How Not To Train Your Agency, Or Why The FTC Is Toothless.

You know your agency is pathetic at its job when Tea Party Republicans tell you to go harder on industry — especially in a Republican Administration that makes deregulation an end in itself and where despising government interference in “the market” is religious orthodoxy. So it was quite noteworthy to see Freshman Senator Josh Hawley (R-MO) tear the Federal Trade Commission (FTC) a new one for its failure to do anything about how tech companies generally (and Google and Facebook specifically) vacuum up everyone’s personal information, crush competition, swear general allegiance to Gellert Grindelwald and sell us out to the Kree. “The approach the FTC has taken to these issues has been toothless,” Hawley accused in his letter (apparently not meaning this adorable night fury over here).

 

I’m not going to argue with Senator Hawley’s characterization of the FTC. But since he is new in town I think it is important for him to understand why the FTC (and other federal agencies charged with consumer protection) have generally gone from fearsome growling watchdog to timorous toothless purse dog with laryngitis. Short answer, Congress has spent the last 40 years training agencies to not do their job and leave big industry players with political pull alone by abusing them at hearings, cutting their budgets, and — when necessary — passing laws to eliminate or massively restrict whatever authority the agency just exercised.   Put another way, Congress has basically spent the last 40 years conditioning consumer protection agencies to think about enforcement in much the same way Alex DeLarge was conditioned to think about violence in A Clockwork Orange, keep applying negative stimulus until the very thought of trying to enforce the law against any powerful company in any meaningful way makes them positively ill.

 

I explain all this, and the problem with “public choice theory” as applied here in Policyland, below . . .

 

It would be easy to dismiss Hawley’s letter as simply more Silicon Valley bashing by Republicans. After all, it’s not like Hawley has hounded the Federal Communications Commission (FCC) over going after carriers for abusing 911 geolocation info. But Hawley wasn’t bashing Silicon Valley, he was bashing the FTC when run by Republicans. Republicans very rarely criticize an agency run by a Republican Administration. Nor is Hawley alone. Other Senators have criticized the FTC for its failure to enforce privacy protections in an oversight hearing last December. A lot of people in the privacy advocacy community believe that the FTC has failed to use its existing authority to protect privacy in any meaningful way. A report by the Government Accountability Office (GAO) found that in addition to concerns over whether existing law provided sufficient protection nearly everyone thinks the FTC does not do enough with the tools it has. In fact, pretty much the only people who think the FTC does an excellent job protecting privacy are (a) companies currently regulated by the FTC; (b) ISPs, who would like to be regulated solely by the FTC; and (c) FCC Chairman Ajit Pai, who just wants to get the FCC out of the consumer protection business generally.

 

I come not to defend the FTC, but to point the finger of blame at Congress. Not only did Republicans make pulling the teeth out of the FTC one of its first priorities when they took over in 1994 (by passing the FTC Improvement Act of 1994, which made it significantly harder for the FTC to make a finding that a practice is “unfair” to consumers by adding section 5(n)) but Democrats and Republicans alike have clubbed and skinned the FTC (and other administrative agencies trying to do their jobs) like snakes in Springfield on Whacking Day any time they tried to “get more aggressive” in protecting consumers for the last 30 or so years. This mirrors my experience with the FCC. Even when folks really want to do something strong, a great deal of time is spent by staff, General Counsel, and Commissioners wondering how to deal with the Congressional pushback and what the DC Circuit’s Federalist Society majority will permit despite the plain language of the statute and the administrative record.

 

And then, one morning, members of Congress wake up and everyone is pissed off that there is no enforcement and they are getting ripped off left and right. They scream at members of Congress, and Congress is all like “how did this happen? Bad agency!” And the agency staff cringe and start writhing around like Alex listening to Beethoven’s Ninth.

 

What Is Public Choice Theory?

 

This gives me an excellent chance to rant about one of the more annoying perversions of Cloud Cuckooland economics  so popular in certain corners of Policyland (and our activist Federalist Society judiciary — God help us!) — Public Choice Theory. As with so many economic tools of Cloud Cuckooland, the basic insight of public choice theory is actually pretty reasonable. People making decisions about public policy are people, and they respond to individual incentives in their decision making like anyone else. Two of Feld’s Laws of Public Policy (let me know in the comments if anyone wants to see them all published) address this. Feld’s Second Law of Public Policy is “Public policy is made by human beings” (basically a restatement of Clausewitz’s “War is made by human beings”). Feld’s Law of Advocacy states: Advocacy is not about getting people to do the right thing for the right reasons, advocacy is about getting people to do the right thing for their reasons.

 

Rather, as almost always in Cloud Cuckooland economics, the problem comes in implementation. Rather than actually trying to determine the actual incentives of decision-makers and policy folks to understand what shapes their behavior, the deregulatory Federalist Society folks have simply assumed a bunch of things consistent with their general loathing of government oversight of the private sector and refused to change those assumptions in the face of any empirical evidence. Public choice theorists like to call their theory “politics without romance,” meaning brushing aside all that romantic talk about serving the public interest as empty chin music. Unfortunately, modern public choice theorists have simply replaced romance with empty cynicism and the mean spiritedness toward government usually found in formerly married couples toward each other after a particularly bitter divorce.

 

How Is Public Choice Theory Used To Punish Agencies?

 

The basic idea of public choice theory is to recognize that actual decision makers may respond to incentives that better their personal position rather than serving some broader ideal or goal. For example, the President and CEO of a publicly traded company benefits personally from pumping up stock valuations and getting bonuses for things like acquiring new companies or cutting research and development spending — even if it would be in the long term interest of the company to avoid spending money on a wasteful acquisition and to instead spend the money on R&D. (Public choice theorists in Policyland virtually never apply public choice theory to the people who run private sector companies, however. “The profit maximizing firm” is always considered a single, rational entity with near omniscient powers to predict the consequences of its actions.) in the 1960s and 1970s, a number of economists (most notably James M. Buchanan) decided to reject the then-current theory that agency decision making was based on experts weighing evidentiary record and policy seeking to determine what would best serve the public interest. Buchanan dubbed this view of politics as “romance.” Public choice theory, he argued, could predict agency outcomes by looking at what benefits or penalties the agency staff and decision makers could expect to receive from the outcome of their decisions.

 

Fine so far, but public choice theorists decided to skip the part where they actually did any research or talk to actual agency employees and go to just assuming their perfect telepathy, clairvoyance and overall omniscience could do a better job of determining what really motivated all them bureaucrats than any actual empirical research (by which I mean actually talking to people, rather than determining the answer in advance and then selecting a dataset of agency outcomes that would prove the right theory). As public choice theory economists were generally of the “Chicago School” that viewed government ‘interference’ in ‘the market’ as detrimental to the public good, their assertions about the purported motives of “agencies” were appropriately cynical and — to some extent — confusing and contradictory.

  1. Agencies invariably and always seek to expand their jurisdiction, because doing so will mean bigger budgets from Congress and more authority, and therefore prestige, overall.
  2.  Agencies are invariably catspaws of incumbent industries rather than servants of the public good. This is an entire subgenre of public choice theory called “agency capture.” One element of this that most people have heard of (and probably the one most grounded in reality) is the “revolving door” problem. Agencies draw staff (and Presidents appoint agency heads) from industry because they are “expert” (and because of the general industry influence on the political system — but that branch of political science/political economy is a different subject). These staff go back to industry. As a result, the people in the agency are either assets of incumbents embedded in the regulator (as seen in Pai’s hi-larious 2017 Chairman’s Dinner video), or currying favor with the industry because they are hunting for their next job.

 

Again, it’s not like either of these ideas is completely wrong. In some cases, such as agency capture/revolving door, we can find a lot of really outrageous examples. But what makes Cloud Cuckooland public choice theory somewhat confusing is that Federalist Society public choice theorists belief both of these are equally true, all the time, to the exclusion of all else. Given that industry incumbents generally dislike seeing agencies expand their authority, explaining how both of these is true simultaneously usually involves some really convoluted and complicated theories and plot twists. Essentially, if the old theory of the expert agency trying to serve the public interest was “romance,” public choice theory has replaced it with film noir.

 

Reality, however, is not genre fiction. My own observations, first as a federal employee at the Department of Energy, then as a practicing lawyer/lobbbyist/policy wonk for over 20 years, is that the motivations of federal officials and professional staff are usually complicated. But in particular, the idea that federal agencies are generally “rewarded” for expanding their jurisdiction by issuing new rules or following new theories of enforcement by being showered with lavish increases in resources and enhanced prestige transforms public choice film noir into farce.

 

What Actually Happens When An Agency Tries To Do Stuff.

 

As noted above, a major tenant of public choice theory is that agencies “naturally” try to expand their jurisdiction to enhance their power. What actually happens when agencies try to do anything that pisses off major companies is that all Hell breaks loose and the both the specific decision makers and the agency generally find themselves punished by Congress rather than rewarded. A classic example was the statement by Ander Crenshaw (R-FL), then-Chairman of the House Appropriations Committee to then-FCC Chairman Tom Wheeler in July of 2016 at a hearing on the FCC’s budget: “This committee has held the FCC’s funding at a flat level since 2012, because we believe that the commission can and should do less with less. We believe you all should do a better job of managing your resources and focusing on your core operations. Unfortunately, the commission seems to be pursuing politically charged issues, rather than the mission-critical work of the FCC.”

 

I could go on and give a substantial laundry list of times when Congress’ response to either the FTC or FCC doing its job was to “reward” the agency by clipping its wings. In 1999, the FCC uncovered major fraud by the regional Bell operating companies (RBOCs). So Congress passed a law prohibiting the FCC from doing anything about it and wiping the fraud off the books — flushing years of investigative work and investment of resources by the FCC down the drain. In 1994, in response to the “overaggressive” enforcement by the FTC of its Section 5 “unfairness” authority (the statutory source of the FTC’s authority to protect consumer privacy), Congress passed the 1994 FTC Act Amendments which added a whole new set of requirements and limitations on the FTC’s ability to find a practice (like abusing consumer privacy) “unfair.” The 1994 Amendments added Section 5(n) (codified at 15 U.S.C. 45(n)) states:

The Commission shall have no authority under this section or section 57a of this title to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumersor to competition. In determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination.

(emphasis added)

 

You might think the FTC would have gotten over getting its authority “teeth” yanked 15 years ago (and getting slammed even worse than that 15 years earlier in 1980, when Congress responded to the FTC’s efforts to ban direct advertising to children by essentially stripping the FTC of rulemaking power through the 1980 FTC “Improvements” Act (quotes added). But Congress (especially, but not exclusively, when Republicans control Congress) routinely follows up these lessons in “regulatory humility” (as the anti-reg folks like to preach) by responding to industry complaints with oversight hearings where they brow beat the agency heads for “overreach,” harassing agencies with time consuming massive document demands, and cutting the agency’s budget (or threatening to cut it if the agency doesn’t stop “over reaching” and enforcing the law against big companies.

 

Now add to this the judiciary overstuffed with Federalist Society judges who — following the dogma of public choice theory — treat agencies with deep suspicion, view agency action as invariably motivated by the improper desire to expand their authority for self-benefit, and often write of agency action and decision making with undisguised contempt and vitriol. Srsly, go read the D.C. Circuit’s opinion rolling back the FCC’s effort to reign in the outrageous rates that prison phone companies charge inmate families. You would think it was the FCC that was price gouging the weak and vulnerable, not the prison phone companies. Or read this little gem from (then chief, now senior judge) Douglas Ginsburg, which fairly drips with contempt while simultaneously engaging in an economic analysis that would make any economist outside Cloud Cuckooland laugh out loud.

 

Needless to say, this has a massive impact on the agency from the top down and has shaped agency culture for the last 30+ years. I have lost count of the number of times I have argued for something at the FCC only to be told that even though my reading of the law is correct, it wasn’t “politically feasible” or that “the D.C. Circuit would never let us do that, whatever the law actually says.” Individual staffers learn early that recommending strong action against powerful companies leads not to greater power but to career ending cubicles in a subbasement in a filed office somewhere. Even when you have a Chairman willing to fight to do what they think is right (like Tom Wheeler or Kevin Martin), staff remain haunted by the likelihood that after this Chairman goes a new Chairman will come in and flush all that work down the drain — or Congress will pass a new law stripping them of their authority.

 

How This Works Out In Reality.

 

To be clear, it is absolutely the role of Congress to provide the necessary oversight for agencies, including to cut back on their authority if Congress decides that better serves public policy. That is how our system of democracy works. It is also absolutely the role of a reviewing court to reverse a federal agency if it finds that the agency exceeded its delegated powers, or acted in an arbitrary and capricious manner. But if we are actually going to apply rational actor theory, rather than religious dogma about the evils of regulation and the wicked agencies that lust to impose them, then we need to clearly understand what the reward and punishment landscape actually looks like. When Congress and the courts not only act consistently to agency efforts to enforce consumer protection laws to pull back the agency authority, but use language designed to humiliate and bully the agency for its “presumption,” the agency staff and administrators develop a strong aversion to anything that might be considered by Congress or the courts “presumptuous.”

 

Whatever the situation might have been in the 1960s and 1970s when public choice theory was undergoing its development, no one with even a passing acquaintance with the actual facts can imagine that agencies are rewarded — either institutionally or for the individual agency head or staffer — for aggressive enforcement against major companies like Google and Facebook. To the contrary, even staffers and agency heads who want to see the agency act more aggressively to protect consumers (and most of the people I know go into government service because they actually want to make the world a better place — even though I don’t always agree with them about the right way to go about it) learn to keep their heads down and avoid anything that might attract Congressional ire. Even when you have people running the agency who want to take aggressive action, even when you have staff who totally agree that aggressive action is appropriate, the Clockwork Orange conditioned reflex still kicks in whenever they try to actually do anything. As a result, even at their best and most aggressive, agencies like the FTC or FCC walk a narrow line, with staff and agency heads constantly running little mental calculations on what they think they can do without getting punished and humiliated by members of Congress or the courts, or whether the potential good they can do is worth the potential abuse.

 

Mind you, there are certainly times when you have people running the agencies who treat the industry with the same indulgence and affection that Vernon and Petunia Dursley show their son Dudley, and who treat consumers in the same way the Dursleys treated Harry Potter until he went to Hogwarts. There are plenty of times (in both Republican and Democratic regulations) when that second prong of public choice theory, regulatory capture, runs the show. I (and everyone else who has been in Policyland for any length of time) can point to plenty of cases where agencies could easily have done to protect the public interest (or, at least, could have done less to help industry incumbents). But it’s vitally important to put a good chunk of the blame where it belongs — on Congress and Federalist Society judges who practice the catechism of public choice dogma and treat agency action and agency staff with undisguised suspicion and vitriolic contempt.

 

As a result, when Congress actually wants the FTC bare its fangs and do something, the FTC has no fangs to bare. Hawley is quite right to say the FTC’s response to Silicon Valley (and, to be abundantly clear, just about every other line of business) has been toothless. But Congress had a fair hand in pulling those teeth.

 

Importance of This for Advocates.

 

I need to make one last point specifically to my fellow consumer advocates. A lot of times, we blame the agency for its sins of commission and sins of omission. That’s legit. Ultimately, the agency has to do its job. But when we have agencies willing to act, we still need to be aware of the whole Clockwork Orange public choice theory conditioned reflex. That often means having a strategy to have the agency’s back when industry go whine to Congress (or, even better, proactively before industry go to Congress).  Allow me to illustrate with the following example.

 

For decades, media reform activists, and particularly civil rights organizations, have pushed the FCC to do something about the problems of declining availability of local news and diverse and antagonistic sources of news. Basically, and long before people started blaming social media for this, actual news reporting — particularly on local issues — has been disappearing since Congress and the FCC dramatically relaxed the media ownership limits. In particular, civil rights organizations have expressed concern that local ownership of broadcast license outlets by non-whites declined from “negligible but at least statistically measurable” to “virtually non-existent.” Civil rights organizations argued that these two trends contributed to virtual “news deserts” in communities of color, and a failure of consolidated news outlets to cover local news at all — let alone news and perspectives relevant to local communities of color.

 

To gather the massive factual record the FCC would need to actually do something about these problems, the FCC in 2013 put together something called the Multi-Market Information Critical Needs Study. The study design included actually interviewing local journalists. As explained by one of the study designs authors, the idea of interviewing the people who actually do the reporting in the communities seemed like a pretty reasonable thing to do if you are trying to figure out what is actually happening with local coverage in the community. One of the first things Tom Wheeler did when installed as Chairman, at the urging of civil rights organizations and media reform activists, was to authorize a pilot survey in Columbia, S.C.

 

Conservative media (coincidentally, largely owned and distributed by the large national group owners who would likely find regulation inconvenient), pounded this study as an evil attempt by the Obama Administration to bring back the Fairness Doctrine, censor the press, and — of course — silence conservative media and replace it with Sharia law. Then-Commissioner Ajit Pai wrote a scathing attack on the study in a Wall St. J. op ed, repeating these talking points. Almost immediately thereafter, Republicans on the Commerce Committee (which has jurisdiction over the FCC) furiously wrote Wheeler to demand he stop trying to repress conservative voices, and Fox News ran stories suggesting that somehow the study was connected with favorite conservative boogeyman George Soros. Wheeler responded that the FCC was actually required to collect this kind of evidence under Section 257 of the Communications Act and had nothing to do with the Fairness Doctrine. This, of course, did not help appease critics in the slightest.

 

Advocates for media diversity were incredibly slow in responding to defend Wheeler. When the media reform advocates who supported the study finally recognized the threat and started to organize a defense of the study, it was too late. After months of intense negative coverage and pressure, Wheeler scrapped the study.

 

But the effect of this conditioned reflex did not end there. Wheeler would not return to media ownership issues until nearly the end of his term when he eliminated the UHF discount. Advocates for media reform frequently grumbled about Wheeler ignoring “traditional media issues,” but what could they reasonably expect? Wheeler (and FCC staff) had learned that if he stuck out his neck on media reform for advocates, he would get nothing but headaches — and that the media reform advocates who pushed him to stick his neck out would not be there to protect him. Much easier (and rewarding) to go on to things like the broadcast incentive auction, which had strong Congressional support even in the face of pushback by broadcasters. Even when dealing with highly controversial issues like Title II and net neutrality, advocates understood they needed to protect Wheeler if he did the right thing and we organized a massive strategy to solidify support on the Hill.

 

Pro-tip for advocates.  Feld’s Law of Incentives states: Always make it as easy as possible for people to do what you want. If we want to see aggressive pro-consumer action, we need to understand that agencies get the crap kicked out of them for pissing-off industry. Without at least some effort to counteract industry political pull by organizing Hill support, or at least working to mute Hill opposition, agencies will take the path of least resistance rather than fight the Clockwork Orange conditioned reflex to avoid controversy.

 

Conclusion

 

If the FTC approach to Silicon Valley is toothless (and I certain agree that it has been), then Congress needs to shoulder a good chunk of the blame for why that is. To paraphrase Shakespeare: “The fault, Senator Hawley, lies not just within the FTC but in yourselves.” Congress must do more than continue to flog the FTC for its failure to act (although, to be frank, some of that is justified). Congress needs to actually take legislative action to protect consumer privacy and promote competition in the digital platform space. Congress needs to actually provide the agency with the resources to do the job effectively. And if the FTC actually starts to take a less toothless approach, Congress needs to actually support the FTC in the face of industry pressure. Public choice theory is right about one thing, you generally get what you reward. If Congress finally wants to see the FTC take a more aggressive approach, then it needs to stop punishing it (and other consumer protection agencies) for doing so.

 

Stay tuned . . . .

One Comment

  1. I would like to read Feld’s Laws of Public Policy please!

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