“Former FTC Chair Timothy Muris and Jonathan Nuechterlein Discuss Antitrust in the Internet Era” (Two Think Minimum)

“Former FTC Chair Timothy Muris and Jonathan Nuechterlein Discuss Antitrust in the Internet Era” (Two Think Minimum)

Two Think Minimum Podcast Transcript
Episode 023: “Former FTC Chair Timothy Muris and Jonathan Nuechterlein Discuss Antitrust in the Internet Era”
Recorded on: September 24th, 2019

Scott Wallsten: Hi and welcome back to TP’Is podcast, Two Think Minimum. It’s Tuesday, September 24th and I’m Scott Wallsten, President and Senior fellow at the Technology Policy Institute. Today we’re excited to talk with Tim Muris and John Nuechterlein. Tim Muris is a former chairman of the Federal Trade Commission and currently at George Mason University Foundation Professor of Law at the Scalia Law School and Senior Counsel at the law firm Sidley Austin. He has experienced in every aspect of antitrust enforcement as well as in key consumer protection issues including advertising, consumer finance and privacy regulation. During his lengthy tenure with the FTC, Mr. Muris held multiple high- level posts and was the only person ever to direct both of the FTC’s Enforcement Bureaus. John Nuechterlein is a partner in co-leader of Sidley’s telecom and internet competition practice, focusing on telecommunications law, antitrust and appellate litigation. He served as General Counsel of the Federal Trade Commission as well as Deputy General Counsel with the Federal Communications Commission, Assistant to the Solicitor General, and as a law clerk to DC circuit judge Stephen Williams and Supreme Court Justice David Souter. I’m also joined today by Tom Lenard, Senior Fellow and President Emeritus of the Technology Policy Institute. Tom will start the conversation.

Tom Lenard: Welcome Tim and John and thanks for doing this. Antitrust enforcement and privacy and consumer protection issues are both in the domain of the Federal Trade Commission, which is the agency you used to head, Tim, and the agency for which you used to be General Counsel, John, and so that means that the FTC is at the center of the debates about what to do about the large tech platforms. Unfortunately, the current debates seem in many instances to be uninformed by history, which brings us to the very interesting paper that you two wrote recently called “Antitrust in the Internet Era: the Legacy of the United States versus A&P,” which is contained in a volume that was published last year in the Review of Industrial Organization. There was an A&P in my neighborhood when I was growing up, and in fact they were quite ubiquitous, but many people in our audience probably don’t remember it. So maybe you could start out with a brief introduction to the company and its history and what it was.

Jon Nuechterlein: Well, I’ll start that out because by way of full disclosure, I should mention that I was once an employee of A&P, my second job after my first unsuccessful stint as a cook at the local Kentucky Fried Chicken, was to take a job as a bagger at the A&P. I worked for $3.50 an hour. 

Scott Wallsten: My brother had that job. 

Jon Nuechterlein: Really? And I wore a little tag that said “I’m watching my P’s and Q’s,” and I basically just bag groceries. And it was a delightful little store. It actually wasn’t that little it, this was in the 1980s, it had actually grown to be a genuine supermarket, but it was facing increasing competition from the likes of Kroger and Safeway and others in the vicinity. The company was beginning to fall on hard times. It wasn’t really long after my experience there that a&P collapsed. But in its heyday it was nation’s leading retailer. And truly an innovator in many respects.

Tim Muris: And it was the largest retailer for 40 years, which is something that even Walmart has not surpassed. The A&P was such a big deal in United States that when the young John Updike fresh off writing the greatest sports essay in history, which is about Ted Williams, his last at bat in the New Yorker, he in the several months after wrote a short story that people in my generation had to read. He wanted to pick a setting that people in America would understand who exemplify mid-century American culture. And it was the A&P. He called the story of the A&P. It was a prominent part of our country.

Tom Lenard: So why did you all decide to write this article at this time?

Tim Muris: This is a story that I learned and shared with John to see what he thought of it. I first learned it in the mid 1970s when I was very young, in my mid-twenties. I was part of a task force working at the Federal Trade Commission, but the Justice Department was studying the Robinson Patman Act, which is a statute that I’m sure that we’ll get to, which was passed to harm big companies like A&P. And I learned the story that we told them this article about how there was this incredible reaction to the A&P. Ehen I first started teaching at the Law and Economics Center at the University of Miami, before I went to work in the Reagan administration, I taught the story, but the story, it went into ancient history and became a box in my basement until the recent backlash against big tech companies. There have been somewhat of a backlash against Walmart, which bears many of the same earmarks of the A&P. But what’s happened with big tech now is very much like what happened A&P. After talking with John, we thought it would be a good story to tell and we actually approached Amazon for funding.

Tom Lenard: So your article was in many respects a response to an article by Lina Khan but appeared in the Yale Law Journal, which is in many respects kind of a reflection of the certain vein of new thinking in the antitrust world. 

Tim Muris: Neo old thinking. 

Tom Lenard: Neo-old thinking, sometimes called hipster antitrust, sometimes called the neo-Brandeisian. My first question before we get into the substance, why do you think that article by a second or third year law student got has so much influence?

Jon Nuechterlein: First of all, I don’t think our article was really a response specifically to Lina. It was a response to a much broader movement that you see throughout the US and has grown even more pronounced since then. I mean the antitrust for the first time, in recent memory has become central topic of discussion in presidential campaigns

Tom Lenard: Well her article focused on Amazon, and you point out the parallels between A&P and Amazon.

Jon Nuechterlein: Yeah, that is true. Retail is actually a great place to start if you want to understand the distinction that antitrust draws between harm to competitors and harm to a competition. As recently as three or four years ago, it was a consensus position, even then a democratic controlled FTC that antitrust exists for the protection of competition, which means ultimately for the promotion of consumer welfare. It wasn’t until very recently that people have started pushing back against that fundamental premise and suggesting that really may be in fact we should be protecting little competitors against too vigorous competition by very large companies that you can undersell the little competitors by virtue of their greater efficiency. And when Lina Khan wrote the article about Amazon, one of the moves she makes is here’s this company that is able to- it has in fact like Walmart before reshaped American retail and it’s done that just by being unremittingly efficient and by cutting price to the bone, not in any predatory way. No one suggested Amazon’s going to push other retailers out of the market, monopolize retail, and then jack up rates to monopoly levels. Instead I think the concern is they’re just too good and we need to protect their rivals by forcing it to be less good and by forcing had to cut consumers less good of a deal.

Tom Lenard: I know it’s not just a response to Lina Khan. 

Tim Muris: I was gonna say something along the lines of that, but broader Lina Khan is one of many who are attacking big tech. And that doesn’t mean that you can’t take a look at big tech, but traditional antitrust has its existed for the last 40 years, has had certain prerequisites. They’ve looked at whether consumers are harmed, they’ve started with questions like are there preliminarily, a significant market share and a real antitrust market. And if you look across these so-called GAFA (Google, Apple, Facebook and Amazon) you get strikingly different answers. Google just doesn’t mean necessarily that Google is violating the antitrust laws, but Google at least has a real market share, big, big market shares. Apple in the main product, in which Apple competes, it’s dwarfed by Android, by Google. Amazon doesn’t even have a majority in online retail. And online retail still pales before total retail. Amazon is in fact moving into brick and mortar retail. Their brick and mortar retail people of course are, they’re moving together. And it’s an interesting question. The people at Walmart say, well Amazon is moving to where toward us and we’re moving toward Amazon, but we like our position. Walmart is what, two and a half times bigger? 

Jon Nuechterlein: Three and a half. 

Tim Muris: Three and a half now. Wow. 

Scott Wallsten: In terms of what? Revenues? 

Jon Nuechterlein:          Revenues, US revenues. 

Tim Muris: And they have a tremendous customer base and people somehow believe that Amazon has this gigantic information advantage. The history of A&P, Walmart, and Amazon is quite interesting because in many ways they’ve done the same thing. And the A&P did it first and we talk about it- they used vertical integration, they use squeezing out the middleman, and they use information. Ror its day- I’ll turn it over to John here to give some examples in a minute- before today, they use some really innovative uses of information and we can talk about Walmart and Amazon second, but John?

Jon Nuechterlein: Yeah, for example A&P was able to use its far flung operations to determine what kinds of butter were favored by consumers and what areas they were able to adjust their bakery schedules so as to avoid bread going stale because of insufficient demand. These were some of the advantages that outraged competitors, but a big part of it was simply A&P’s ability to cut out the middle man, as Tim said, and that understandably annoyed the middle men who were disintermediated. They got together with Congress and they passed something that was originally called the Wholesale Roasters Protection Act, later renamed the Robinson Patman Act, which we spend a lot of time in the articles discussing. 

Scott Wallsten: One difference though between A&P and Amazon is in the article you talked about how big A&P became and how its revenues surpassed $1 billion for the first time. They were bigger grocer.

Jon Nuechterlein: They were bigger than any other retail. 

Tim Muris: They were the largest retail in the United States for 40 years. 

Scott Wallsten: But Amazon you’re saying is actually pretty small.

Jon Nuechterlein: It’s not small, but it’s proportional. I mean it’s quite a bit smaller than Walmart. It’s also smaller than Kroger. 

Scott Wallsten: So do you think Amazon is having the same kind of impact on retailing that A&P did?

Tim Muris: Look, Amazon has undoubtedly had a significant impact. It hasn’t had the impact that Walmart had and it remains to be seen what will happen in the future. We’ve never talked to Jeff Bezos, but from reading about him in that paper, he understands that there are no guarantees that there are no certainties. Two of the greatest retailers of the 20th century, A&P and Sears, are gone. We moved to Southern California when I was in seventh grade and, and A&P wasn’t a factor, but boy, Sears sure was.

Jon Nuechterlein: I can’t place my finger on it right now, but there was a New York Times article came out I think in the mid-eighties that they talked about the competition between Sears and Kmart. The question was whether one of them is going to be able to leapfrog the other. The article didn’t mention Walmart, and within two or three years Walmart became larger than either of the other two of them. Then a couple of years after that Walmart became larger than the two of them combined, Kmart and Sears. We do see in the retail space a succession of very successful companies that eclipsed prior companies. There’s no reason to think that’s going to change.

Tim Muris: You’ve had this incredible dynamic way of selling. Toys, when I was a kid, the Sears catalog, Sears was a big deal. Then you had the category killers. Toys R Us was a big example. Well, Sears are gone and Toys R Us is gone. Walmart is now the biggest seller of toys. 

Tom Lenard: You suggest in your article that one of the reasons at least that A&P is gone is because the government went after them. It wasn’t just a natural end.

Tim Muris: Well, there are lots of reasons. The main reasons- all their attention on the government certainly didn’t help- was they did a lousy job of succession planning because these brothers who essentially inherited the company in many ways and who did a masterful job of building the company, died more quickly than they had planned on, and they did a lousy job of succession planning. And post-World War II, they did not do a good job of understanding what was happening in the Sunbelt. I personally think you can’t tell, their battle with the government that went on for beginning with state tax issues through, as we described it in the paper, the Robinson Patman Act, then the government sued them criminally, then the government tried to break them up. All that took 20 plus years. The most precious attention of the executives who run a company is their time, and that took an enormous amount of their time. So these two catastrophic mistakes I mentioned could not have been anything but hurt by this attention to the government. But it’s very hard to show causes. 

Jon Nuechterlein: Yeah. I think the other thing is, remember A&P couldn’t patent its business model. And it was a business model that could be replicated by anyone who has sufficient capital to start up rival chains. So you saw the versions, lots of rival chains. They created significant competition with A&P and some of them had lower cost structures. A&P for example, was a union shop, some of these other companies were not. That fact allow the other companies in many cases to undersell. 

Tim Muris: And they were very slow to go in the HBA (health and beauty). They were very slow to go in it. If you look at what’s in a hundred thousand square foot Giant supermarket now, there’s a whole lot of things that weren’t in a supermarket even 30 years ago, and certainly not 40 years ago or 50. It would have been 50 years ago was still in A&P’s heyday. A&P that began in the fifties when people started to expand the things that were in supermarkets and A&P was very slow. 

Scott Wallsten: Why do you think Walmart was able to avoid a populous antitrust movement?

Tim Muris: I personally think it’s the accident of geography. Sam Walmart was born in Missouri. 

Tom Lenard: Sam Walton.

Scott Wallsten: That would be more convenient. Like Tim Apple.

Tim Muris: Sam Walton was a star athlete. He actually worked in JC Penney before World War II and he started the stores in Arkansas and they exploded. Their model, because of where they were, they didn’t approach big cities. The New York Times story that Jon mentioned is the perfect illustration of this. The big media markets in the big cities didn’t hear about him until it was too late to do anything about it in the way that it happened. In States like California, there’s still, and there was a tremendous fight to get Walmart super centers into that state. Walmart came very light to grocery stores. Walmart is the largest grocer in the country now, but it’s only in this century that that’s happened. 

Jon Nuechterlein: And also we should say Walmart didn’t really escape a populist revolt.

Scott Wallsten: It had a populist revolt, but it was never about antitrust. I guess I couldn’t say never.

Tom Lenard: Well, it was about putting smaller local businesses out of business.

Jon Nuechterlein: I mean Barry Lynn was making many of the arguments. 

Tim Muris: In fact you wrote a book. Yeah, but I mean it was the same kind of argument, but it didn’t happen in the stage that had happened with the A&P where there was enough political clout. The relative strength of the two would have allowed that kind of backlash that might’ve had a difference. By the time people were awake, they were probably, Walmarts were entrenched in a places where there were 40 United States senators and that would have been very hard.

Tom Lenard: What do you think that the critics of antitrust, the Lina Khans and the Barry Lynns, get wrong about the way that antitrust actually works?

Jon Nuechterlein: Well, I think that they conflate mainstream antitrust analysis with a very particular way of applying it, which they call the Chicago School. One of the points that we make in our articles, antitrust is actually a very big tent. There are lots of people who can disagree about what doctrine best promotes consumer welfare over the long run. I saw some of the disagreements when I was at the FTC, but I also saw that the disagreements shared a common intellectual discipline, which was let’s apply economics in a sensible way to figure out what makes consumers better off over the longterm. And by consumers, I don’t even necessarily mean just individual end users of goods and services. I mean anyone who is a consumer, or for that matter a buyer and a market that might otherwise be subject to antitrust concerns. And I think that one of the rhetorical moves that the populist movement in antitrust engages in it quite often is this notion that if you support what I’m calling mainstream antitrust, which means just a dedication to economics and consumer welfare, that means that you are the product of the Reagan administration myopic focus on making corporations big and prosperous. And that’s not at all accurate. There are lots of progressive post-Chicago antitrust scholars who come at the whole set of antitrust issues from a different perspective but still maintain the intellectual integrity that I think is common to mainstream antitrust trust, but ultimately is about focusing on one goal and not throwing a bunch of incommensurable values into the pot and then picking some outcome unpredictably out of the pot based on how you balance consumer welfare and other societal objectives.

Tom Lenard: I mean, when I read her article, I thought it was one of the more anti-consumer articles I’d ever read because she talks about Amazon lowering prices as if that’s a bad thing.

Jon Nuechterlein: I mean to be fair to her, I think that she probably does view consumer welfare as one of the legitimate objectives of antitrust, and I think this is true of most of the populists. They believe that it should not be the singular objective of antitrust. They believe that lots of other things should thrown in there. Tim Wu has an article in which he says that one of the goals of antitrust should be to equalize political power. Whatever that means. You believe, for example, that one of the objectives of merger enforcement should be to look to see whether two companies merge, that’ll give it a boost to an otherwise on represented political faction. And I hear that, and I’m thinking you can’t possibly mean that because you have just echoed what president Trump said about the Sinclair Tribune merger, and how it was such a shame that the FCC approved that merger because it would’ve brought, in Trump’s words, a much needed conservative voice to the American people. Whereas Trump said it was a travesty that the Comcast/NBC Universal merger, which was much bigger, Trump said, that that was able to proceed despite Trump’s preference for conservative speech. I’m going into this because I think one of the dangers of throwing additional values into the pot as part of antitrust analysis, forcing courts to weigh consumer welfare against other variables such as political influence, that is a recipe for a very politically biased enforcement of antitrust, that’s very dangerous, it’s the political weaponization of antitrust

Scott Wallsten: It’s also kind of ironic though that it’s because many on the left and many on the, I don’t know what we call it, the Trump right are aligned in this potential use of antitrust. 

Tim Muris: That’s right. And a lot of those people are upset at what they perceive as the political biases of big tech. And all of it, I think is directed at what they think is the suppression of speech. Obviously that doesn’t involve, I don’t think Apple or Amazon, but like a lot of the same to Google I guess.

Tom Lenard: I mean, one of the themes, for want of a better term, the Brandeisian or the new the critics of antitrust, which is also shared by more mainstream antitrust, now obviously not everybody, but more mainstream antitrust scholars, is that in general, there’s been an under enforcement of the antitrust laws, that we just need to have more vigorous enforcement. What’s your view of that?

Tim Muris: Well, if you look at FTC enforcement of the antitrust laws in the last 40 years, there are two periods that spike and they both been associated with me. I sometimes am curious. These are not, 

Tom Lenard: So you think since you’ve been gone, there’s been an under enforcement?

Tim Muris: Well, there’s been an under enforcement and the kind of cases I wish that they would bring more of, which bringing cases against people for abusing the government. I think, although I will say this in praise of John’s work there and when he was there at the FTC, there are two doctrines that protect the right to use the government. One is called the Noerr Pennington Doctrine, which protects your first amendment rights to petition the government. The other is called the State Action Doctrine, which protects your rights under certain circumstances to get the state to harm consumers. And the FTC has been active since I was director of the Bureau Competition 35 years ago, in restricting the misuse of those two doctrines. And when John was at the FTC, they were quite good, especially on the State Action Doctrine. But I think there’s plenty to do there and I wish the government would do more. And that had a lot to do with what we did and what I call those two spikes.

Jon Nuechterlein: Asking for more antitrust enforcement is perfectly fine from a conceptual perspective. As I said before, there are many different ways within the big tent of conceptualizing what documents are best for consumers and what cases are best for all. So let’s take a concrete example: vertical merger. Robert Bork and Steven Salop are both part of what I will call mainstream antitrusts in that they both believe it is appropriate to apply economics for what makes consumers better off in the long run, and that should be the primary purpose of antitrust. They would have very, very different approaches to merger enforcement, including specifically with respect to vertical merger enforcement because Salop sees the danger of competitive harms in context where Bork would not. And also obviously people have different views about how concentrated industries can become before the efficiencies of consolidation are overwhelmed by the competitive concerns with excess concentration.

But those are all debates I think are healthy to have and I’m glad we’re having, and we’ve had them for many years. They’re very different in kind from the sorts of criticisms of antitrust that we see now, because those criticisms are not about different methodologies or different ways of thinking about how to slice the empirical data. They are arguments about why consumer welfare shouldn’t be paramount in the first place. And one of the problems with that approach, it’s really just a deeply logical problem, is that there is no a coherent way to balance consumer welfare against the other objectives the populous would throw into the mix. And so what you would end up with is a highly impressionistic, subjective, and often politically biased regime that is not appropriately applied by and trust agencies or courts.

Tim Muris: It’s odd. Elizabeth Warren’s message is essentially our government has failed us and what we need is more government. And if you look in antitrust, they are really calling for a return to the 1970s when you had the populists out there attacking predatory pricing. When you had merger standards where the marginal merger was, if you had a merger that reduced the number of significant competitors from seven to six, that was bad. Now the marginal merger is four to three and there are people who want to- and that that was codified by the Obama administration, four to three, when the Reagan administration published guidelines, the marginal merger was six to five. And in terms of big tech, they want to break up these big companies. And as John authored this part of what we wrote in that I think is very eloquent, if you look at these companies in the United States, these big tech companies, these Silicon Valley companies, they produced enormous benefits and that could have only happened in the United States with a stable legal regime. That’s an important part of American exceptionalism. And these people, the way that European antitrust works and the way the progressives and the populist on the right, their views of antitrust would have made it very hard for those companies to prosper the way they have. Because what would have happened is as they grew, they would have faced antitrust advice under this new view of the world that would have told them that they should stop growing. They should stop being aggressive. 

Jon Nuechterlein: Let’s do some thought experiments. Let’s say that it’s like 10 years ago, and your Netflix’s antitrust lawyer and they say, we want to offer a really low priced streaming video service to American homes. And should you say, there is some concern that the government will come after you for abusing your market power because your low prices and the convenience of your streaming service is gonna put out of business, all the Potomac videos, all these little videos stores that employ people in neighborhoods throughout the United States, you should really think twice about that. Or how about when Amazon introduced the Kindle? That was, on balance, probably bad for bookstores because it became suddenly very convenient and inexpensive for people to get books on demand. Should you have been in the position as an antitrust lawyer, counseling Amazon to go slow on that Kindle idea because that’s going to be really harmful to mainstays of the American literary scene. These local books. These are the sorts of advice that we hope that antitrust lawyers will never have to give any of their clients. But if you incorporated a populist regime into the US, you would have to start giving advice like that because there is no way that you can assure clients that just because what they’re doing is really good for consumers, they’ll be okay if the results of doing well by consumers is that they’re going to marginalize a bunch of much smaller business. 

Scott Wallsten: Where does this end up? Do you think this sort of populist approach will continue or once the presidential election happens will everyone forget all about it because this is just an article line?

Jon Nuechterlein: No, I think there’s a broad social movement, but I don’t think that any of these objectives can be accomplished under current antitrust law. Part of the reason for that, and it’s because we have an independent judiciary and the judiciary is full of judges who really like the rule of law and administrable principles that can be applied in a predictable way from case to case. And I think you’re going to have a great deal of reluctance among those judges to accept a new chaotic regime that is grounded in subjective dislike of large companies to the exclusion of other more predictable objectives.

Tim Muris: Well, I’m not as optimistic in mergers. I think that’s largely true and I think Jon was talking about single firm. I think with mergers though, because mergers are divisible because you can resolve mergers by spinoffs and things, I suspect that the new regime would ratchet up merger standards significantly because for one business will become more cautious. And two, they will talk businesses into divestitures. They will try to, particularly if the Democrats win and if they win the Senate, the filibuster will go, who knows what they’ll do with the Supreme Court, but they will find a circuit that’s favorable, filed their cases there and try to push the law as far as they can. And that may even be true under a single firm.

Tom Lenard: So with respect to mergers, so I mean there’s a lot of people who think, well a number of people who think that enforcement between potential competitors, even if they’re not actual competitors, should be much more stringent. 

Jon Nuechterlein: There’s a set of legal standards they have to meet under existing law. So you would need legislative change.

Tom Lenard: But Tim is kind of suggesting that even without a legislative change, the pressure of the agencies might have an effect on that.

Jon Nuechterlein: In order to win under the actual potential competition doctrine, the agency would have to show a greater than not likelihood of entry by the one of the parties to the merger. And in fact the FTC lost a case on that very issue when I was General Counsel, I remember well.

Tim Muris: I think potential competition is a difficult area to win and it should be. Particularly what’s going on now is that people are thinking they’re not looking at the merger the appropriate way at the time that it occurred and they’re thinking of what happened after the fact when what happened after the fact probably represented a lot of efficiency benefits for the acquiring company. But you could conceive of cases where someone actually purchased I real potential competitor and mothballed it or something. That was a, a potential antitrust case. But that would be an extreme ecxample.

Tom Lenard: What do you think about the way anti trust is organized in this country? To change subject a little bit, we have two federal antitrust agencies, we have 51 or 52 state antitrust enforcers. Is that a good system? 

Jon Nuechterlein: Why don’t we take the federal dimension first? Tim and I probably both believe that it’s useful to have two federal antitrust agencies. Is that fair Tim? 

Tim Muris: Yeah. 

Tom Lenard: And why is that? 

Tim Muris: Well, I think it’s useful because if you combined everything into one agency, you would lose something that you have now. The agency would be so big that- right now you’re able to have a Bill Baxter or a Bob Petoskey who can actually be an informed decision maker of the major decisions because the agency is small enough. If you combined everything, it would look more like a traditional government agency where you wouldn’t have that kind of person. I don’t want a consumer protection agency stripped of the benefits of antitrust and the CFPB and the Obama and the Elizabeth Warren model is the perfect reason not to have it.

Jon Nuechterlein: And so far there really hasn’t been any downside to having two antitrust agencies, but that’s because historically the agencies have gotten along pretty well and the clearance processes has functioned in a healthy manner. It is true that that is beginning to change somewhat and that’s a source of concern. 

Scott Wallsten: Before we move on to why is the CFPB an example of why they should have antitrust? 

Tim Muris: Because I think that the FTC model, which is followed in agencies around the world, when you put the two together, there are definite- and the people who run the agency do both parts- there are definite advantages from the market oriented antitrust aspects have positive spillover effects on consumer protection. There are some positive spillover effects that worked the other way as well, but for purposes of this conversation where we’re talking about antitrust, I think that causes- that market orientation has a positive impact for people who consume it.

Scott Wallsten: So what about the 52 state system? 

Jon Nuechterlein: We have a federal system where States are sovereign and can proceed either under their own laws, or under federal laws if they choose to, and as long as you have courts as intermediaries between the targets of the investigation and the prosecutors, no matter how many there are, as long as the courts are applying a consistent set of rules and doing so in good faith, then I’m optimistic about the outcome. I don’t have a problem with it.

Tim Muris: Well in the consumer protection world, they’re a real add on. The FTC, someone calculated about five years ago, there were like 3000 fraud cases in telemarketing and the majority of them were working together and a majority of those were done by the States in joint projects, so there was a real add on. There hasn’t been that sort of thing. The state resources devoted antitrust are way fewer than the resources devoted to consumer protection. There are lots of local problems. I wish that the States would pay more attention to the occupational licensure problems. When I was at the FTC, we spent a lot of time. We actually went out and trained people in the States and there were state AGs who were interested in that, I mean they’re under a lot of political pressure not to be involved with that. There are some useful things that they can do to the extent that they try to become new representatives of progressive antitust, then I think we’re headed for trouble, but if that’s the case-

Jon Nuechterlein: So I’m happy that Tim and I have something to disagree about here because to me there is always a danger of under enforcement and it does not bother me to have states enter the scene to represent a more vigorous view of antitrust than a particular administration might. No matter what you think of the merits of the Sprint/T-Mobile merger, I think it’s healthy that States are able to challenge that, even though this administration has decided that the merger is okay. 

Tim Muris: Yeah, I agree. If the States were applying consumer welfare as Jon and I think about it and they just disagreed in a rare instance-

Jon Nuechterlien: Well they have to apply it because they’re before federal courts that are applying it.

Tim Muris: Well they don’t have to- they have to if they want to win, but who knows what- these guys are elected politicians and

Jon Nuechterlien: One of them is my co author.

Tim Muris: And he’s a great guy whom I admire. But the states- these guys do have different motivations. But my comment was directed to something that they hadn’t done yet, but they are doing investigations, if they decide to try to apply this new populist economics in a single firm area I think that would be a bad thing. But John is right that they do have to face the judiciary. 

Tom Lenard: As you mentioned, John, there is increasing concern that the two federal agencies are not playing well together. Has something changed and if so, why? 

Jon Nuechterlien: I’ll  turn to Tim. Tim, why does it work so well and when you were there?

Tim Muris: It’s not clear that- look, there always have been clearance problems. They usually don’t boil over into the public, and I happen to know more about clearance than almost anyone, unfortunately, because when I was chairman, we actually reached an agreement to stop fighting because there’s always been fighting over cases behind the scenes. The justice department withdrew, which was a mistake because a Senator in Appropriations threatened to punish them. And when he called me up and said he was going to abolish the Congressional office, I laughed uproariously which really pissed him off. I said, that’s it? And the Congressional person in the room with me, she wasn’t very happy about that. But what’s happening now, if true, and from the hearing they had last week, it sounds like they’re both going to do an investigation of the same company on the same issues and that’s unprecedented as far as I can tell.

Tom Lenard: Is it because there’s so much pressure to be involved in these big ticket cases?

Tim Muris: I have no idea.

Jon Nuechterlein: Scott and I both come from a telecom background where it’s routine for two federal agencies to conduct almost identical investigations of the same action. And that’s a problem in that context. But the reason it’s mainly a problem is because, the FCC doesn’t actually have to persuade a court of anything in order to stop a merger from happening.

Scott Wallsten: You’re talking about FCC and DOJ The FCC has to affirmatively say it’s okay.

Jon Nuechterlein: Right. And if it says nothing, there’s literally nothing you can do. 

Tim Muris: Well yes. But this could be a one off. I don’t know. I hope so.

Tom Lenard:  Let me ask you another question. 

Scott Wallsten: Then we should probably wrap up.

Tom Lenard: I know we should wrap up but another question about the world of the FTC and I realize that these are issues you may have had some involvement in. We have recently had, in the privacy sphere, we’ve had to settlements involving 3-2 decisions along partisan lines with relatively vociferous dissents by the dissenting parties. How much has that changed from kind of traditional collegiality at the FTC? Does it disturb you?

Tim Muris: I’m the only person who’s ever been the Director of both enforcement bureaus, and it was during the first Reagan term. That was a commission divided on policy grounds. There’s a book called The Politics of Regulatory Change: A Tale of Two Agencies written by a now unfortunately extinct species. They were two guys who were academics, part of the democratic leadership council, moderate Democrats. I mean, real moderate Democrats.

Jon Nuechterlein: They’re not entirely extinct, Tim.

Tim Muris: Well there’s one right here, but they’re extinct in the candidates running for president. But anyway, that was a rhetorical jab, I hope they’re many millions out there. The point that now we’re in a time, believe it or not, Ronald Reagan was less popular in early 1983 than Donald Trump was in early 2019 which are the equivalent times of the political cycle now. It was because Ronald Reagan had an economy where unemployment was like 11%. Who knows what the current presidents unemployment- it probably couldn’t get negative. But obviously there’s no comparison between the two economies, and Reagan- the economy got way, way better and he won in a landslide. But in the election in 1982, very much like the election 2018, the Republicans had effective control of the house because of what were called blue dog Democrats all became Republicans later and Republicans lost that in the election in 1982. You had the Democrats very much on the March in 1983 and we had a very split politically Commission. We had very contentious- the GM/Toyota vote that year was 3-2. The oil mergers were controversial. There were lots of controversial votes and decisions, but this is the first time since the end of the first Reagan term when the FTC has really been split like this. But there’s no reason that something has to last forever. And I think it’s better when the people at the FTC share the same policy framework, but obviously they don’t.

Jon Nuechterlein: That’s not fair. The FTC also is bolstered by its career staff, which is quite excellent and consists mainly of people who believe it’s important to apply sound economic logic to the problem of and enhancing consumer welfare. So even though that focus may not be represented in all the commissioner’s offices, it is part of the institutional heritage that would be very difficult for any chairman or commissioner to dissolve.

Tim Muris: Well, and that’s the difference. When we took over in the fall of 1981 the career staff at the FTC was full of people who had been there in the 1970s when the FTC operating philosophy looked like the CFPB and consumer protection and the progressive slash populous. <any, many, many, many of them left. There were over a hundred people in the Bureau of Consumer protection that left fairly quickly when I was the Bureau head.

Tom Lenard: Well thank you very much, It was great.

All: Thanks. 

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