{I} n the intricate realm where law meets economics, the Department of Justice’s (DOJ) and Federal Trade Commission’s (FTC) proposed revisions to their merger guidelines serve as a stark reminder of the perils that accompany regulatory misdirection. Announced in July 2023, the draft guidelines swiftly garnered criticism from all corners of the political spectrum, with legal scholars puzzled by case-law citation errors and economists dismayed at what they perceived as a significant regression in analysis.
The draft guidelines seem to echo philosophies circulating through law schools, suggesting that law is merely a power play and economic argument is a tool for serving the powerful. If the DOJ and FTC succeed in imprinting antitrust with such beliefs, the ramifications could destabilize the very foundations of world-class American businesses — and the livelihoods of American workers.
The question arises: How could two agencies that were once at the forefront of developing clear economic standards and rigorous analyses for merger reviews falter so rapidly?
The answer lies in an open letter from 17 former FTC and DOJ chief economists. Urging the heads of the DOJ and FTC to “separate the legal and economic analysis in the draft Merger Guidelines to strengthen the role of the latter in merger review,” these economists shed light on a concerning trend within Biden’s antitrust enforcers — a belief that economics is largely irrelevant, justifying its marginalization.
This departure from a synergetic approach contradicts the historical perspective that enabled the U.S. to cultivate a world-leading economy. Common-law principles and statutes for the regulation of commerce evolved hand in hand with economic insights that were not just theoretical, but proven — tested in practice, and studied in academia.
A notable example is the development of utility regulation. Centuries ago, courts abroad imposed obligations on essential businesses when customers were unable to defend themselves. Such ideas found their way to the U.S., forming the basis for Supreme Court decisions such as Munn v. Illinois (1876), Chas. Wolff Packing Co. v. Court of Ind. Relations (1923), and Phillips Petroleum Co. v. Wisconsin (1954), establishing the foundations for regulating public utilities as natural monopolies serving essential public roles. The economic principles underlying these decisions can be traced back to the earlier writings of Adam Smith and John Stuart Mill.
Antitrust regulation had a similar evolution, albeit with a rocky start influenced by Louis Brandeis. His economic theories, positing that large businesses were inherently inefficient and that government officials were knowledgeable enough to design successful businesses, dominated the early days of antitrust. Economists across the political spectrum later debunked Brandeis’s theories, but his influence left antitrust rudderless and erratic.
To rectify this, the DOJ adopted its first merger guidelines in 1968, reflecting the economic thinking of the time. These guidelines underwent multiple updates over the years, driven by advances in economic analysis. As leading antitrust economist Carl Shapiro noted after the 2010 update: “One cannot help but marvel at how far merger enforcement has moved over the past forty years . . . moving away from simple rules and towards an approach emphasizing the practical reality of the market and the likely effects of the practice in question.”
Now, the DOJ and FTC are poised to abandon this four-decades-long progress. FTC chair Lina Khan branded the historic emphasis on “consumer welfare” as “ideological radicalism” and a failure that “warped America’s antimonopoly regime.”
Khan places politics at the forefront of antitrust, asserting that corporations are political organizations and that keeping them small is an “essential underpinning of political freedom.” She contends that there are no market forces shaping the economy; instead, in “New Brandeisian” thought, the “political economy is structured only through law and policy.” For Khan, antitrust is about political power, and she deems the historical role of economics as harmful.
The leadership of the DOJ and FTC represent a growing belief among some academics that law is primarily about determining who holds power rather than about protecting freedoms and fostering a vibrant economy. If this perspective gains further influence, the potential consequences are dire — a loss of power, freedom, and economic vitality for the American people.