Next week, the Supreme Court will have a chance to save the free market economy from the Federal Trade Commission (FTC). Even as the court reins in the administrative state, the FTC is advancing new rules and novel theories that stretch the limits of its mandate. Under its progressive chair, Lina Khan, the FTC wants to cancel the gig economy, cripple the ad-supported internet, and address racial justice, rather than simply protect consumers.
In Axon Enterprise v. FTC, the court could take a big step toward cabining the FTC within its statutory and constitutional authority. Axon itself involves a narrow procedural question of whether someone can raise certain constitutional challenges to the FTC directly in federal court, without having to wade through years of administrative processes.
As explained in a new paper, however, the case’s import is much broader. If companies can bring the FTC into court anytime the agency exceeds its authority, the courts can prevent the FTC from imposing illegal rules at the outset — a critical tool given the scope of the FTC’s agenda. Even more importantly, the court could lay the groundwork to revisit the constitutionality of the FTC and much of the administrative state.
Constitutionality Remains Open to Debate
In 1914, Congress created the FTC as a multimember body with features of all three branches of government. The FTC could prosecute, adjudicate, and even legislate rules of conduct. Although President Woodrow Wilson, a progressive, supported the new agency, even he wanted to avoid empowering a “smug lot of experts.” As Wilson explained, “God forbid that in a democratic country we should resign the task and give the government over to experts.”
In 1935, the Supreme Court upheld the agency’s structure because it believed, the agency had a limited mandate. In Humphrey’s Executor v. United States, the court found that the FTC’s mission was “neither political nor executive” but mainly quasi-judicial and quasi-legislative. In the court’s view, the commission was “nonpartisan,” led by a “body of experts” who had experience in both public service and the “practical affairs of industry.”
Today, courts have become much more skeptical of independent agencies. Several years ago, then-Judge Kavanaugh wrote that these agencies held “massive power” divorced from presidential oversight. As a result, he believed, “independent agencies pose a significant threat to individual liberty and to the constitutional system of separation of powers and checks and balances.”
Axon Could Confine the FTC
As SCOTUS considers the case, it may note that the agency is planning “to replace the free market system with its own enlightened views of how companies should operate.” Khan has argued for the government to play a larger role in “shaping markets and economic outcomes” while decrying the free market as a “product of metaphysical forces.”
Among its initiatives, the FTC is considering a rule to restrict “commercial surveillance and data security,” including “common business practices” that have never been deemed illegal. The FTC may restrict or ban personalized online advertising, declare that consumers cannot consent to share personal data online, and ban any computer programs that produce disparate outcomes. Any of these rules would land like a giant asteroid in the middle of the U.S. economy, setting off tsunamis and dust clouds that could effectively eliminate the free, ad-supported internet and cripple the development of advanced artificial intelligence.
The FTC is also planning to provide written guidance that could block most business mergers. Most mergers benefit consumers and improve innovation by allowing small companies to gain critical financing and large companies to bring new products to market more quickly. The FTC, however, is seeking to rewrite the merger rules by relying on cases and theories from the 1960s that have long been discredited by economists, lawyers, the agencies themselves, and the Supreme Court. The FTC’s expected revisions would give it enormous discretion to decide whether, when, where, and how companies can conduct business.
In Axon, a strong opinion would help keep the FTC within its constitutional and statutory bounds by allowing companies to challenge illegal agency actions directly in court. The decision also could remind the agency that it operates in a system of government with checks and balances on all three branches of government, including independent agencies.
A Review of the Administrative State
Axon also could lay the groundwork to revisit the constitutionality of the FTC and much of the administrative state. In the nine decades since the Supreme Court decided Humphrey’s Executor, almost none of its rationales have held up to scrutiny.
Far from being non-political, the FTC at times has sought to set the policy agenda for the entire country. In the 1970s, the FTC launched 16 rulemakings that sought to “transform entire industries,” from advertising to antacids to vocational schools. Today, the FTC’s chair believes the agency should shape “the distribution of power and opportunity across our economy.” Its Strategic Plan targets health and safety risks and seeks to promote racial justice, important issues but ones that lie far outside the agency’s mandate or competence.
Moreover, far from acting independently, today the FTC appears to act in concert with the White House. In an executive order, President Biden encouraged the FTC to use its authority to implement a “whole-of-government” competition policy. During the last two years, the FTC’s majority Democratic commissioners voted in lockstep to override the concerns of their dissenting Republican counterparts more than a dozen times.
Finally, Humphrey’s Executor placed too much faith in the agency’s individual commissioners. Most commissioners have substantial, and often impressive, experience in academia or on Capitol Hill, but very little practical experience in the private sector. From an ivory tower, or the bowels of an office in Congress, businesses may appear as soulless entities to be taxed, regulated, and controlled, rather than productive units, staffed and owned by people, that give consumers what they need and strengthen the nation’s economic and military backbone.
Even a progressive like President Wilson would have resisted giving too much authority to “experts” without practical experience. In Axon, the Supreme Court could constrain the FTC’s ability to reshape the U.S. economy and ensure that the agency operates within its statutory and constitutional bounds.
