Lina Khan
Appearances
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
After law school, I spent some time doing more research and writing, was set to clerk for a federal judge. And then a few months before my clerkship was supposed to start, the judge I was supposed to clerk for ended up passing away.
Freakonomics Radio
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Judge Reinhart in the Ninth Circuit. So then I reshuffled my plans, ended up going to work for a federal trade commissioner, Rohit Chopra, and then ended up going to work for the House Judiciary Committee's subcommittee on antitrust. which was looking to start an investigation into the large technology companies, including Facebook, Amazon, Apple, and Google.
Freakonomics Radio
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I became part of a very small team tasked with crafting a congressional investigation. So we did an 18-month investigation, ended up publishing a report summarizing our findings and issuing a set of recommendations for how to make sure that these digital markets are competitive. After that, I was going back to academia and then had the great honor of being nominated to serve at the FTC.
Freakonomics Radio
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To state the obvious, writing a law school paper is very different than being a law enforcer, especially in digital markets. You can see a monopoly lifecycle where the set of tactics that a platform is pursuing in the early stages when it's looking to scale and achieve monopoly power is
Freakonomics Radio
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will look different than the tactics that it is deploying once it has achieved that monopoly status, has locked out its rivals, and then is in extraction mode where it's now able to exploit that monopoly power. My law review article was around the first stage, and the lawsuit ended up focusing on the practices of the second stage.
Freakonomics Radio
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The lawsuit basically alleges that Amazon, after itself achieving scale, ended up in a very concerted way pursuing tactics designed to deprive other companies of similarly enjoying that scale that you need to really compete in online commerce. It did this in a few ways.
Freakonomics Radio
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One was it engaged in what we call anti discounting practices where Amazon would basically punish any business that listed its goods for a lower price on other platforms. And it was doing this even as Amazon was steadily increasing how much it charges sellers to sell on Amazon. Amazon takes as much as one out of every two dollars from some of the sellers that rely on Amazon.
Freakonomics Radio
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Even as it is increasing prices for sellers, it punishes those sellers forever. for listing goods for a lower price, even on platforms that are taking a smaller cut. We argue that this basically inflates prices across the internet. We also allege that Amazon illegally conditions access to
Freakonomics Radio
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certain prime badge services on sellers using its fulfillment services and that that has certain anti-competitive effects. And then we also allege that Amazon used this algorithm called Project Nessie that also inflated prices across the Internet.
Freakonomics Radio
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We don't know. We can only speculate.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
Well, look, the trial is slated to go forward. It is going to trial because the FTC defeated Amazon's efforts to dismiss the case. We got a resounding win where the judge said all of these counts are plausible. I feel very optimistic, but we'll have to wait and see.
Freakonomics Radio
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It's hard to say. Part of that answer will depend on what happens with this litigation.
Freakonomics Radio
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I view the stakes here as being existential for our country.
Freakonomics Radio
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Look, we ended up having resounding success in the courts, including with cases that had not been brought previously. If you tally up our wins and losses, we actually have done better than prior administrations, even while taking bigger shots and putting together more ambitious cases. Sometimes there can be analyses that are not actually matching the facts of what happened.
Freakonomics Radio
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We only filed cases where we thought there was a law violation and where the facts matched it, but we also brought cases that were responding to the harms in the modern economy. One trend that we've seen in various sectors is this issue of private equity roll-ups.
Freakonomics Radio
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or serial acquisitions, where firms will make a whole series of acquisitions, each one of which may be small or fly beneath the radar, but in the aggregate, they may have still rolled up a market and then inflated prices. That's something that's been happening in our economy for some time, and antitrust enforcers had not addressed it.
Freakonomics Radio
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We ended up filing a lawsuit taking on some of these roll-ups in anesthesiology and ended up having a successful case there. We also defeated the company's motion to dismiss. That's going to trial. We ended up successfully blocking dozens of mergers, including getting litigated wins, including in instances where enforcers in the past candidly had failed to stop
Freakonomics Radio
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Some of this consolidation, we succeeded in blocking the Kroger Albertsons merger, which would have been the largest supermarket deal in U.S. history, despite there being a fix that the companies had proposed. Previously, enforcers had allowed some of those big grocery deals to go through and the public had really lost out.
Freakonomics Radio
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If you tally up our wins and losses, we have done better than prior administrations, even while taking bigger shots and putting together more ambitious cases.
Freakonomics Radio
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Non-compete clauses have proliferated across the economy. They started off in the boardroom, but have now expanded to cover janitors, security guards, fast food workers, gardeners, journalists, health care workers. A conservative estimate is that as many as one in every five Americans have been covered by a non-compete clause. And these clauses include
Freakonomics Radio
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can really have a devastating effect on people's lives. Materially, they can depress income, not just for the workers that are directly covered by a non-compete, but actually for workers as a whole. The idea being that
Freakonomics Radio
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If a worker is not able to change jobs, there is less opportunity and churn in labor markets as a whole in ways that can deprive even those workers that don't have a non-compete from opportunities. And that overall can really have a depressive effect on wages and income. After we put out a proposal to ban non-competes, we got 26,000 comments from people across the country.
Freakonomics Radio
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Which was really striking. I mean, people live busy lives. People are not necessarily going to prioritize sitting down and submitting a comment to some obscure federal agency. But it was clear that people felt very strongly about non-competes. And we heard some devastating stories about just how these had affected people's lives.
Freakonomics Radio
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You need to place more value on feedback and input that is actually tethered to reality and tethered to facts.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
The motivation question is a good one for the businesses that are imposing these non-compete clauses. Some of the arguments that get made at a high level is that these non-competes are in theory necessary to make sure employees are not divulging trade secrets or that Employers need these non-competes to give them an incentive to train their employees.
Freakonomics Radio
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A lot of those arguments will lose their force entirely when you're talking about certain categories of workers. But even for higher income workers, we have trade secrets laws. For the vast majority of American workers, there is no good justification for these non-compete clauses.
Freakonomics Radio
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Well, I would argue and the FTC argued that it is not legal. We brought some enforcement actions, including one case where you had security guards making close to minimum wage. The security guards were based in Michigan. Under Michigan state law, these non-competes were actually illegal. But the firm still had them in place and still tried to enforce them.
Freakonomics Radio
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We had to basically sue to make sure these non-competes got dropped. Even in states where these non-competes in theory are not enforceable, firms take a shot. Oftentimes workers, their rights are chilled because they may not know that these non-competes are not enforceable. And who's going to really want to go up against their employer and risk being thousands of dollars out of money?
Freakonomics Radio
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So we ended up bringing in enforcement action. We ended up getting an order that required the company to drop its non-compete clauses with the vast majority of the security guards. And so thousands of people were freed from non-competes.
Freakonomics Radio
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It's more of a mixed picture. After we finalized the rule, we got three legal challenges. One filed in Texas, one filed in Pennsylvania, and one filed in Florida. Each of those legal challenges came out a slightly different way. The judge in Pennsylvania said the FTC's rule was lawful. The judge in Texas said it was unlawful. And the judge in Florida came out somewhere in between the
Freakonomics Radio
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The FTC, when I was still at the agency, ended up appealing both the case in Texas and Florida. We're going to have to wait to see what happens, though you're right that for the time being, the rule is not in effect. Unfortunately, non-competes are still in place right now.
Freakonomics Radio
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I can give you a couple of examples. One is a specific merger that we blocked. This was the Sanofi Maize transaction. Sanofi had a monopoly on a drug for Pompe disease, this really horrible illness that leads to muscles atrophying. Maize was this upstart that was in the process of developing a
Freakonomics Radio
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Another treatment for Pompe disease, unlike Sanofi's treatment that required regular IV shots, Mays was working on something that could be taken orally. It had the potential for dramatically improving the lives of Pompe disease patients.
Freakonomics Radio
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The FTC argued that if Sanofi bought out maize, there was a real risk that maize's innovative treatments either wouldn't make it to market or wouldn't make it to market as quickly. Because here you have a situation where Sanofi is already enjoying monopoly profits on this drug. We worried that it wouldn't have the incentives to introduce another drug that would cannibalize its existing sales.
Freakonomics Radio
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So we filed a lawsuit seeking to block this acquisition, arguing that it would allow Sanofi to illegally monopolize this area. And the companies ended up walking away from the deal. Mays ended up then partnering with another firm that ended up having as good, if not better terms for Mays and will actually bring that drug to market even more quickly.
Freakonomics Radio
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That's right. So I think that was proof of concept of the FTC's work getting it right. I think more generally, the non-competes that ended up being dropped because of the FTC's work, that means there are thousands of workers that are now free to go start their own business or freely switch employers. The mergers that we blocked, including in the context of NVIDIA ARM,
Freakonomics Radio
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My name is Lina Khan, and until recently, I served as chair of the Federal Trade Commission.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
Ended up leading to a lot of independent success for both NVIDIA and ARM in ways that also has boosted innovation, especially at a critical moment for a lot of these artificial intelligence technologies. We've also filed a whole set of other lawsuits, including one against John Deere.
Freakonomics Radio
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for illegally restricting farmers' ability to repair their own tractors and agricultural equipment, which is something we heard a lot of concern about from farmers when they're entirely dependent on John Deere for getting their agricultural equipment fixed. It can both inflate their costs as well as lead to all sorts of devastating delays.
Freakonomics Radio
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We also filed a lawsuit against Pepsi, arguing that it was engaging in illegal discrimination in ways that was squeezing independent grocers. We filed a lawsuit against the three big pharmacy benefit managers, claiming that the rebating practices they have in place have systematically hiked the cost of insulin and
Freakonomics Radio
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And then we more generally took on these illegal patenting practices where firms would illegally list patents for certain products and components of devices, including things like the plastic cap on an inhaler. Asthma inhalers out-of-pocket costs have been hundreds of dollars, even though asthma inhalers have been around for decades.
Freakonomics Radio
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Once we called out some of these illegal patenting practices, three of the four big inhaler manufacturers announced that they would drop the out-of-pocket costs to $35.
Freakonomics Radio
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You know, that's a good question. I don't remember right off the bat.
Freakonomics Radio
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No, I think they have a lot of other lucrative lines of revenue.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
The FTC's lawsuit was actually about the market as a whole, where we found that basically these pharmacy benefit managers engage in what are known as these rebating practices, where drug manufacturers have to pay these PBMs or rebate.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
We allege that the way the PBMs have structured this whole system means that the drug companies are incentivized to ultimately raise the cost of insulin rather than compete by lowering it and that this as a whole is inflating the cost.
Freakonomics Radio
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It's a really good point and I think highlights how antitrust and competition policy have a really important role to play. But there are all sorts of other economic policy decisions that are going to affect, for example, whether the junior partner even has the ability to make that acquisition that we need to be paying attention to as well.
Freakonomics Radio
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The other thing I'll note is there are all sorts of different types of private equity business models available. But it is true that one model has been the leverage buyout where a private equity firm is using the assets of the company they're buying as collateral, loading up that company with a lot of debt.
Freakonomics Radio
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Sometimes there's the 70-30 model where the private equity firm is making 30% of the investment and then using the balance sheet of the underlying company.
Freakonomics Radio
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and taking on a lot of debt, that can weaken the underlying firm, but also incentivize the private equity owner to make a lot of short-term extractions and engineer a lot of short-term returns in ways that can undermine the quality of the business as a whole. For example, we got some submissions from ER doctors. Emergency medicine is a place where we've seen a lot of private equity incursion.
Freakonomics Radio
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They mentioned that there are all sorts of financial metrics introduced into their work. I remember hearing from one ER doctor that he was sitting with a kid and this ER doctor having to think that he didn't even have the time to commiserate with this parent because he felt such significant financial pressure to meet this quota.
Freakonomics Radio
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Yeah, happy to. It is a bit of an idiosyncratic path. I spent a lot of time in undergrad interested in journalism. I graduated right after the financial crisis. Journalism jobs are pretty hard to get. I ended up instead landing with a think tank and I worked with a group where my job was to research and document consolidation across markets.
Freakonomics Radio
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That's a really interesting idea and not something I've heard proposed before. I could imagine it could make a difference.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
The merger guidelines can sound like this arcane document, but the core of it is a roadmap for how enforcers review and assess mergers that are before them. There have been guidelines going back to 1968 and and periodically these have been updated. We undertook a process starting in late 2021 to revise these merger guidelines with a couple of goals in mind.
Freakonomics Radio
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First was wanting to make sure that these guidelines were actually reflecting the law. We had seen that in some prior instances, Enforcers had actually handicapped themselves and written guidelines with very cramped or sometimes just inaccurate expressions of what the law really was, which we thought was not being faithful to Congress or the courts.
Freakonomics Radio
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We also wanted to make sure these guidelines were up to date and reflecting the realities of the 21st century economy. We wanted to make sure they were addressing things like digital markets and platforms. We wanted to make sure they were addressing labor markets, which had been a big blind spot in the past, and issues like serial acquisitions.
Freakonomics Radio
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And then we wanted to make sure that we were hearing from a broad set of market participants. Antitrust in recent decades has been quite insular You'll hear from very smart and accomplished experts, but the broader public as a whole has often been neglected. We wanted to change that and ended up getting thousands upon thousands of comments from the public.
Freakonomics Radio
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A lot of health care workers participated, including doctors, nurses, people who had seen their field and their practice change based on increasing consolidation. We heard from farmers. We heard from musicians, heard from teachers, ordinary Americans who don't spend their days practicing antitrust law, but whose life has shown them that
Freakonomics Radio
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Whether markets are extremely consolidated and monopolized or whether they're open and competitive makes a real difference.
Freakonomics Radio
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industry spans a broad set of market actors. We heard from a lot of small businesses, including independent pharmacists, independent grocers. We heard a lot from entrepreneurs and startups and founders who have seen that when you have these big gatekeepers that can shut them out of the market, that can have real problems.
Freakonomics Radio
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So even within industry and the business community, we heard a lot of interest in favor of stronger antitrust. Of course, we did also hear from existing monopolists and incumbents and dominant firms who would prefer that antitrust enforcement be quite weak.
Freakonomics Radio
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The goal of the guidelines is really to provide clarity to the public about how it is that enforcers will look at mergers and analyze them. On the deterrence question, of course, as a law enforcer, you don't want illegal behavior happening. to occur in the first instance. So if through that type of guidance, you are deterring illegal mergers, that is a net good.
Freakonomics Radio
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That's right. I had to do these deep dives into all sorts of sectors, be it book publishing or airlines or all sorts of commodity markets. And I started to get a picture of... Decades of consolidation in market after market where we had gone from dozens of competitors to increasingly a small number of firms in each sector.
Freakonomics Radio
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In terms of how you measure deterrence, it's a good question. I don't think it's a precise science. But over the years, when I was serving at the FTC, we got some data points like what senior dealmakers would be saying around how Several years ago, when they were counseling clients, they wouldn't really talk about antitrust until the very, very end of the discussion.
Freakonomics Radio
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Whereas over the last couple of years, antitrust was up front and center right at the beginning. We also heard from dealmakers and senior executives about how certain deals that were initially being discussed ended up not being proposed because there was a recognition that the legal risk was too high.
Freakonomics Radio
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We also saw deals where once they were proposed and the FTC started investigating, the firms ended up abandoning. There was a practice in the past where firms sometimes recognized that there was significant legal risk, but would kind of roll the dice and say, well, maybe enforcers will look the other way or maybe they'll miss it.
Freakonomics Radio
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Once we started taking a closer look and a more stringent approach, some of those deals abandoned as well.
Freakonomics Radio
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What we heard from startups and founders was that they wanted a chance to compete. When you have markets where the only option is to be bought up, that's not giving founders the opportunity to really scale organically. I think the story is a bit more textured here.
Freakonomics Radio
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I personally am not that surprised, in part because issues around antitrust and anti-monopoly have had a strong bipartisan current in recent years. Some of the initial lawsuits that were filed against large technology companies, including Facebook and Google, actually were initiated during the first Trump administration.
Freakonomics Radio
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It's too early to say what the big picture is going to look like in terms of whether we're going to continue to see strong enforcement. Of course, seeing other law enforcers be dismantled, including the Consumer Financial Protection Bureau, is quite troubling. But of course, the fact that at this stage,
Freakonomics Radio
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It's clear there is bipartisan support for strong merger guidelines that's going to protect more Americans from consolidation and monopolization. I think we can have some cautious optimism on that small front, even as we're going to have to wait and see what happens more generally.
Freakonomics Radio
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My job was to both document that that had happened and also document what the effects had been.
Freakonomics Radio
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That's a good question. One industry that I actually came to learn about, it was a market for basically ugly produce. I don't know how else to put it. Produce that is seen as not being attractive enough for supermarket shelves. And then it gets sent off to certain other markets.
Freakonomics Radio
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And I remember there was a merger being reviewed that was focused on that market that actually was more consolidated than I expected.
Freakonomics Radio
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Constructive engagement is always valuable, but you also have to be able to separate that from some of the hysteria.
Freakonomics Radio
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I think from a young age, I was really struck by journalists and the efforts that they undertake to hold power to account, both powerful corporations as well as powerful actors in government, especially growing up after September 11th and seeing the incredible important role that journalists were playing then really made a big impression on me.
Freakonomics Radio
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That's right. This was around 2010, 2011. There was a national conversation around economic inequality more generally, but there was not any real conversation around industry consolidation or concentration. If you went to some type of social gathering and you said, I research market consolidation and antitrust, people's eyes would tend to glaze over.
Freakonomics Radio
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you know, I'm a public servant, I serve the public. So it's absolutely important for me to be soliciting and getting feedback and input and understanding what the public response is. But of course, you need to place more value on feedback and input that is actually tethered to reality and tethered to facts.
Freakonomics Radio
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Good faith, constructive engagement is always valuable, but you also have to be able to separate that from the hysteria.
Freakonomics Radio
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I was surprised sometimes by just the factual errors. I think it does go back to this basic issue of economic reality versus theoretical assumptions that are just out of date.
Freakonomics Radio
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I think the fact that this work has gotten so much traction so quickly was entirely because it was on the side of reality. The antitrust enforcement model that had been followed for 40 years had failed to keep markets open and fair and competitive. And so it was really empiricism that drove this work forward.
Freakonomics Radio
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Well, let me say, first of all, the FTC is really fortunate to have extraordinarily hardworking, talented career civil servants that are being pitted up against some of the largest, most powerful companies in our country. My hat's off to them in terms of the grit and commitment that they bring every day.
Freakonomics Radio
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Stepping back, my arrival, understandably, I think, was received by some as some type of indictment of the agency. I had been on the outside a critic of the FTC, arguing that both the FTC and the DOJ had gotten things wrong, had taken decisions that ended up resulting in real harm to the American people.
Freakonomics Radio
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Those criticisms were really directed at political leadership, the people that are calling the shots. Understandably, there was some questioning about what my criticisms were really about. This was also a moment where you had the president say that the last 40 years of competition policy had gone astray.
Freakonomics Radio
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So these are people who were saying, look, I've been doing my job every day as a dedicated civil servant, and now I'm being told that I've been doing it all wrong.
Freakonomics Radio
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Well, there are all sorts of different factors that drive people to public service. For the most part, they want to serve their fellow Americans. It was more about the antitrust enterprise as a whole, the ways that the law had drifted, what type of analysis the law was privileging rather than any specific person or groups of people.
Freakonomics Radio
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So my job was to document consolidation and the effects of it. This really gave me a tour of all sorts of sectors across the U.S. economy.
Freakonomics Radio
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We wanted, first of all, just to make sure we had the teams that we needed to pursue some of these litigations. I mean, the agency was actually smaller than it had been in the 1970s, especially when we got a budget increase. We did hire more people, including very talented litigators. We also wanted to make sure that the way we were looking at markets was
Freakonomics Radio
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was actually reflecting the reality on the ground. And that meant broadening the type of skill sets that we had. We were not just hiring industrial organization economists, but also labor economists, accountants, people who had slightly different skill sets that would be able to give us a more 360 view. We also started a new office of technologists.
Freakonomics Radio
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wanting to make sure that we had data scientists and data engineers and AI experts, especially as more and more markets digitize. We need people who can sit alongside the economists and the lawyers and explain how are these algorithms actually working.
Freakonomics Radio
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It's hard to know. Obviously, across government, there's a lot of disruptive efforts right now that are resulting in a lot of people being laid off and let go. So it's too early to say. I will say the new administration has talked a lot about the importance of making sure our technology markets and digital markets are open and fair and competitive.
Freakonomics Radio
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I spent a lot of time understanding how the chicken farming industry works today and learned that you have tens of thousands of chicken farmers on one side, millions of consumers on the other, and they're all connected by a very small number of these chicken processing companies. The effects of that and the big picture have been that consumers are paying more even as farmers are earning less.
Freakonomics Radio
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If you are gutting the FTC by eliminating technologists and eliminating the litigating teams that are supposed to be pursuing these cases, that's going to really handicap your ability.
Freakonomics Radio
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I really loved getting to hear from people who had an issue that they thought the FTC should be focusing on. I had the chance to do a lot of listening sessions across the country. I went to Ames, Iowa to hear from farmers that were worried about this particular fertilizer merger, heard from pharmacists in Kansas City.
Freakonomics Radio
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Those types of engagements were really important in keeping me focused and underscoring the ways that Seemingly arcane agencies like the FTC have a lot of opportunity to make a real difference in people's lives.
Freakonomics Radio
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Sometimes it can take longer to get things done than is optimal. We certainly streamlined certain processes and tried to eliminate red tape. But I think there's just more of that that could be done. Of course, there's a lot of baked in pushback from monopolists and dominant firms.
Freakonomics Radio
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I have zero comparative advantage in terms of weighing in on this. I'm kind of a policy nerd, but I don't really have much to add when it comes to some of the political analysis here.
Freakonomics Radio
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Americans certainly worry that government is not always serving their best interests because large corporations have too much influence. We see that concern expressed in all sorts of ways, including concern about the role of money in elections. But I think there are all sorts of subtle ways beyond just how much money large wealthy entities can pour into elections. Intellectual capture can occur.
Freakonomics Radio
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We see it through a lot of the funding of research. And then what kinds of research is even made available to regulators and enforcers? There can be all sorts of ways that the information environment in which enforcers and regulators are operating is already skewed by those well-heeled interests.
Freakonomics Radio
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Thank you so much. This is important for people materially, but these issues also go to the core values of our country. The lawmakers who initially passed the antitrust laws viewed them as being a key safeguard against the concentration of power, that in the same way we needed checks and balances in our government to protect against the exercise of arbitrary power.
Freakonomics Radio
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That got me really interested in the antitrust laws, which were passed over a century ago, designed to keep markets open and competitive. I was really struck by how we had, on the one hand, a set of laws designed to keep markets open and competitive. And yet on the other, we had seen just wholesale consolidation and a drift away from markets that were open and competitive.
Freakonomics Radio
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There was a view that the antitrust and anti-monopoly laws would play a similar role in our economic and commercial sphere. So I view the stakes here as being enormous, as being existential for our country. And I'm really committed to continuing to work on these issues and whatever opportunity I have.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
Yeah, exactly. I had been on leave and I'm back at the law school.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
For now, just continuing to build out this work, there is a lot of enthusiasm and interest among law students and young people in general. Of course, it was a great honor to serve. And if there was another opportunity, that's, of course, something I would be open to.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
I mean, you know, that was a hypothetical, but my term ended up expiring in September. President Trump ended up nominating somebody new to fill my seat. So I, you know, had a great time getting to work alongside Andrew Ferguson when he was a commissioner and I was chair. And I do think it's important for people to serve.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
And the FTC historically has had bipartisan commissioners that have continued to serve across administrations.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
I'm a great admirer of Senator Sanders. He was a strong supporter of the FTC's work. There is a real concern that very well-heeled interests in this country are wielding enormous, not just economic power, but political power. And the antitrust and anti-monopoly laws were supposed to be a bulwark against that. I leave it to the elected officials to do what they do best.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
But of course, I'm happy to support that work however I can.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
And I was really intrigued by how this had happened. That, in turn, got me interested in the history of the antitrust laws.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
So at the federal level, the first antitrust laws trace back to 1890. This was when the Sherman Antitrust Act was passed, and it was passed against the backdrop of the Industrial Revolution, which had delivered transformative advances across the country, but it also consolidated a lot of wealth and power.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
Some of those most affected by this consolidation were farmers and entrepreneurs and small proprietors, especially when it came to the railroads. The railroads had transformed the country. You could suddenly transport your wares nationally. Farmers and others had access to national markets.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
There were enormous benefits, but it also meant that farmers and others were extraordinarily dependent on a very small number of companies, sometimes just a single company, the railroad that controlled the rails going through their town. And farmers recognize that this concentration of power could be abused.
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625. The Biden Policy That Trump Hasn’t Touched
You had the railroads effectively picking winners and losers and whether a farmer did well or whether his business sank could just be up to this single railroad. We had discriminatory pricing, arbitrary pricing.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
So a lot of the frustrations that farmers felt ended up being channeled towards both the Interstate Commerce Act, which ended up regulating the railroads, as well as the Sherman Antitrust Act, which broadly prohibited certain forms of monopolization and illegal restraints of trade. Those laws were enforced, but it became clear pretty quickly that there were some major gaps there.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
So then in 1914, Congress passed two additional antitrust laws, the Clayton Antitrust Act, which prohibited mergers and acquisitions that may lessen competition, as well as the Federal Trade Commission Act, which created the FTC, prohibited unfair methods of competition more generally, and then
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
you had over the decades different levels of activity in terms of vigor from the antitrust agencies, but broadly an approach to competition that was very focused on wanting to make sure that the market was competitive from a more structural perspective. During the New Deal, you had these two different moments.
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625. The Biden Policy That Trump Hasn’t Touched
At one point, a more hands-off approach, and then you had the second New Deal period where where enforcers really doubled down. And then starting in the late 70s and 80s, there was this wholesale revolution where we as a country radically reoriented how we were enforcing these laws that in good part led to this consolidation.
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625. The Biden Policy That Trump Hasn’t Touched
When I started looking at what happened in the 70s and 80s, I was struck by just how radical it was. There were certain economic assumptions that drove that change and certain ideological assumptions that drove it. There was a view that the best thing for the government to do was to get out of the way. The
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
You know, monopoly power and market power in the economy is rare, but if it is ever to come about and if firms try to abuse their monopoly power, the theory went that that monopoly power would be disciplined by this rush of new entrants that would come in and limit the ability of that monopolist to exercise its power.
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625. The Biden Policy That Trump Hasn’t Touched
And so it was better for government to err on the side of under-enforcement than over-enforcement, which could chill innovation.
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625. The Biden Policy That Trump Hasn’t Touched
I think it was primarily driven by theories of how markets work that ended up being pretty divorced from the reality on the ground. This hands-off approach assumed that markets were more likely to self-correct, and that had bipartisan staying power.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
It was ushered in initially by the Reagan administration, but then continued by the Clinton administration and the Bush administration, and then in good part by the Obama administration. Unfortunately, the last 40 years have been a natural experiment premised on those theories. And now we have more and more empirical evidence that I think rebuts those.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
that significant consolidation can result in market power and monopoly power that firms can exercise without it immediately being disciplined in the market. And instead, what you can have is persistent monopoly power that firms can use to charge people more, reduce innovation, reduce quality. There are papers looking at markups
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625. The Biden Policy That Trump Hasn’t Touched
beyond marginal cost, finding that in the 80s, on average, it was around 20% the markup, and now it's as high as 60%. I think one of the theories that has been rebutted is this idea that monopoly power is rare and fleeting, and if it does ever come to be exercised, it will be immediately corrected by the market. It was a kind of multi-decade consensus.
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625. The Biden Policy That Trump Hasn’t Touched
And that consensus started to break during the first Trump administration and then further during this last Biden administration.
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625. The Biden Policy That Trump Hasn’t Touched
I decided to both apply to law school and to apply to journalism jobs and ended up choosing between going to become a beat reporter at the Wall Street Journal or going to law school. Ended up going to law school and really tried to structure my time there by taking classes focused on the areas of the law that are shaping and structuring corporate power.
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625. The Biden Policy That Trump Hasn’t Touched
That includes antitrust, but it also includes things like trade law or even First Amendment law. which firms had increasingly been using to try to strike down regulations. While I was in law school, I ended up using some of the research I had done around e-commerce and Amazon to write a law review article using Amazon as a vehicle to tell a broader story about the shift in antitrust law.
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625. The Biden Policy That Trump Hasn’t Touched
Ended up publishing that, and there was a broader conversation around all of these issues.
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625. The Biden Policy That Trump Hasn’t Touched
You know, I had just been in law school trying to get this paper out. I was impressed and surprised that anybody was reading it, let alone that it had caught some broader attention. But the background conversation was a growing recognition of the fact that market after market had become so much more consolidated and that antitrust was in need of a reboot.
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625. The Biden Policy That Trump Hasn’t Touched
Yes, that is one of the paradoxes. To further add to that, there's a line in the paper that talks about how Amazon has actually marched towards becoming a monopoly by singing the tune of contemporary antitrust. It wasn't just that it had escaped scrutiny, but it had actually pursued its strategy in a way that was landing squarely in the very blind spots that had emerged in antitrust.
Freakonomics Radio
625. The Biden Policy That Trump Hasn’t Touched
Thank you so much for having me. Amazon, at least rhetorically, its strategy was very much focused around doing what's best for the consumer. When enforcers were looking at that through just a short term lens, I argued that they were missing some of the broader harms that were emerging.