on consumer welfare. In other words, is market competition producing low prices, quality products, and innovation? It is one thing to attack this approach when the economy is thriving. It is quite another to do so during a time of supply-chain woes, high inflation, and anticipated recession. “Policies that attack bigness,” Larry Summers, the Democratic former Treasury secretary, observed last month, “can easily be inflationary if they prevent the exploitation of economies of scale or limit superstar firms.” Digital services, meantime, excel at keeping prices down. Amazon, especially, has long been obsessed with providing consumers with broad product selection and fast delivery at low cost—arguably the main reasons Khan is targeting the company. So Summers is talking sense.

No one can predict the future, but it seems like a safe bet that Khan will press on with her quest to structure markets from the top down—the economy, consumers, and her own employees be damned.

Photo by Tom Williams/CQ-Roll Call, Inc via Getty Images

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