AI transcript
0:00:09 >> Lena Kahn was just 32 years old when Joe Biden appointed her to lead the Federal Trade
0:00:10 Commission in 2021.
0:00:16 She became the youngest FTC chair in history and this agency goes back to 1914.
0:00:21 Kahn was also considered one of the most progressive chairs in FTC history.
0:00:26 While she was still in law school, Kahn published a journal article called Amazon’s Antitrust
0:00:31 Paradox which went on to become famous and which painted a picture of capitalism gone
0:00:37 wild where too many firms have become too big and too powerful posing a threat not just
0:00:44 to consumers and employees but to the economy itself and maybe even to democracy.
0:00:48 One of the signature achievements of her FTC term done in collaboration with the Department
0:00:53 of Justice was an updated set of the government’s merger guidelines.
0:00:59 This is a 50-page blueprint for pushing back against over-consolidation, for limiting both
0:01:05 horizontal and vertical acquisitions and for making the economy more resilient by reducing
0:01:07 corporate power.
0:01:11 These are ideas we have dug into repeatedly on Freakonomics Radio.
0:01:16 We have done episodes about consolidation in the eyeglass industry, in the pet care and
0:01:18 dialysis industries.
0:01:23 We made an episode called Our Private Equity Firm’s Plundering the U.S. Economy.
0:01:28 Now with Donald Trump back in the White House, Lena Kahn is of course gone, replaced by a
0:01:33 Republican chair, Andrew Ferguson, and the Trump administration has been moving quickly
0:01:38 to undo or wipe out any number of Biden administration policies.
0:01:41 But not those merger guidelines.
0:01:45 They are being retained and embraced by the Trump administration.
0:01:50 Here’s how one former Biden administration official put it to me, “It’s like being
0:01:56 in your house when a tornado comes and wipes out everybody’s house except for yours.”
0:01:59 You might call this the Lena Kahn paradox.
0:02:03 And how does Kahn herself feel about this paradox?
0:02:07 Based on the conversation you are about to hear, I would put it this way.
0:02:12 When it comes to antitrust policy, Kahn doesn’t care who gets it done as long as it gets done.
0:02:17 I view the stakes here as being existential for our country.
0:02:23 Today, on Freakin’omics Radio, we review Lena Kahn’s FTC track record.
0:02:28 If you tally up our wins and losses, we have done better than prior administrations, even
0:02:33 while taking bigger shots and putting together more ambitious cases.
0:02:38 And we talk about how to do good work in a world where bad behavior is often rewarded.
0:02:44 We need to place more value on feedback and input that is actually tethered to reality
0:02:45 and tethered to facts.
0:02:51 Reality, facts, and more with former FTC chair Lena Kahn starting now.
0:03:08 This is Freakin’omics Radio, the podcast that explores the hidden side of everything
0:03:10 with your host, Steven Dubner.
0:03:27 My name is Lena Kahn, and until recently, I served as chair of the Federal Trade Commission.
0:03:31 It’s fun to say that, I would imagine, yes.
0:03:32 Yeah.
0:03:40 Can you just give us in a nutshell how you got here, there, in such a relatively short
0:03:41 time?
0:03:42 Yeah, happy to.
0:03:44 It is a bit of an idiosyncratic path.
0:03:47 I spent a lot of time in undergrads interested in journalism.
0:03:50 I graduated right after the financial crisis.
0:03:52 Journalism jobs were pretty hard to get.
0:03:57 I ended up instead landing with a think tank, and I worked with a group where my job was
0:04:02 to research and document consolidation across markets.
0:04:06 This was the open markets group at the New America think tank, yeah?
0:04:07 That’s right.
0:04:13 I had to do these deep dives into all sorts of sectors, be it book publishing or airlines
0:04:21 or all sorts of commodity markets, and I started to get a picture of decades of consolidation
0:04:27 in market after market, where we had gone from dozens of competitors to increasingly
0:04:29 a small number of firms in each sector.
0:04:34 My job was to both document that that had happened and also document what the effects
0:04:35 had been.
0:04:38 It’s one of those things that in retrospect seems obvious, like yes, there’s been so
0:04:42 much consolidation in our economy, full stop.
0:04:47 But at the time, I’m wondering if you felt like you were toiling in some forgotten corner
0:04:50 of the economy, that this was something that people weren’t paying much attention to at
0:04:51 the moment?
0:04:52 That’s right.
0:04:55 This was around 2010, 2011.
0:05:01 There was a national conversation around economic inequality more generally, but there was not
0:05:06 any real conversation around industry consolidation or concentration.
0:05:11 If you went to some type of social gathering and you said, “I researched market consolidation
0:05:14 and antitrust, people’s eyes would tend to glaze over.”
0:05:19 So my job was to document consolidation and the effects of it.
0:05:24 This really gave me a tour of all sorts of sectors across the US economy.
0:05:30 I spent a lot of time understanding how the chicken farming industry works today and learned
0:05:35 that you have tens of thousands of chicken farmers on one side, millions of consumers
0:05:36 on the other.
0:05:42 And they’re all connected by a very small number of these chicken processing companies.
0:05:47 The effects of that and the big picture have been that consumers are paying more even as
0:05:49 farmers are earning less.
0:05:55 That got me really interested in the antitrust laws, which were passed over a century ago,
0:05:58 designed to keep markets open and competitive.
0:06:04 I was really struck by how we had, on the one hand, a set of laws designed to keep markets
0:06:06 open and competitive.
0:06:12 And yet on the other, we had seen just wholesale consolidation and a drift away from markets
0:06:14 that were open and competitive.
0:06:17 And I was really intrigued by how this had happened.
0:06:21 That in turn got me interested in the history of the antitrust laws.
0:06:27 I think most people pay a little bit of attention to what’s going on in the world that they
0:06:29 live in right now.
0:06:31 Not a lot of attention, but a little bit of attention.
0:06:35 And very few people read a lot of history.
0:06:39 So we tend to respond to what’s going on in the news, let’s say, in anti-competitive
0:06:43 practice based on what we know about the last couple years.
0:06:47 Yeah, Facebook has gotten too big, Google’s gotten too big, and therefore X or Y needs
0:06:48 to be done.
0:06:51 But that’s not a particularly fruitful way to look at the world.
0:06:55 It’s nice to have some historical and even philosophical underpinnings.
0:07:01 So if you could just talk about a quick history of competition law and how people long before
0:07:02 us saw it.
0:07:07 So at the federal level, the first antitrust laws traced back to 1890.
0:07:11 This was when the Sherman Antitrust Act was passed.
0:07:17 And it was passed against the backdrop of the Industrial Revolution, which had delivered
0:07:22 transformative advances across the country.
0:07:26 But it also consolidated a lot of wealth and power.
0:07:33 Some of those most affected by this consolidation were farmers and entrepreneurs and small
0:07:37 proprietors, especially when it came to the railroads.
0:07:43 The railroads had transformed the country, you could suddenly transport your wares nationally.
0:07:47 Farmers and others had access to national markets.
0:07:53 There were enormous benefits, but it also meant that farmers and others were extraordinarily
0:07:59 dependent on a very small number of companies, sometimes just a single company, the railroad
0:08:03 that controlled the rails going through their town.
0:08:09 And farmers recognize that this concentration of power could be abused.
0:08:16 You had the railroads effectively picking winners and losers, and whether a farmer did
0:08:21 well or whether his business sank could just be up to this single railroad.
0:08:25 We had discriminatory pricing, arbitrary pricing.
0:08:30 So a lot of the frustrations that farmers felt ended up being channeled towards both
0:08:35 the Interstate Commerce Act, which ended up regulating the railroads, as well as the Sherman
0:08:42 Antitrust Act, which broadly prohibited certain forms of monopolization and illegal restraints
0:08:43 of trade.
0:08:47 Those laws were enforced, but it became clear pretty quickly that there were some major
0:08:54 gaps, so that in 1914, Congress passed two additional antitrust laws, the Clayton Antitrust
0:09:02 Act, which prohibited mergers and acquisitions that may lessen competition, as well as the
0:09:08 Federal Trade Commission Act, which created the FTC, prohibited unfair methods of competition
0:09:10 more generally.
0:09:14 And then you had over the decades different levels of activity in terms of vigor from
0:09:21 the antitrust agencies, but broadly an approach to competition that was very focused on wanting
0:09:26 to make sure that the market was competitive from a more structural perspective.
0:09:32 During the New Deal, you had these two different moments, at one point a more hands-off approach,
0:09:37 and then you had the second New Deal period, where enforcers really doubled down.
0:09:42 And then starting in the late ’70s and ’80s, there was this wholesale revolution where
0:09:48 we as a country radically reoriented how we were enforcing these laws that in good part
0:09:51 led to this consolidation.
0:09:55 That wholesale revolution you’re referring to, that includes what antitrust people call
0:09:59 the Chicago School of Thought, named for University of Chicago Legal Scholars Robert
0:10:03 Bork and Richard Posner, the Economist, Aaron Director, and others.
0:10:08 One person I spoke with who used to work with you made the note, and I’m curious if you
0:10:14 think this is true, that your youth really served you well in thinking this through.
0:10:19 Because rather than just accepting the current regulatory environment as it stood, you felt
0:10:23 compelled to dig into that Chicago history.
0:10:28 Can you walk me through what you saw there and how it shaped your thinking?
0:10:34 When I started looking at what happened in the ’70s and ’80s, I was struck by just how
0:10:36 radical it was.
0:10:41 There were certain economic assumptions that drove that change, and certain ideological
0:10:43 assumptions that drove it.
0:10:47 There was a view that the best thing for the government to do was to get out of the way.
0:10:54 The idea was monopoly power and market power in the economy is rare, but if it is ever
0:10:59 to come about and if firms try to abuse their monopoly power, the theory went that that
0:11:05 monopoly power would be disciplined by this rush of new entrants that would come in and
0:11:08 limit the ability of that monopolist to exercise its power.
0:11:13 It was better for government to err on the side of under-enforcement than over-enforcement,
0:11:15 which could chill innovation.
0:11:20 Do you feel that was a legitimate expectation or it was a little bit of a fig leaf?
0:11:27 I think it was primarily driven by theories of how markets work that ended up being pretty
0:11:30 divorced from the reality on the ground.
0:11:35 This hands-off approach assumed that markets were more likely to self-correct, and that
0:11:37 had bipartisan staying power.
0:11:43 It was ushered in initially by the Reagan administration, but then continued by the
0:11:49 Clinton administration, and the Bush administration, and then in good part by the Obama administration.
0:11:55 Unfortunately, the last 40 years have been a natural experiment premised on those theories,
0:12:01 and now we have more and more empirical evidence that I think rebuts those.
0:12:05 When you say that it rebuts those, can you put that in the form of more and more empirical
0:12:06 evidence?
0:12:07 That what?
0:12:12 That significant consolidation can result in market power and monopoly power that firms
0:12:17 can exercise without it immediately being disciplined in the market, and instead what
0:12:24 you can have is persistent monopoly power that firms can use to charge people more,
0:12:26 reduce innovation, reduce quality.
0:12:34 There are papers looking at markups beyond marginal cost, finding that in the ’80s,
0:12:40 on average, it was around 20% the markup, and now it’s as high as 60%.
0:12:45 I think one of the theories that has been rebutted is this idea that monopoly power
0:12:50 is rare in fleeting, and if it does ever come to be exercised, it will be immediately corrected
0:12:51 by the market.
0:12:57 It was a kind of multi-decade consensus, and that consensus started to break during the
0:13:02 first Trump administration and then further during this last Biden administration.
0:13:07 Okay, so that’s the context for the antitrust climate you walked into.
0:13:08 Let’s back up.
0:13:13 At the open markets think tank, you’re finding out everything there is to know about the
0:13:18 history of antitrust policy and the poultry market, for instance.
0:13:19 What happens then?
0:13:23 I decided to both apply to law school and to apply to journalism jobs, and ended up
0:13:28 choosing between going to become a beat reporter at the Wall Street Journal or going to law
0:13:33 school, ended up going to law school, and really try to structure my time there by taking
0:13:40 classes focused on the areas of the law that are shaping and structuring corporate power.
0:13:45 That includes antitrust, but it also includes things like trade law or even First Amendment
0:13:50 law, which firms had increasingly been using to try to strike down regulations.
0:13:56 While I was in law school, I ended up using some of the research I had done around e-commerce
0:14:03 and Amazon to write a law review article using Amazon as a vehicle to tell a broader story
0:14:10 about the shift in antitrust law, ended up publishing that and there was a broader conversation
0:14:11 around all of these issues.
0:14:16 When you say there was a broader conversation, the conversation is mostly around your paper.
0:14:22 To me, it seemed like you’re a, let’s say, beginning of career singer-songwriter and
0:14:25 your first song becomes the world’s biggest hit.
0:14:29 This was your paper, Amazon’s Antitrust Paradox.
0:14:33 It catapulted you and this idea really onto the global stage.
0:14:35 That’s at least my outside perspective.
0:14:37 What’s the inside perspective?
0:14:42 I had just been in law school trying to get this paper out.
0:14:46 I was impressed and surprised that anybody was reading it, let alone that it had caught
0:14:52 some broader attention, but the background conversation was a growing recognition of the
0:14:58 fact that market after market had become so much more consolidated and that antitrust
0:15:00 was in need of a reboot.
0:15:01 The abstract alone is fascinating.
0:15:03 I’ll just read one sentence back to you.
0:15:08 In addition to being a retailer, Amazon is now a marketing platform, a delivery and logistics
0:15:12 network, a payment service, a credit lender, an auction house, major book publisher.
0:15:14 It goes on and on and on and on.
0:15:19 Elements of the firm’s structure and conduct pose anti-competitive concerns, yet it has
0:15:21 escaped antitrust scrutiny.
0:15:27 Is that the paradox of your title, that it’s acting like a monopoly but escaping the scrutiny?
0:15:28 Yes.
0:15:30 That is one of the paradoxes.
0:15:35 To further add to that, there’s a line in the paper that talks about how Amazon has
0:15:41 actually marched towards becoming a monopoly by singing the tune of contemporary antitrust.
0:15:48 It wasn’t just that it had escaped scrutiny, but it had actually pursued its strategy in
0:15:54 a way that was landing squarely in the very blind spots that had emerged in antitrust.
0:15:56 What do you mean by those blind spots?
0:15:58 I’m curious how that was accomplished.
0:16:03 Was that just Jeff Bezos and his leadership being very, very good at corporate strategy
0:16:05 or was it more than that?
0:16:10 I can’t speak to what they were specifically thinking, but one of the reorientations of
0:16:17 antitrust had become where enforcers would primarily look to whether a firm was charging
0:16:25 more or reducing output as the metric for understanding whether there was harm in antitrust terms.
0:16:30 Amazon, at least rhetorically, its strategy was very much focused around doing what’s
0:16:32 best for the consumer.
0:16:37 When enforcers were looking at that through just a short-term lens, I argued that they
0:16:41 were missing some of the broader harms that were emerging.
0:16:42 Okay.
0:16:48 Your Amazon paper clearly struck a deep chord, but how did you go from being a law student,
0:16:53 admittedly a high-profile law student, to being chair of the FTC?
0:16:57 After law school, I spent some time doing more research and writing.
0:17:01 Was set to clerk for a federal judge, and then a few months before my clerkship was
0:17:04 supposed to start, the judge I was supposed to clerk for ended up passing away.
0:17:05 Who was that?
0:17:07 Judge Reinhart in the Ninth Circuit.
0:17:11 Then I reshuffled my plans, ended up going to work for a federal trade commissioner,
0:17:18 Rohit Chopra, and then ended up going to work for the House Judiciary Committee’s subcommittee
0:17:26 on antitrust, which was looking to start an investigation into the large technology companies,
0:17:31 including Facebook, Amazon, Apple, and Google, I became part of a very small team, tasked
0:17:34 with crafting a congressional investigation.
0:17:41 We did an 18-month investigation, ended up publishing a report, summarizing our findings,
0:17:45 and issuing a set of recommendations for how to make sure that these digital markets
0:17:47 are competitive.
0:17:52 After that, I was going back to academia, and then had the great honor of being nominated
0:17:56 to serve at the FTC.
0:18:00 Coming up after the break, Lena Khan puts her Amazon research to work.
0:18:01 I’m Stephen Dubner.
0:18:03 This is Freakonomics Radio.
0:18:03 We’ll be right back.
0:18:17 When she was a law student at Yale, Lena Khan wrote what would become one of the most famous
0:18:20 law review articles of the current century.
0:18:26 It accused Amazon of using novel forms of monopolistic practice, including deliberately
0:18:32 underpricing its goods and services, with the goal of becoming an e-commerce behemoth,
0:18:36 a goal that Amazon has achieved.
0:18:43 Okay, while you were running the FTC, you and 18 state attorneys general in Puerto Rico
0:18:46 sued Amazon over monopolistic practices.
0:18:50 There is a trial scheduled to start in 2026.
0:18:56 I’d like you to take us full circle from writing the Amazon anti-trust paradox paper
0:19:01 in law school to now having brought this suit and waiting for the trial to begin.
0:19:07 To state the obvious, writing a law school paper is very different than being a law enforcer,
0:19:09 especially in digital markets.
0:19:16 You can see a monopoly life cycle where the set of tactics that a platform is pursuing
0:19:23 in the early stages when it’s looking to scale and achieve monopoly power will look different
0:19:29 than the tactics that it is deploying once it has achieved that monopoly status, has
0:19:35 locked out its rivals, and then is in extraction mode where it’s now able to exploit them
0:19:36 monopoly power.
0:19:43 My law review article was around the first stage and the lawsuit ended up focusing on
0:19:46 the practices of the second stage.
0:19:52 The lawsuit basically alleges that Amazon, after itself achieving scale, ended up in
0:20:00 a very concerted way pursuing tactics designed to deprive other companies of similarly enjoying
0:20:04 that scale that you need to really compete in online commerce.
0:20:06 It did this in a few ways.
0:20:14 One was it engaged in what we call anti-discounting practices where Amazon would basically punish
0:20:20 any business that listed its goods for a lower price on other platforms.
0:20:26 It was doing this even as Amazon was steadily increasing how much it charges sellers to
0:20:28 sell on Amazon.
0:20:35 Amazon takes as much as one out of every $2 from some of the sellers that rely on Amazon.
0:20:41 Even as it is increasing prices for sellers, it punishes those sellers for listing goods
0:20:46 for a lower price even on platforms that are taking a smaller cut.
0:20:50 We argue that this basically inflates prices across the internet.
0:20:59 We also allege that Amazon illegally conditions access to certain prime badge services on
0:21:05 sellers using its fulfillment services and that that has certain anti-competitive effects.
0:21:11 We also allege that Amazon used this algorithm called Project Nessie that also inflated prices
0:21:12 across the internet.
0:21:14 Nessie is in Loch Ness Monster?
0:21:15 Yes, exactly.
0:21:17 Why was it called that?
0:21:18 We don’t know.
0:21:20 We can only speculate.
0:21:24 Would you care to predict the outcome of the Amazon trial?
0:21:26 The trial is slated to go forward.
0:21:32 It is going to trial because the FTC defeated Amazon’s efforts to dismiss the case.
0:21:37 We got a resounding win where the judge said all of these counts are plausible.
0:21:40 I feel very optimistic, but we’ll have to wait and see.
0:21:42 What do you think Amazon looks like in 20 years?
0:21:44 It’s hard to say.
0:21:49 Part of that answer will depend on what happens with this litigation.
0:21:54 The Amazon case has thus far been a win for you in the FTC, but there were losses as well.
0:22:00 One legal scholar that I spoke with noted that a lot of your lawsuits were just seen
0:22:06 as unlikely to succeed in the courts and wondered when is it legitimate to bring a lawsuit that
0:22:11 doesn’t have a great chance of succeeding and whether that’s an attempt to influence
0:22:14 the law as opposed to carry out a successful prosecution.
0:22:20 Look, we ended up having resounding success in the courts, including with cases that had
0:22:22 not been brought previously.
0:22:28 If you tally up our wins and losses, we actually have done better than prior administrations
0:22:33 even while taking bigger shots and putting together more ambitious cases.
0:22:38 Sometimes there can be analyses that are not actually matching the facts of what happened.
0:22:43 We only filed cases where we thought there was a law violation and where the facts matched
0:22:48 it, but we also brought cases that were responding to the harms in the modern economy.
0:22:55 One trend that we’ve seen in various sectors is this issue of private equity roll-ups or
0:23:01 serial acquisitions, where firms will make a whole series of acquisitions, each one of
0:23:07 which may be small or fly beneath the radar, but in the aggregate, they may have still rolled
0:23:10 up a market and then inflated prices.
0:23:14 That’s something that’s been happening in our economy for some time and antitrust enforcers
0:23:15 had not addressed it.
0:23:22 We ended up filing a lawsuit taking on some of these roll-ups in anesthesiology and ended
0:23:24 up having a successful case there.
0:23:27 We also defeated the company’s motion to dismiss.
0:23:29 That’s going to trial.
0:23:35 We ended up successfully blocking dozens of mergers, including getting litigated wins,
0:23:40 including in instances where enforcers in the past candidly had failed to stop some of
0:23:42 this consolidation.
0:23:47 We succeeded in blocking the Kroger-Albertsen’s merger, which would have been the largest
0:23:54 supermarket deal in U.S. history, despite there being a fix that the companies had proposed.
0:23:57 Previously enforcers had allowed some of those big grocery deals to go through and the public
0:23:59 had really lost out.
0:24:02 Let’s talk about the work you did on non-competes.
0:24:07 These are the employment clauses that might forbid an employee from leaving one company
0:24:10 to work for another in the same industry, for instance.
0:24:13 I realize it didn’t have the happy ending you were looking for, but I’d love you to
0:24:18 walk us through it so people can understand both the scope of what you identify as the
0:24:22 problem and what you see as remedies.
0:24:25 Non-compete clauses have proliferated across the economy.
0:24:32 They started off in the boardroom, but have now expanded to cover janitors, security guards,
0:24:38 fast food workers, gardeners, journalists, healthcare workers.
0:24:44 A conservative estimate is that as many as one in every five Americans have been covered
0:24:47 by a non-compete clause.
0:24:52 These clauses can really have a devastating effect on people’s lives.
0:24:58 Materially, they can depress income, not just for the workers that are directly covered
0:25:02 by a non-compete, but actually for workers as a whole.
0:25:10 The idea being that if a worker is not able to change jobs, there is less opportunity and
0:25:16 churn in labor markets as a whole in ways that can deprive even those workers that don’t
0:25:22 have a non-compete from opportunities and that overall can really have a depressive effect
0:25:24 on wages and income.
0:25:32 After we put out a proposal to ban non-competes, we got 26,000 comments from people across
0:25:34 the country, which was really striking.
0:25:40 People live busy lives, people are not necessarily going to prioritize sitting down and submitting
0:25:45 a comment to some obscure federal agency, but it was clear that people felt very strongly
0:25:50 about non-competes, and we heard some devastating stories about just how these had affected
0:25:51 people’s lives.
0:25:54 I have two very basic questions about it.
0:26:01 Number one, once you get beyond the top tier employees, I don’t want my chief blank officer
0:26:06 going to a rival firm, I understand that, or I don’t want people with trade secrets
0:26:10 leaving my firm and potentially going to a rival firm, those I understand.
0:26:15 Beyond that, all the other people that you just named, what is the reasoning for why
0:26:22 a non-compete would even be considered worthwhile, and then how can it be legal?
0:26:27 The motivation question is a good one for the businesses that are imposing these non-compete
0:26:28 clauses.
0:26:33 Some of the arguments that get made at a high level is that these non-competes are in theory
0:26:41 necessary to make sure employees are not divulging trade secrets or that employers need these
0:26:45 non-competes to give them an incentive to train their employees.
0:26:49 A lot of those arguments will lose their force entirely when you’re talking about certain
0:26:56 categories of workers, but even for higher income workers, we have trade secrets laws.
0:27:02 For the vast majority of American workers, there is no good justification for these non-compete
0:27:03 clauses.
0:27:08 So that gets quickly to the second part, which is how did it become legal to enact these
0:27:09 non-competes so broadly?
0:27:13 Well, I would argue, and the FTC argued that it is not legal.
0:27:18 We brought some enforcement actions, including one case where you had security guards making
0:27:20 close to minimum wage.
0:27:23 The security guards were based in Michigan.
0:27:28 Under Michigan state law, these non-competes were actually illegal, but the firm still
0:27:32 had them in place and still tried to enforce them.
0:27:37 We had to basically sue to make sure these non-competes got dropped.
0:27:43 Even in states where these non-competes in theory are not enforceable, firms take a
0:27:44 step shot.
0:27:49 Oftentimes, workers, their rights are chilled because they may not know that these non-competes
0:27:54 are not enforceable and who’s going to really want to go up against their employer and risk
0:27:57 being thousands of dollars out of money.
0:28:01 In the case of the security guards, Prudential was the name of that firm?
0:28:02 That’s right.
0:28:04 What was the ultimate outcome of that case?
0:28:06 So we ended up bringing in enforcement action.
0:28:12 We ended up getting an order that required the company to drop its non-compete clauses
0:28:16 with the vast majority of the security guards and so thousands of people were freed from
0:28:17 non-competes.
0:28:24 So that’s a small victory, but the larger effort has been so far a defeat for you, correct?
0:28:26 It’s more of a mixed picture.
0:28:30 After we finalized the rule, we got three legal challenges.
0:28:35 One filed in Texas, one filed in Pennsylvania, and one filed in Florida.
0:28:39 Each of those legal challenges came out a slightly different way.
0:28:44 The judge in Pennsylvania said the FTC’s rule was lawful.
0:28:50 The judge in Texas said it was unlawful, and the judge in Florida came out somewhere in
0:28:52 between the FTC.
0:28:58 When I was still at the agency, ended up appealing both the case in Texas and Florida.
0:29:02 We’re going to have to wait to see what happens, though you’re right, that for the time being,
0:29:04 the rule is not in effect.
0:29:06 Unfortunately, non-competes are still in place right now.
0:29:13 So one big function of the FTC is plainly policing, but also when it comes to your anti-trust
0:29:20 activity, an implicit argument is that cracking down on monopolistic behavior, cracking down
0:29:25 on non-competes also is good for competition and it’s good for the markets.
0:29:30 Good markets theoretically benefit a lot of people, start-up firms and employees, consumers.
0:29:36 In other words, competition is seen, at least by economists, as win, win, win.
0:29:44 So what’s your best evidence that your work has actually produced these kinds of victories?
0:29:47 I can give you a couple of examples.
0:29:51 One is a specific merger that we blocked.
0:29:54 This was the Sanofi-Maze transaction.
0:30:01 Sanofi had a monopoly on a drug for Pompeii disease, this really horrible illness that
0:30:05 leads to muscles atrophying.
0:30:11 Maze was this upstart that was in the process of developing another treatment for Pompeii
0:30:12 disease.
0:30:19 Unlike Sanofi’s treatment that required regular IV shots, Maze was working on something that
0:30:21 could be taken orally.
0:30:28 It had the potential for dramatically improving the lives of Pompeii disease patients.
0:30:35 The FTC argued that if Sanofi bought out Maze, there was a real risk that Maze’s innovative
0:30:41 treatments either wouldn’t make it to market or wouldn’t make it to market as quickly.
0:30:47 Because here you have a situation where Sanofi is already enjoying monopoly profits on this
0:30:48 drug.
0:30:54 We worried that it wouldn’t have the incentives to introduce another drug that would cannibalize
0:30:56 its existing sales.
0:31:02 We filed a lawsuit seeking to block this acquisition, arguing that it would allow Sanofi to illegally
0:31:05 monopolize this area.
0:31:08 The companies ended up walking away from the deal.
0:31:14 Maze ended up then partnering with another firm that ended up having as good, if not
0:31:20 better terms for Maze and will actually bring that drug to market even more quickly.
0:31:22 This is a Japanese firm, yeah?
0:31:23 That’s right.
0:31:27 That was proof of concept of the FTC’s work getting it right.
0:31:33 I think more generally, the non-competes that ended up being dropped because of the FTC’s
0:31:38 work, that means there are thousands of workers that are now free to go start their own business
0:31:40 or freely switch employers.
0:31:46 The mergers that we blocked, including in the context of NVIDIA ARM, ended up leading
0:31:52 to a lot of independent success for both NVIDIA and ARM in ways that also has boosted innovation,
0:31:57 especially at a critical moment for a lot of these artificial intelligence technologies.
0:32:04 We’ve also filed a whole set of other lawsuits, including one against John Deere for illegally
0:32:10 restricting farmers’ ability to repair their own tractors and agricultural equipment, which
0:32:13 is something we heard a lot of concern about from farmers.
0:32:19 When they’re entirely dependent on John Deere for getting their agricultural equipment fixed,
0:32:25 they can both inflate their costs as well as lead to all sorts of devastating delays.
0:32:31 We also filed a lawsuit against Pepsi, arguing that it was engaging in illegal discrimination
0:32:35 in ways that was squeezing independent grocers.
0:32:41 We filed a lawsuit against the three big pharmacy benefit managers, claiming that the rebating
0:32:47 practices they have in place have systematically hiked the cost of insulin as well as other
0:32:48 drugs.
0:32:54 This more generally took on these illegal patenting practices where firms would illegally
0:33:01 list patents for certain products and components of devices, including things like the plastic
0:33:03 cap on an inhaler.
0:33:08 Asthma inhalers out of pocket costs have been hundreds of dollars, even though asthma inhalers
0:33:10 have been around for decades.
0:33:16 Once we called out some of these illegal patenting practices, three of the four big inhaler manufacturers
0:33:22 announced that they would drop the out-of-pocket costs to $35.
0:33:24 And what happened to the share prices of those firms?
0:33:25 You know, that’s a good question.
0:33:27 I don’t remember right off the bat.
0:33:29 They didn’t go out of business, though.
0:33:32 No, I think they have a lot of other lucrative lines of revenue.
0:33:35 Can you talk a bit more about the price of insulin?
0:33:41 The FTC’s lawsuit was actually about the market as a whole, where we found that basically
0:33:47 these pharmacy benefit managers engaging what are known as these rebating practices where
0:33:54 drug manufacturers have to pay these PBMs or rebate to get their drugs listed on what’s
0:33:56 known as the formulary.
0:34:02 We allege that the way the PBMs have structured this whole system means that the drug companies
0:34:08 are incentivized to ultimately raise the cost of insulin rather than compete by lowering
0:34:12 it and that this as a whole is inflating the cost.
0:34:17 We did a series on private equity consolidation in the pet care industry, and we found a lot
0:34:20 of problems there for employees and consumers.
0:34:26 But we also learned something that seems to apply to a lot of the human health care industry.
0:34:30 If you look at nursing homes, doctor’s offices, dentist’s offices, what we heard is that the
0:34:36 founders of these offices and companies, when it’s time to retire, they might prefer to
0:34:39 sell to one of their junior partners.
0:34:43 That’s what often happened before private equity was around, but now those junior partners
0:34:48 have so much debt from medical school or veterinary school or whatever that they can’t afford
0:34:49 to buy the practice.
0:34:54 So the only likely buyer is an outside investor like a private equity firm.
0:35:00 The PE firm is satisfying a real need there, but the resulting rollups or consolidations
0:35:06 are often worse for existing employees and worse for consumers.
0:35:10 Do you have any thoughts for how that might work differently?
0:35:15 It’s a really good point and I think highlights how antitrust and competition policy have
0:35:20 a really important role to play, but there are all sorts of other economic policy decisions
0:35:25 that are going to affect, for example, whether the junior partner even has the ability to
0:35:28 make that acquisition that we need to be paying attention to as well.
0:35:32 The other thing I’ll note is there are all sorts of different types of private equity
0:35:40 business models, but it is true that one model has been the leverage buyout where a private
0:35:47 equity firm is using the assets of the company they’re buying as collateral, loading up that
0:35:48 company with a lot of debt.
0:35:54 Sometimes there’s the 70-30 model where the private equity firm is making 30% of the investment
0:35:59 and then using the balance sheet of the underlying company and taking on a lot of debt.
0:36:05 That can weaken the underlying firm, but also incentivize the private equity owner to make
0:36:12 a lot of short-term extractions and engineer a lot of short-term returns in ways that can
0:36:15 undermine the quality of the business as a whole.
0:36:19 For example, we got some submissions from ER doctors.
0:36:23 Emergency medicine is a place where we’ve seen a lot of private equity incursion.
0:36:28 They mentioned that there are all sorts of financial metrics introduced into their work.
0:36:34 I remember hearing from one ER doctor that he was sitting with a parent who had just
0:36:40 lost their kid and this ER doctor having to think that he didn’t even have the time to
0:36:46 commiserate with this parent because he felt such significant financial pressure to meet
0:36:47 this quota.
0:36:54 If the government is concerned about over-consolidation in those kinds of spaces, healthcare, whether
0:37:00 human, animal, whatever, would it be viable to consider something like low-interest loans
0:37:07 to junior partners to help keep firms a smaller size rather than succumb to the one possible
0:37:11 sell-out outcome, which is to a bigger investment firm like private equity?
0:37:14 That’s a really interesting idea and not something I’ve heard proposed before.
0:37:17 I could imagine it could make a difference.
0:37:22 Let’s talk for a minute about the merger guidelines released by the FTC under your watch.
0:37:26 Let’s start with the process, maybe the idea or the theory, and then the drafting.
0:37:31 What were you hoping to accomplish and why did you think it was important?
0:37:37 The merger guidelines can sound like this arcane document, but the core of it is a road map
0:37:43 for how enforcers review and assess mergers that are before them.
0:37:50 There have been guidelines going back to 1968, and periodically these have been updated.
0:37:56 We undertook a process starting in late 2021 to revise these merger guidelines with a couple
0:37:58 of goals in mind.
0:38:03 First was wanting to make sure that these guidelines were actually reflecting the law.
0:38:09 We had seen that in some prior instances enforcers had actually handicapped themselves and written
0:38:15 guidelines with very cramped or sometimes just inaccurate expressions of what the law
0:38:20 really was, which we thought was not being faithful to Congress or the courts.
0:38:26 We also wanted to make sure these guidelines were up to date and reflecting the realities
0:38:28 of the 21st century economy.
0:38:33 We wanted to make sure they were addressing things like digital markets and platforms.
0:38:37 We wanted to make sure they were addressing labor markets, which had been a big blind
0:38:41 spot in the past and issues like serial acquisitions.
0:38:48 And we wanted to make sure that we were hearing from a broad set of market participants.
0:38:51 Antitrust in recent decades has been quite insular.
0:38:58 You’ll hear from very smart and accomplished experts, but the broader public as a whole
0:38:59 has often been neglected.
0:39:05 We wanted to change that and ended up getting thousands upon thousands of comments from
0:39:06 the public.
0:39:12 A lot of healthcare workers participated, including doctors, nurses, people who had
0:39:19 seen their field and their practice change based on increasing consolidation.
0:39:26 We heard from farmers, we heard from musicians, heard from teachers, ordinary Americans who
0:39:33 don’t spend their days practicing antitrust law, but whose life has shown them that whether
0:39:38 markets are extremely consolidated and monopolized or whether they’re opening competitive makes
0:39:40 a real difference.
0:39:42 What about from the industry side?
0:39:45 The draft of the merger guidelines was open to them as well.
0:39:50 It sounds like you’re saying most of the public sentiment was saying, yes, we would like stronger
0:39:51 guidelines.
0:39:53 What about from industry, though?
0:39:57 Industry spans a broad set of market actors.
0:40:03 We heard from a lot of small businesses including independent pharmacists, independent grocers.
0:40:09 We heard a lot from entrepreneurs and startups and founders who have seen that when you have
0:40:14 these big gatekeepers that can shut them out of the market, that can have real problems.
0:40:19 Even within industry and the business community, we heard a lot of interest in favor of stronger
0:40:20 antitrust.
0:40:26 Of course, we did also hear from existing monopolists and incumbents and dominant firms who would
0:40:30 prefer that antitrust enforcement be quite weak.
0:40:36 I assume that the goal of these merger guidelines is to act as a deterrent against some mergers
0:40:40 that might be seen later as anti-competitive.
0:40:44 Assuming that is true, how do you measure the effect of deterrence?
0:40:50 The goal of the guidelines is really to provide clarity to the public about how it is that
0:40:54 enforcers will look at mergers and analyze them.
0:41:00 On the deterrence question, of course, as a law enforcer, you don’t want illegal behavior
0:41:03 to occur in the first instance.
0:41:10 If through that type of guidance, you are deterring illegal mergers, that is a net good.
0:41:13 In terms of how you measure deterrence, it’s a good question.
0:41:19 I don’t think it’s a precise science, but over the years when I was serving at the FTC,
0:41:25 we got some data points like what senior deal makers would be saying around how several
0:41:30 years ago when they were counseling clients, they wouldn’t really talk about antitrust
0:41:36 until the very, very end of the discussion, whereas over the last couple of years, antitrust
0:41:39 was up front and center right at the beginning.
0:41:44 We also heard from deal makers and senior executives about how certain deals that were
0:41:50 initially being discussed ended up not being proposed because there was a recognition that
0:41:52 the legal risk was too high.
0:42:00 We also saw deals where once they were proposed and the FTC started investigating, the firms
0:42:02 ended up abandoning.
0:42:08 There was a practice in the past where firms sometimes recognized that there was significant
0:42:12 legal risk, but would kind of roll the dice and say, “Well, maybe enforcers will look
0:42:15 the other way or maybe they’ll miss it.”
0:42:19 Once we started taking a closer look and a more stringent approach, some of those deals
0:42:21 abandoned as well.
0:42:27 If you read the Wall Street Journal editorial pages, these merger guidelines are an attack
0:42:28 on the free markets.
0:42:31 There’s been a lot of criticism on that front.
0:42:37 Mark Andreessen, the very prominent venture capitalist, he said when Trump was reelected,
0:42:42 it was like “getting a boot off the throat for people like him, for people in the tech
0:42:44 and business sectors.”
0:42:49 I gather that you’re the person wearing that boot in the Andreessen comment.
0:42:55 What we heard from startups and founders was that they wanted a chance to compete.
0:43:01 When you have markets where the only option is to be bought up, that’s not giving founders
0:43:04 the opportunity to really scale organically.
0:43:07 I think the story is a bit more textured here.
0:43:13 We’ve learned recently that the merger guidelines put out on your watch will be retained by
0:43:14 the Trump administration.
0:43:16 Are you surprised by that?
0:43:23 I personally am not that surprised, in part because issues around antitrust and anti-monopoly
0:43:28 have had a strong bipartisan current in recent years.
0:43:32 Some of the initial lawsuits that were filed against large technology companies, including
0:43:37 Facebook and Google, actually were initiated during the first Trump administration.
0:43:40 I know JD Vance is a fan of yours.
0:43:44 He recently said, “I look at Lina Khan as one of the few people in the Biden administration
0:43:48 that I actually think is doing a pretty good job.
0:43:55 Considering how much Biden administration work has already been undone by the Trump administration,
0:44:00 I wonder what it feels like for you to have one of your signature policies continue under
0:44:01 Trump.”
0:44:05 It’s too early to say what the big picture is going to look like in terms of whether
0:44:08 we’re going to continue to see strong enforcement.
0:44:14 Of course, seeing other law enforcers be dismantled, including the Consumer Financial Protection
0:44:17 Bureau is quite troubling.
0:44:23 But of course, the fact that at this stage, it’s clear there is bipartisan support for
0:44:30 strong merger guidelines that’s going to protect more Americans from consolidation and monopolization.
0:44:35 I think we can have some cautious optimism on that small front, even as we’re going to
0:44:38 have to wait and see what happens more generally.
0:44:42 You once wrote that your hobbies include, quote, “Trying to find the most obscure industry
0:44:45 where I can find consolidation.”
0:44:52 Can you name some industries that we may not think of as heavily consolidated but are?
0:44:54 That’s a good question.
0:45:00 One industry that I actually came to learn about, it was a market for basically ugly
0:45:06 produce, I don’t know how else to put it, produce that is seen as not being attractive
0:45:11 enough for supermarket shelves, and then it gets sent off to certain other markets.
0:45:16 I remember there was a merger being reviewed that was focused on that market that actually
0:45:20 was more consolidated than I expected.
0:45:27 Lina Khan’s example here, a consolidated market in ugly produce, points to a larger
0:45:31 philosophical argument about how the US economy should work.
0:45:37 Just about every economist agrees that consolidation above a certain level can be a big problem.
0:45:43 The history of our economy includes a long line of creators and innovators, operators
0:45:51 and aggregators who through their grit and savvy cornered markets or created monopolies.
0:45:56 Some of these companies were intensely exploitative, but they were also helping create what would
0:46:02 become perhaps the most dynamic economy in the history of the world, and this dynamic
0:46:08 capitalism has helped produce huge gains for many people over the years.
0:46:13 It’s hardly perfect, everybody knows that, and over consolidation is one big flaw.
0:46:21 But how do you dampen the appetite for domination while keeping alive the incentives to create?
0:46:26 How do you encourage people to keep risking their time and money and rain power if they’re
0:46:30 punished for winning too big?
0:46:35 If someone comes up with a clever idea, like buying up ugly produce and building a market
0:46:42 around it, and they come to dominate that market, is that reason alone to break them up?
0:46:47 That is essentially the same question Google is facing in court right now.
0:46:51 So where is the appropriate middle ground?
0:46:53 With the break, we will try to find it.
0:46:58 Constructive engagement is always valuable, but you also have to be able to separate that
0:47:00 from some of the hysteria.
0:47:15 I’m Stephen Dubner, this is Freakonomics Radio, we’ll be right back.
0:47:21 Innecon had plenty of critics during her tenure as FTC chair from a variety of ideological
0:47:22 camps.
0:47:27 Some conservatives accused her of overreach, some liberals said she was more bark than
0:47:32 bite, but there is one thing about her that just about everyone agrees on.
0:47:39 She is a serious person who eats, sleeps, and breathes antitrust reform.
0:47:44 She has been fixated on corporate power since she was at least a high school sophomore.
0:47:49 In 2004, she wrote an article for her school newspaper about a nearby Starbucks that wouldn’t
0:47:51 allow students to congregate.
0:47:55 The New York Times followed up her article with one of their own called “A Tempest in
0:47:57 a Coffee Shop.”
0:48:03 I asked Kahn if she could identify where this crusading spirit of hers comes from.
0:48:08 I think from a young age, I was really struck by journalists and the efforts that they undertake
0:48:16 to hold power to account, both powerful corporations as well as powerful actors in government,
0:48:20 especially growing up after September 11th and seeing the incredible important role that
0:48:24 journalists were playing then really made a big impression on me.
0:48:29 You have been praised in some quarters for your work at the FTC, but also attacked, and
0:48:34 I would argue the attacks were much more intense than is typical for the FTC chair.
0:48:37 How do you manage the criticism?
0:48:42 Do you try to seek out criticism that has value and try to learn from it and sort that
0:48:45 out from the rest that’s just noise?
0:48:46 Do you not pay attention to any of it?
0:48:49 You know, I’m a public servant, I serve the public.
0:48:55 So it’s absolutely important for me to be soliciting and getting feedback and input
0:48:58 and understanding what the public response is.
0:49:04 But of course, you need to place more value on feedback and input that is actually tethered
0:49:06 to reality and tethered to facts.
0:49:11 Good faith constructive engagement is always valuable, but you also have to be able to
0:49:14 separate that from the hysteria.
0:49:21 Where does the Wall Street Journal editorial page sit on the tethered to facts spectrum?
0:49:24 I was surprised sometimes by just the factual errors.
0:49:30 I think it does go back to this basic issue of economic reality versus theoretical assumptions
0:49:32 that are just out of date.
0:49:37 Although I will say this, one critic of yours, this is an academic who doesn’t like your
0:49:40 work very much, he works in the antitrust space.
0:49:46 He made the argument that your work is almost universally, in his view, ideological and not
0:49:47 empirical.
0:49:48 How would you respond to that?
0:49:57 I think the fact that this work has gotten so much traction so quickly was entirely because
0:49:59 it was on the side of reality.
0:50:05 The antitrust enforcement model that had been followed for 40 years had failed to keep markets
0:50:12 open and fair and competitive, and so it was really empiricism that drove this work forward.
0:50:14 What kind of a boss are you?
0:50:19 I’m told you’re not the “let’s all grab a beer after work” kind of boss.
0:50:22 Any particular aspect of that that you’re interested in?
0:50:25 Some people complained about your leadership style.
0:50:28 People said there was low morale at the FTC during your tenure.
0:50:29 There were a lot of resignations.
0:50:33 I’m also aware that when you’re a political appointee coming into an agency like this
0:50:37 and you try to do things quite differently, there’s going to be friction.
0:50:42 Looking back now after four years, if you could start again, would you approach your
0:50:44 management style any differently?
0:50:49 Well, let me say first of all, the FTC is really fortunate to have extraordinarily hardworking,
0:50:54 talented career civil servants that are being pitted up against some of the largest, most
0:50:57 powerful companies in our country.
0:51:02 My hats off to them in terms of the grit and commitment that they bring every day.
0:51:09 Stepping back, my arrival, understandably, I think, was received by some as some type
0:51:11 of indictment of the agency.
0:51:17 I had been on the outside a critic of the FTC, arguing that both the FTC and the DOJ had
0:51:24 gotten things wrong, had taken decisions that ended up resulting in real harm to the American
0:51:25 people.
0:51:30 These criticisms were really directed at political leadership, the people that are calling the
0:51:31 shots.
0:51:37 Understandably, there was some questioning about what my criticisms were really about.
0:51:43 This was also a moment where you had the president say that the last 40 years of competition
0:51:45 policy had gone astray.
0:51:49 So these are people who were saying, “Look, I’ve been doing my job every day as a dedicated
0:51:53 civil servant, and now I’m being told that I’ve been doing it all wrong.”
0:51:58 It sounds as though you’re coming into an agency that had operated under a consistent
0:52:02 political ideology for, let’s call it, 40 years.
0:52:07 Does an agency like that therefore attract civil servants who jive with that ideology?
0:52:13 In other words, did you take over an agency that was staffed quite robustly by a bunch
0:52:18 of people who really liked the Reagan and the Bork and the Chicago School of Thinking?
0:52:23 Well, there are all sorts of different factors that drive people to public service.
0:52:27 For the most part, they want to serve their fellow Americans.
0:52:33 It was more about the antitrust enterprise as a whole, the ways that the law had drifted,
0:52:39 what type of analysis the law was privileging rather than any specific person or groups
0:52:40 of people.
0:52:45 Were there particular quadrants of the FTC that you bulked up on or tried to slim down?
0:52:51 We wanted, first of all, just to make sure we had the teams that we needed to pursue
0:52:52 some of these litigations.
0:52:58 I mean, the agency was actually smaller than it had been in the 1970s, especially we got
0:52:59 a budget increase.
0:53:03 We did hire more people, including very talented litigators.
0:53:09 We also wanted to make sure that the way we were looking at markets was actually reflecting
0:53:16 the reality on the ground, and that meant broadening the type of skill sets that we had.
0:53:24 We were not just hiring industrial organization economists, but also labor economists, accountants,
0:53:30 people who had slightly different skill sets that would be able to give us a more 360 view.
0:53:36 We also started a new office of technologists wanting to make sure that we had data scientists
0:53:43 and data engineers and AI experts, especially as more and more markets digitize.
0:53:49 We need people who can sit alongside the economists and the lawyers and explain how are these algorithms
0:53:51 actually working?
0:53:57 What share of this new wave of FTC employees would you say will still be there a month
0:53:58 or a year from now?
0:53:59 It’s hard to know.
0:54:04 Obviously, across government, there’s a lot of disruptive efforts right now that are
0:54:07 resulting in a lot of people being laid off and let go.
0:54:09 So it’s too early to say.
0:54:15 I will say the new administration has talked a lot about the importance of making sure
0:54:21 our technology markets and digital markets are open and fair and competitive.
0:54:28 If you are gutting the FTC by eliminating technologists and eliminating the litigating
0:54:33 teams that are supposed to be pursuing these cases, that’s going to really handicap your
0:54:34 ability.
0:54:37 What was your favorite thing about working in government?
0:54:44 I really loved getting to hear from people who had an issue that they thought the FTC
0:54:46 should be focusing on.
0:54:49 I had the chance to do a lot of listening sessions across the country.
0:54:54 I went to Ames, Iowa to hear from farmers that were worried about this particular fertilizer
0:54:58 merger, heard from pharmacists in Kansas City.
0:55:04 Those types of engagements were really important in keeping me focused and underscoring the
0:55:10 ways that seemingly arcane agencies like the FTC have a lot of opportunity to make a real
0:55:12 difference in people’s lives.
0:55:16 What are some of your least favorite things about working in government?
0:55:20 Sometimes it can take longer to get things done than is optimal.
0:55:25 We certainly streamlined certain processes and tried to eliminate red tape.
0:55:29 But I think there’s just more of that that could be done.
0:55:34 Of course, there’s a lot of baked-in pushback from monopolists and dominant firms.
0:55:39 I’m curious to know your thoughts on the choice of Kamala Harris as the candidate with
0:55:41 no outside competition after Biden withdrew.
0:55:47 I mean, doesn’t it feel that that was handled in a similar way to some of the anti-competitive
0:55:49 cronyism that you’re fighting?
0:55:54 I have zero comparative advantage in terms of weighing in on this, I’m kind of a policy
0:55:58 nerd, but I don’t really have much to add when it comes to some of the political analysis
0:55:59 here.
0:56:03 I don’t know if you’re familiar with the work of the political scientist Yu-Ni-Wen-Ong.
0:56:07 She studies at Johns Hopkins and she studies political corruption.
0:56:12 She makes the argument that countries like China and Russia have significant levels of
0:56:19 corruption in forms that to an American seem patently illegal, suitcases full of cash and
0:56:21 no bid contracts, things like that.
0:56:26 But she argues that political corruption in the US is also very significant.
0:56:33 It’s just that it’s essentially legal corruption in the form of corporate capture of government.
0:56:37 I’m curious to hear your thoughts on corporate capture and how serious you think that problem
0:56:38 is.
0:56:45 Americans certainly worry that government is not always serving their best interests
0:56:51 because large corporations have too much influence.
0:56:55 We see that concern expressed in all sorts of ways, including concern about the role
0:56:57 of money and elections.
0:57:04 I think there are all sorts of subtle ways beyond just how much money, large and wealthy
0:57:07 entities can pour into elections.
0:57:10 Intellectual capture can occur.
0:57:15 We see it through a lot of the funding of research and then what kinds of research is
0:57:19 even made available to regulators and enforcers.
0:57:25 There can be all sorts of ways that the information environment in which enforcers and regulators
0:57:30 are operating is already skewed by those well-heeled interests.
0:57:38 So Lena, your life has already had this amazing arc with a lot of accomplishment and drama.
0:57:43 It feels like enough to write a book about maybe an opera, but you’re still very young.
0:57:48 So let’s assume that your life to date is act one of that opera.
0:57:52 What do you want the second and third acts to look like?
0:57:55 I’m still just processing the last few years.
0:57:58 I ended my government service at the end of January.
0:58:05 So really just focused on the near term for now, but I care deeply about wanting to make
0:58:10 sure that markets in America are open and fair and competitive.
0:58:17 This is important for people materially, but these issues also go to the core values of
0:58:23 our country. The lawmakers who have initially passed the antitrust laws viewed them as being
0:58:29 a key safeguard against the concentration of power, that in the same way we needed checks
0:58:34 and balances in our government to protect against the exercise of arbitrary power, there
0:58:40 was a view that the antitrust and anti-monopoly laws would play a similar role in our economic
0:58:41 and commercial sphere.
0:58:48 So I view the stakes here as being enormous, as being existential for our country, and
0:58:51 I’m really committed to continuing to work on these issues and whatever opportunity I
0:58:52 have.
0:58:56 I understand you’re back teaching at Columbia now, at least for this semester, is that right?
0:58:59 Yeah, exactly. I had been on leave and I’m back at the law school.
0:59:05 Do you have any concrete items on your wish list? Does policy and politics remain toward
0:59:08 the top of that list or something quite different perhaps?
0:59:13 For now, just continuing to build out this work, there is a lot of enthusiasm and interest
0:59:19 among law students and young people in general. Of course, it was a great honor to serve
0:59:23 and if there was another opportunity, that’s of course something I would be open to.
0:59:27 If President Trump had asked you to stay on, I realize that may sound unlikely to a lot
0:59:31 of people hearing this, but the more they know about you and your work and how the Trump
0:59:35 administration thinks about your work, it’s actually maybe not so unlikely, but would
0:59:36 you have stayed under Trump?
0:59:42 I mean, you know, that was a hypothetical, but my term ended up expiring in September.
0:59:48 President Trump ended up nominating somebody new to fill my seat. So I had a great time
0:59:52 getting to work alongside Andrew Ferguson when he was a commissioner and I was chair.
0:59:59 And I do think it’s important for people to serve and the FTC historically has had bipartisan
1:00:03 commissioners that have continued to serve across administrations.
1:00:09 I see that Bernie Sanders has embarked on what he calls a national tour to fight oligarchy.
1:00:15 He’s drawing pretty big crowds, a lot of enthusiasm. I’m curious if he has asked you
1:00:19 to put in an appearance and if you would, if you were asked.
1:00:24 I’m a great admirer of Senator Sanders. He was a strong supporter of the FTC’s work.
1:00:30 There’s a real concern that very well-healed interests in this country are wielding enormous,
1:00:35 such as economic power, but political power and the antitrust and anti-monopoly laws were
1:00:39 supposed to be a bulwark against that. I leave it to the elected officials to do what they
1:00:43 do best, but of course I’m happy to support that work however I can.
1:00:49 When I hear you mention Ames, Iowa, I cannot help but think that perhaps you might have
1:00:53 aspirations of being elected to office one day. Is that the case?
1:00:54 No.
1:00:55 That’s a flat no.
1:01:03 No, I really enjoyed being a bureaucrat.
1:01:08 It’s always good to speak with someone who enjoys being a bureaucrat. I’d like to thank
1:01:13 Lena Kahn for the good conversation today. I learned a lot. I hope you did too. Let us
1:01:19 know what you are thinking. Our email is radio@freakonomics.com. Coming up next time
1:01:24 on the show, another one-on-one conversation around another set of important government
1:01:31 functions, but this person is not embraced by politicians on both sides.
1:01:35 My nonpartisan approach is to be critical of everybody in Washington.
1:01:37 Do you have any friends?
1:01:40 No. Not really.
1:01:45 Jessica Riedel has two main messages. Number one, the federal debt crisis is even worse
1:01:50 than you think, and few politicians have the courage to do anything about it.
1:01:56 And number two, just about everything you know about U.S. tax policy is wrong. That’s
1:02:02 next time on the show. Until then, take care of yourself. And if you can, someone else
1:02:03 too.
1:02:07 Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire
1:02:14 archive on any podcast app also at Freakonomics.com, where we publish transcripts and show notes.
1:02:19 This episode was produced by Teo Jacobs, with help from Zac Lipinski. The Freakonomics
1:02:24 Radio network staff includes Alina Cullman, Augusta Chapman, Dalvin Abouaji, Eleanor Osborn,
1:02:29 Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Jeremy Johnson,
1:02:35 John Schnars, Morgan Levy, Neil Coruth, and Sarah Lilly. Our theme song is Mr. Fortune
1:02:43 by the Hitchhikers. Our composer is Luis Guerra. As always, thanks for listening.
1:02:48 I know you’re married and have a young kid. Are they grateful that you’re no longer at
1:02:52 the White Hot Center of anti-monopoly?
1:03:00 I would think so, yes. Less multitasking while making dinner or breakfast.
1:03:10 The Freakonomics Radio network, the hidden side of everything.
1:03:13 [MUSIC PLAYING]
0:00:10 Commission in 2021.
0:00:16 She became the youngest FTC chair in history and this agency goes back to 1914.
0:00:21 Kahn was also considered one of the most progressive chairs in FTC history.
0:00:26 While she was still in law school, Kahn published a journal article called Amazon’s Antitrust
0:00:31 Paradox which went on to become famous and which painted a picture of capitalism gone
0:00:37 wild where too many firms have become too big and too powerful posing a threat not just
0:00:44 to consumers and employees but to the economy itself and maybe even to democracy.
0:00:48 One of the signature achievements of her FTC term done in collaboration with the Department
0:00:53 of Justice was an updated set of the government’s merger guidelines.
0:00:59 This is a 50-page blueprint for pushing back against over-consolidation, for limiting both
0:01:05 horizontal and vertical acquisitions and for making the economy more resilient by reducing
0:01:07 corporate power.
0:01:11 These are ideas we have dug into repeatedly on Freakonomics Radio.
0:01:16 We have done episodes about consolidation in the eyeglass industry, in the pet care and
0:01:18 dialysis industries.
0:01:23 We made an episode called Our Private Equity Firm’s Plundering the U.S. Economy.
0:01:28 Now with Donald Trump back in the White House, Lena Kahn is of course gone, replaced by a
0:01:33 Republican chair, Andrew Ferguson, and the Trump administration has been moving quickly
0:01:38 to undo or wipe out any number of Biden administration policies.
0:01:41 But not those merger guidelines.
0:01:45 They are being retained and embraced by the Trump administration.
0:01:50 Here’s how one former Biden administration official put it to me, “It’s like being
0:01:56 in your house when a tornado comes and wipes out everybody’s house except for yours.”
0:01:59 You might call this the Lena Kahn paradox.
0:02:03 And how does Kahn herself feel about this paradox?
0:02:07 Based on the conversation you are about to hear, I would put it this way.
0:02:12 When it comes to antitrust policy, Kahn doesn’t care who gets it done as long as it gets done.
0:02:17 I view the stakes here as being existential for our country.
0:02:23 Today, on Freakin’omics Radio, we review Lena Kahn’s FTC track record.
0:02:28 If you tally up our wins and losses, we have done better than prior administrations, even
0:02:33 while taking bigger shots and putting together more ambitious cases.
0:02:38 And we talk about how to do good work in a world where bad behavior is often rewarded.
0:02:44 We need to place more value on feedback and input that is actually tethered to reality
0:02:45 and tethered to facts.
0:02:51 Reality, facts, and more with former FTC chair Lena Kahn starting now.
0:03:08 This is Freakin’omics Radio, the podcast that explores the hidden side of everything
0:03:10 with your host, Steven Dubner.
0:03:27 My name is Lena Kahn, and until recently, I served as chair of the Federal Trade Commission.
0:03:31 It’s fun to say that, I would imagine, yes.
0:03:32 Yeah.
0:03:40 Can you just give us in a nutshell how you got here, there, in such a relatively short
0:03:41 time?
0:03:42 Yeah, happy to.
0:03:44 It is a bit of an idiosyncratic path.
0:03:47 I spent a lot of time in undergrads interested in journalism.
0:03:50 I graduated right after the financial crisis.
0:03:52 Journalism jobs were pretty hard to get.
0:03:57 I ended up instead landing with a think tank, and I worked with a group where my job was
0:04:02 to research and document consolidation across markets.
0:04:06 This was the open markets group at the New America think tank, yeah?
0:04:07 That’s right.
0:04:13 I had to do these deep dives into all sorts of sectors, be it book publishing or airlines
0:04:21 or all sorts of commodity markets, and I started to get a picture of decades of consolidation
0:04:27 in market after market, where we had gone from dozens of competitors to increasingly
0:04:29 a small number of firms in each sector.
0:04:34 My job was to both document that that had happened and also document what the effects
0:04:35 had been.
0:04:38 It’s one of those things that in retrospect seems obvious, like yes, there’s been so
0:04:42 much consolidation in our economy, full stop.
0:04:47 But at the time, I’m wondering if you felt like you were toiling in some forgotten corner
0:04:50 of the economy, that this was something that people weren’t paying much attention to at
0:04:51 the moment?
0:04:52 That’s right.
0:04:55 This was around 2010, 2011.
0:05:01 There was a national conversation around economic inequality more generally, but there was not
0:05:06 any real conversation around industry consolidation or concentration.
0:05:11 If you went to some type of social gathering and you said, “I researched market consolidation
0:05:14 and antitrust, people’s eyes would tend to glaze over.”
0:05:19 So my job was to document consolidation and the effects of it.
0:05:24 This really gave me a tour of all sorts of sectors across the US economy.
0:05:30 I spent a lot of time understanding how the chicken farming industry works today and learned
0:05:35 that you have tens of thousands of chicken farmers on one side, millions of consumers
0:05:36 on the other.
0:05:42 And they’re all connected by a very small number of these chicken processing companies.
0:05:47 The effects of that and the big picture have been that consumers are paying more even as
0:05:49 farmers are earning less.
0:05:55 That got me really interested in the antitrust laws, which were passed over a century ago,
0:05:58 designed to keep markets open and competitive.
0:06:04 I was really struck by how we had, on the one hand, a set of laws designed to keep markets
0:06:06 open and competitive.
0:06:12 And yet on the other, we had seen just wholesale consolidation and a drift away from markets
0:06:14 that were open and competitive.
0:06:17 And I was really intrigued by how this had happened.
0:06:21 That in turn got me interested in the history of the antitrust laws.
0:06:27 I think most people pay a little bit of attention to what’s going on in the world that they
0:06:29 live in right now.
0:06:31 Not a lot of attention, but a little bit of attention.
0:06:35 And very few people read a lot of history.
0:06:39 So we tend to respond to what’s going on in the news, let’s say, in anti-competitive
0:06:43 practice based on what we know about the last couple years.
0:06:47 Yeah, Facebook has gotten too big, Google’s gotten too big, and therefore X or Y needs
0:06:48 to be done.
0:06:51 But that’s not a particularly fruitful way to look at the world.
0:06:55 It’s nice to have some historical and even philosophical underpinnings.
0:07:01 So if you could just talk about a quick history of competition law and how people long before
0:07:02 us saw it.
0:07:07 So at the federal level, the first antitrust laws traced back to 1890.
0:07:11 This was when the Sherman Antitrust Act was passed.
0:07:17 And it was passed against the backdrop of the Industrial Revolution, which had delivered
0:07:22 transformative advances across the country.
0:07:26 But it also consolidated a lot of wealth and power.
0:07:33 Some of those most affected by this consolidation were farmers and entrepreneurs and small
0:07:37 proprietors, especially when it came to the railroads.
0:07:43 The railroads had transformed the country, you could suddenly transport your wares nationally.
0:07:47 Farmers and others had access to national markets.
0:07:53 There were enormous benefits, but it also meant that farmers and others were extraordinarily
0:07:59 dependent on a very small number of companies, sometimes just a single company, the railroad
0:08:03 that controlled the rails going through their town.
0:08:09 And farmers recognize that this concentration of power could be abused.
0:08:16 You had the railroads effectively picking winners and losers, and whether a farmer did
0:08:21 well or whether his business sank could just be up to this single railroad.
0:08:25 We had discriminatory pricing, arbitrary pricing.
0:08:30 So a lot of the frustrations that farmers felt ended up being channeled towards both
0:08:35 the Interstate Commerce Act, which ended up regulating the railroads, as well as the Sherman
0:08:42 Antitrust Act, which broadly prohibited certain forms of monopolization and illegal restraints
0:08:43 of trade.
0:08:47 Those laws were enforced, but it became clear pretty quickly that there were some major
0:08:54 gaps, so that in 1914, Congress passed two additional antitrust laws, the Clayton Antitrust
0:09:02 Act, which prohibited mergers and acquisitions that may lessen competition, as well as the
0:09:08 Federal Trade Commission Act, which created the FTC, prohibited unfair methods of competition
0:09:10 more generally.
0:09:14 And then you had over the decades different levels of activity in terms of vigor from
0:09:21 the antitrust agencies, but broadly an approach to competition that was very focused on wanting
0:09:26 to make sure that the market was competitive from a more structural perspective.
0:09:32 During the New Deal, you had these two different moments, at one point a more hands-off approach,
0:09:37 and then you had the second New Deal period, where enforcers really doubled down.
0:09:42 And then starting in the late ’70s and ’80s, there was this wholesale revolution where
0:09:48 we as a country radically reoriented how we were enforcing these laws that in good part
0:09:51 led to this consolidation.
0:09:55 That wholesale revolution you’re referring to, that includes what antitrust people call
0:09:59 the Chicago School of Thought, named for University of Chicago Legal Scholars Robert
0:10:03 Bork and Richard Posner, the Economist, Aaron Director, and others.
0:10:08 One person I spoke with who used to work with you made the note, and I’m curious if you
0:10:14 think this is true, that your youth really served you well in thinking this through.
0:10:19 Because rather than just accepting the current regulatory environment as it stood, you felt
0:10:23 compelled to dig into that Chicago history.
0:10:28 Can you walk me through what you saw there and how it shaped your thinking?
0:10:34 When I started looking at what happened in the ’70s and ’80s, I was struck by just how
0:10:36 radical it was.
0:10:41 There were certain economic assumptions that drove that change, and certain ideological
0:10:43 assumptions that drove it.
0:10:47 There was a view that the best thing for the government to do was to get out of the way.
0:10:54 The idea was monopoly power and market power in the economy is rare, but if it is ever
0:10:59 to come about and if firms try to abuse their monopoly power, the theory went that that
0:11:05 monopoly power would be disciplined by this rush of new entrants that would come in and
0:11:08 limit the ability of that monopolist to exercise its power.
0:11:13 It was better for government to err on the side of under-enforcement than over-enforcement,
0:11:15 which could chill innovation.
0:11:20 Do you feel that was a legitimate expectation or it was a little bit of a fig leaf?
0:11:27 I think it was primarily driven by theories of how markets work that ended up being pretty
0:11:30 divorced from the reality on the ground.
0:11:35 This hands-off approach assumed that markets were more likely to self-correct, and that
0:11:37 had bipartisan staying power.
0:11:43 It was ushered in initially by the Reagan administration, but then continued by the
0:11:49 Clinton administration, and the Bush administration, and then in good part by the Obama administration.
0:11:55 Unfortunately, the last 40 years have been a natural experiment premised on those theories,
0:12:01 and now we have more and more empirical evidence that I think rebuts those.
0:12:05 When you say that it rebuts those, can you put that in the form of more and more empirical
0:12:06 evidence?
0:12:07 That what?
0:12:12 That significant consolidation can result in market power and monopoly power that firms
0:12:17 can exercise without it immediately being disciplined in the market, and instead what
0:12:24 you can have is persistent monopoly power that firms can use to charge people more,
0:12:26 reduce innovation, reduce quality.
0:12:34 There are papers looking at markups beyond marginal cost, finding that in the ’80s,
0:12:40 on average, it was around 20% the markup, and now it’s as high as 60%.
0:12:45 I think one of the theories that has been rebutted is this idea that monopoly power
0:12:50 is rare in fleeting, and if it does ever come to be exercised, it will be immediately corrected
0:12:51 by the market.
0:12:57 It was a kind of multi-decade consensus, and that consensus started to break during the
0:13:02 first Trump administration and then further during this last Biden administration.
0:13:07 Okay, so that’s the context for the antitrust climate you walked into.
0:13:08 Let’s back up.
0:13:13 At the open markets think tank, you’re finding out everything there is to know about the
0:13:18 history of antitrust policy and the poultry market, for instance.
0:13:19 What happens then?
0:13:23 I decided to both apply to law school and to apply to journalism jobs, and ended up
0:13:28 choosing between going to become a beat reporter at the Wall Street Journal or going to law
0:13:33 school, ended up going to law school, and really try to structure my time there by taking
0:13:40 classes focused on the areas of the law that are shaping and structuring corporate power.
0:13:45 That includes antitrust, but it also includes things like trade law or even First Amendment
0:13:50 law, which firms had increasingly been using to try to strike down regulations.
0:13:56 While I was in law school, I ended up using some of the research I had done around e-commerce
0:14:03 and Amazon to write a law review article using Amazon as a vehicle to tell a broader story
0:14:10 about the shift in antitrust law, ended up publishing that and there was a broader conversation
0:14:11 around all of these issues.
0:14:16 When you say there was a broader conversation, the conversation is mostly around your paper.
0:14:22 To me, it seemed like you’re a, let’s say, beginning of career singer-songwriter and
0:14:25 your first song becomes the world’s biggest hit.
0:14:29 This was your paper, Amazon’s Antitrust Paradox.
0:14:33 It catapulted you and this idea really onto the global stage.
0:14:35 That’s at least my outside perspective.
0:14:37 What’s the inside perspective?
0:14:42 I had just been in law school trying to get this paper out.
0:14:46 I was impressed and surprised that anybody was reading it, let alone that it had caught
0:14:52 some broader attention, but the background conversation was a growing recognition of the
0:14:58 fact that market after market had become so much more consolidated and that antitrust
0:15:00 was in need of a reboot.
0:15:01 The abstract alone is fascinating.
0:15:03 I’ll just read one sentence back to you.
0:15:08 In addition to being a retailer, Amazon is now a marketing platform, a delivery and logistics
0:15:12 network, a payment service, a credit lender, an auction house, major book publisher.
0:15:14 It goes on and on and on and on.
0:15:19 Elements of the firm’s structure and conduct pose anti-competitive concerns, yet it has
0:15:21 escaped antitrust scrutiny.
0:15:27 Is that the paradox of your title, that it’s acting like a monopoly but escaping the scrutiny?
0:15:28 Yes.
0:15:30 That is one of the paradoxes.
0:15:35 To further add to that, there’s a line in the paper that talks about how Amazon has
0:15:41 actually marched towards becoming a monopoly by singing the tune of contemporary antitrust.
0:15:48 It wasn’t just that it had escaped scrutiny, but it had actually pursued its strategy in
0:15:54 a way that was landing squarely in the very blind spots that had emerged in antitrust.
0:15:56 What do you mean by those blind spots?
0:15:58 I’m curious how that was accomplished.
0:16:03 Was that just Jeff Bezos and his leadership being very, very good at corporate strategy
0:16:05 or was it more than that?
0:16:10 I can’t speak to what they were specifically thinking, but one of the reorientations of
0:16:17 antitrust had become where enforcers would primarily look to whether a firm was charging
0:16:25 more or reducing output as the metric for understanding whether there was harm in antitrust terms.
0:16:30 Amazon, at least rhetorically, its strategy was very much focused around doing what’s
0:16:32 best for the consumer.
0:16:37 When enforcers were looking at that through just a short-term lens, I argued that they
0:16:41 were missing some of the broader harms that were emerging.
0:16:42 Okay.
0:16:48 Your Amazon paper clearly struck a deep chord, but how did you go from being a law student,
0:16:53 admittedly a high-profile law student, to being chair of the FTC?
0:16:57 After law school, I spent some time doing more research and writing.
0:17:01 Was set to clerk for a federal judge, and then a few months before my clerkship was
0:17:04 supposed to start, the judge I was supposed to clerk for ended up passing away.
0:17:05 Who was that?
0:17:07 Judge Reinhart in the Ninth Circuit.
0:17:11 Then I reshuffled my plans, ended up going to work for a federal trade commissioner,
0:17:18 Rohit Chopra, and then ended up going to work for the House Judiciary Committee’s subcommittee
0:17:26 on antitrust, which was looking to start an investigation into the large technology companies,
0:17:31 including Facebook, Amazon, Apple, and Google, I became part of a very small team, tasked
0:17:34 with crafting a congressional investigation.
0:17:41 We did an 18-month investigation, ended up publishing a report, summarizing our findings,
0:17:45 and issuing a set of recommendations for how to make sure that these digital markets
0:17:47 are competitive.
0:17:52 After that, I was going back to academia, and then had the great honor of being nominated
0:17:56 to serve at the FTC.
0:18:00 Coming up after the break, Lena Khan puts her Amazon research to work.
0:18:01 I’m Stephen Dubner.
0:18:03 This is Freakonomics Radio.
0:18:03 We’ll be right back.
0:18:17 When she was a law student at Yale, Lena Khan wrote what would become one of the most famous
0:18:20 law review articles of the current century.
0:18:26 It accused Amazon of using novel forms of monopolistic practice, including deliberately
0:18:32 underpricing its goods and services, with the goal of becoming an e-commerce behemoth,
0:18:36 a goal that Amazon has achieved.
0:18:43 Okay, while you were running the FTC, you and 18 state attorneys general in Puerto Rico
0:18:46 sued Amazon over monopolistic practices.
0:18:50 There is a trial scheduled to start in 2026.
0:18:56 I’d like you to take us full circle from writing the Amazon anti-trust paradox paper
0:19:01 in law school to now having brought this suit and waiting for the trial to begin.
0:19:07 To state the obvious, writing a law school paper is very different than being a law enforcer,
0:19:09 especially in digital markets.
0:19:16 You can see a monopoly life cycle where the set of tactics that a platform is pursuing
0:19:23 in the early stages when it’s looking to scale and achieve monopoly power will look different
0:19:29 than the tactics that it is deploying once it has achieved that monopoly status, has
0:19:35 locked out its rivals, and then is in extraction mode where it’s now able to exploit them
0:19:36 monopoly power.
0:19:43 My law review article was around the first stage and the lawsuit ended up focusing on
0:19:46 the practices of the second stage.
0:19:52 The lawsuit basically alleges that Amazon, after itself achieving scale, ended up in
0:20:00 a very concerted way pursuing tactics designed to deprive other companies of similarly enjoying
0:20:04 that scale that you need to really compete in online commerce.
0:20:06 It did this in a few ways.
0:20:14 One was it engaged in what we call anti-discounting practices where Amazon would basically punish
0:20:20 any business that listed its goods for a lower price on other platforms.
0:20:26 It was doing this even as Amazon was steadily increasing how much it charges sellers to
0:20:28 sell on Amazon.
0:20:35 Amazon takes as much as one out of every $2 from some of the sellers that rely on Amazon.
0:20:41 Even as it is increasing prices for sellers, it punishes those sellers for listing goods
0:20:46 for a lower price even on platforms that are taking a smaller cut.
0:20:50 We argue that this basically inflates prices across the internet.
0:20:59 We also allege that Amazon illegally conditions access to certain prime badge services on
0:21:05 sellers using its fulfillment services and that that has certain anti-competitive effects.
0:21:11 We also allege that Amazon used this algorithm called Project Nessie that also inflated prices
0:21:12 across the internet.
0:21:14 Nessie is in Loch Ness Monster?
0:21:15 Yes, exactly.
0:21:17 Why was it called that?
0:21:18 We don’t know.
0:21:20 We can only speculate.
0:21:24 Would you care to predict the outcome of the Amazon trial?
0:21:26 The trial is slated to go forward.
0:21:32 It is going to trial because the FTC defeated Amazon’s efforts to dismiss the case.
0:21:37 We got a resounding win where the judge said all of these counts are plausible.
0:21:40 I feel very optimistic, but we’ll have to wait and see.
0:21:42 What do you think Amazon looks like in 20 years?
0:21:44 It’s hard to say.
0:21:49 Part of that answer will depend on what happens with this litigation.
0:21:54 The Amazon case has thus far been a win for you in the FTC, but there were losses as well.
0:22:00 One legal scholar that I spoke with noted that a lot of your lawsuits were just seen
0:22:06 as unlikely to succeed in the courts and wondered when is it legitimate to bring a lawsuit that
0:22:11 doesn’t have a great chance of succeeding and whether that’s an attempt to influence
0:22:14 the law as opposed to carry out a successful prosecution.
0:22:20 Look, we ended up having resounding success in the courts, including with cases that had
0:22:22 not been brought previously.
0:22:28 If you tally up our wins and losses, we actually have done better than prior administrations
0:22:33 even while taking bigger shots and putting together more ambitious cases.
0:22:38 Sometimes there can be analyses that are not actually matching the facts of what happened.
0:22:43 We only filed cases where we thought there was a law violation and where the facts matched
0:22:48 it, but we also brought cases that were responding to the harms in the modern economy.
0:22:55 One trend that we’ve seen in various sectors is this issue of private equity roll-ups or
0:23:01 serial acquisitions, where firms will make a whole series of acquisitions, each one of
0:23:07 which may be small or fly beneath the radar, but in the aggregate, they may have still rolled
0:23:10 up a market and then inflated prices.
0:23:14 That’s something that’s been happening in our economy for some time and antitrust enforcers
0:23:15 had not addressed it.
0:23:22 We ended up filing a lawsuit taking on some of these roll-ups in anesthesiology and ended
0:23:24 up having a successful case there.
0:23:27 We also defeated the company’s motion to dismiss.
0:23:29 That’s going to trial.
0:23:35 We ended up successfully blocking dozens of mergers, including getting litigated wins,
0:23:40 including in instances where enforcers in the past candidly had failed to stop some of
0:23:42 this consolidation.
0:23:47 We succeeded in blocking the Kroger-Albertsen’s merger, which would have been the largest
0:23:54 supermarket deal in U.S. history, despite there being a fix that the companies had proposed.
0:23:57 Previously enforcers had allowed some of those big grocery deals to go through and the public
0:23:59 had really lost out.
0:24:02 Let’s talk about the work you did on non-competes.
0:24:07 These are the employment clauses that might forbid an employee from leaving one company
0:24:10 to work for another in the same industry, for instance.
0:24:13 I realize it didn’t have the happy ending you were looking for, but I’d love you to
0:24:18 walk us through it so people can understand both the scope of what you identify as the
0:24:22 problem and what you see as remedies.
0:24:25 Non-compete clauses have proliferated across the economy.
0:24:32 They started off in the boardroom, but have now expanded to cover janitors, security guards,
0:24:38 fast food workers, gardeners, journalists, healthcare workers.
0:24:44 A conservative estimate is that as many as one in every five Americans have been covered
0:24:47 by a non-compete clause.
0:24:52 These clauses can really have a devastating effect on people’s lives.
0:24:58 Materially, they can depress income, not just for the workers that are directly covered
0:25:02 by a non-compete, but actually for workers as a whole.
0:25:10 The idea being that if a worker is not able to change jobs, there is less opportunity and
0:25:16 churn in labor markets as a whole in ways that can deprive even those workers that don’t
0:25:22 have a non-compete from opportunities and that overall can really have a depressive effect
0:25:24 on wages and income.
0:25:32 After we put out a proposal to ban non-competes, we got 26,000 comments from people across
0:25:34 the country, which was really striking.
0:25:40 People live busy lives, people are not necessarily going to prioritize sitting down and submitting
0:25:45 a comment to some obscure federal agency, but it was clear that people felt very strongly
0:25:50 about non-competes, and we heard some devastating stories about just how these had affected
0:25:51 people’s lives.
0:25:54 I have two very basic questions about it.
0:26:01 Number one, once you get beyond the top tier employees, I don’t want my chief blank officer
0:26:06 going to a rival firm, I understand that, or I don’t want people with trade secrets
0:26:10 leaving my firm and potentially going to a rival firm, those I understand.
0:26:15 Beyond that, all the other people that you just named, what is the reasoning for why
0:26:22 a non-compete would even be considered worthwhile, and then how can it be legal?
0:26:27 The motivation question is a good one for the businesses that are imposing these non-compete
0:26:28 clauses.
0:26:33 Some of the arguments that get made at a high level is that these non-competes are in theory
0:26:41 necessary to make sure employees are not divulging trade secrets or that employers need these
0:26:45 non-competes to give them an incentive to train their employees.
0:26:49 A lot of those arguments will lose their force entirely when you’re talking about certain
0:26:56 categories of workers, but even for higher income workers, we have trade secrets laws.
0:27:02 For the vast majority of American workers, there is no good justification for these non-compete
0:27:03 clauses.
0:27:08 So that gets quickly to the second part, which is how did it become legal to enact these
0:27:09 non-competes so broadly?
0:27:13 Well, I would argue, and the FTC argued that it is not legal.
0:27:18 We brought some enforcement actions, including one case where you had security guards making
0:27:20 close to minimum wage.
0:27:23 The security guards were based in Michigan.
0:27:28 Under Michigan state law, these non-competes were actually illegal, but the firm still
0:27:32 had them in place and still tried to enforce them.
0:27:37 We had to basically sue to make sure these non-competes got dropped.
0:27:43 Even in states where these non-competes in theory are not enforceable, firms take a
0:27:44 step shot.
0:27:49 Oftentimes, workers, their rights are chilled because they may not know that these non-competes
0:27:54 are not enforceable and who’s going to really want to go up against their employer and risk
0:27:57 being thousands of dollars out of money.
0:28:01 In the case of the security guards, Prudential was the name of that firm?
0:28:02 That’s right.
0:28:04 What was the ultimate outcome of that case?
0:28:06 So we ended up bringing in enforcement action.
0:28:12 We ended up getting an order that required the company to drop its non-compete clauses
0:28:16 with the vast majority of the security guards and so thousands of people were freed from
0:28:17 non-competes.
0:28:24 So that’s a small victory, but the larger effort has been so far a defeat for you, correct?
0:28:26 It’s more of a mixed picture.
0:28:30 After we finalized the rule, we got three legal challenges.
0:28:35 One filed in Texas, one filed in Pennsylvania, and one filed in Florida.
0:28:39 Each of those legal challenges came out a slightly different way.
0:28:44 The judge in Pennsylvania said the FTC’s rule was lawful.
0:28:50 The judge in Texas said it was unlawful, and the judge in Florida came out somewhere in
0:28:52 between the FTC.
0:28:58 When I was still at the agency, ended up appealing both the case in Texas and Florida.
0:29:02 We’re going to have to wait to see what happens, though you’re right, that for the time being,
0:29:04 the rule is not in effect.
0:29:06 Unfortunately, non-competes are still in place right now.
0:29:13 So one big function of the FTC is plainly policing, but also when it comes to your anti-trust
0:29:20 activity, an implicit argument is that cracking down on monopolistic behavior, cracking down
0:29:25 on non-competes also is good for competition and it’s good for the markets.
0:29:30 Good markets theoretically benefit a lot of people, start-up firms and employees, consumers.
0:29:36 In other words, competition is seen, at least by economists, as win, win, win.
0:29:44 So what’s your best evidence that your work has actually produced these kinds of victories?
0:29:47 I can give you a couple of examples.
0:29:51 One is a specific merger that we blocked.
0:29:54 This was the Sanofi-Maze transaction.
0:30:01 Sanofi had a monopoly on a drug for Pompeii disease, this really horrible illness that
0:30:05 leads to muscles atrophying.
0:30:11 Maze was this upstart that was in the process of developing another treatment for Pompeii
0:30:12 disease.
0:30:19 Unlike Sanofi’s treatment that required regular IV shots, Maze was working on something that
0:30:21 could be taken orally.
0:30:28 It had the potential for dramatically improving the lives of Pompeii disease patients.
0:30:35 The FTC argued that if Sanofi bought out Maze, there was a real risk that Maze’s innovative
0:30:41 treatments either wouldn’t make it to market or wouldn’t make it to market as quickly.
0:30:47 Because here you have a situation where Sanofi is already enjoying monopoly profits on this
0:30:48 drug.
0:30:54 We worried that it wouldn’t have the incentives to introduce another drug that would cannibalize
0:30:56 its existing sales.
0:31:02 We filed a lawsuit seeking to block this acquisition, arguing that it would allow Sanofi to illegally
0:31:05 monopolize this area.
0:31:08 The companies ended up walking away from the deal.
0:31:14 Maze ended up then partnering with another firm that ended up having as good, if not
0:31:20 better terms for Maze and will actually bring that drug to market even more quickly.
0:31:22 This is a Japanese firm, yeah?
0:31:23 That’s right.
0:31:27 That was proof of concept of the FTC’s work getting it right.
0:31:33 I think more generally, the non-competes that ended up being dropped because of the FTC’s
0:31:38 work, that means there are thousands of workers that are now free to go start their own business
0:31:40 or freely switch employers.
0:31:46 The mergers that we blocked, including in the context of NVIDIA ARM, ended up leading
0:31:52 to a lot of independent success for both NVIDIA and ARM in ways that also has boosted innovation,
0:31:57 especially at a critical moment for a lot of these artificial intelligence technologies.
0:32:04 We’ve also filed a whole set of other lawsuits, including one against John Deere for illegally
0:32:10 restricting farmers’ ability to repair their own tractors and agricultural equipment, which
0:32:13 is something we heard a lot of concern about from farmers.
0:32:19 When they’re entirely dependent on John Deere for getting their agricultural equipment fixed,
0:32:25 they can both inflate their costs as well as lead to all sorts of devastating delays.
0:32:31 We also filed a lawsuit against Pepsi, arguing that it was engaging in illegal discrimination
0:32:35 in ways that was squeezing independent grocers.
0:32:41 We filed a lawsuit against the three big pharmacy benefit managers, claiming that the rebating
0:32:47 practices they have in place have systematically hiked the cost of insulin as well as other
0:32:48 drugs.
0:32:54 This more generally took on these illegal patenting practices where firms would illegally
0:33:01 list patents for certain products and components of devices, including things like the plastic
0:33:03 cap on an inhaler.
0:33:08 Asthma inhalers out of pocket costs have been hundreds of dollars, even though asthma inhalers
0:33:10 have been around for decades.
0:33:16 Once we called out some of these illegal patenting practices, three of the four big inhaler manufacturers
0:33:22 announced that they would drop the out-of-pocket costs to $35.
0:33:24 And what happened to the share prices of those firms?
0:33:25 You know, that’s a good question.
0:33:27 I don’t remember right off the bat.
0:33:29 They didn’t go out of business, though.
0:33:32 No, I think they have a lot of other lucrative lines of revenue.
0:33:35 Can you talk a bit more about the price of insulin?
0:33:41 The FTC’s lawsuit was actually about the market as a whole, where we found that basically
0:33:47 these pharmacy benefit managers engaging what are known as these rebating practices where
0:33:54 drug manufacturers have to pay these PBMs or rebate to get their drugs listed on what’s
0:33:56 known as the formulary.
0:34:02 We allege that the way the PBMs have structured this whole system means that the drug companies
0:34:08 are incentivized to ultimately raise the cost of insulin rather than compete by lowering
0:34:12 it and that this as a whole is inflating the cost.
0:34:17 We did a series on private equity consolidation in the pet care industry, and we found a lot
0:34:20 of problems there for employees and consumers.
0:34:26 But we also learned something that seems to apply to a lot of the human health care industry.
0:34:30 If you look at nursing homes, doctor’s offices, dentist’s offices, what we heard is that the
0:34:36 founders of these offices and companies, when it’s time to retire, they might prefer to
0:34:39 sell to one of their junior partners.
0:34:43 That’s what often happened before private equity was around, but now those junior partners
0:34:48 have so much debt from medical school or veterinary school or whatever that they can’t afford
0:34:49 to buy the practice.
0:34:54 So the only likely buyer is an outside investor like a private equity firm.
0:35:00 The PE firm is satisfying a real need there, but the resulting rollups or consolidations
0:35:06 are often worse for existing employees and worse for consumers.
0:35:10 Do you have any thoughts for how that might work differently?
0:35:15 It’s a really good point and I think highlights how antitrust and competition policy have
0:35:20 a really important role to play, but there are all sorts of other economic policy decisions
0:35:25 that are going to affect, for example, whether the junior partner even has the ability to
0:35:28 make that acquisition that we need to be paying attention to as well.
0:35:32 The other thing I’ll note is there are all sorts of different types of private equity
0:35:40 business models, but it is true that one model has been the leverage buyout where a private
0:35:47 equity firm is using the assets of the company they’re buying as collateral, loading up that
0:35:48 company with a lot of debt.
0:35:54 Sometimes there’s the 70-30 model where the private equity firm is making 30% of the investment
0:35:59 and then using the balance sheet of the underlying company and taking on a lot of debt.
0:36:05 That can weaken the underlying firm, but also incentivize the private equity owner to make
0:36:12 a lot of short-term extractions and engineer a lot of short-term returns in ways that can
0:36:15 undermine the quality of the business as a whole.
0:36:19 For example, we got some submissions from ER doctors.
0:36:23 Emergency medicine is a place where we’ve seen a lot of private equity incursion.
0:36:28 They mentioned that there are all sorts of financial metrics introduced into their work.
0:36:34 I remember hearing from one ER doctor that he was sitting with a parent who had just
0:36:40 lost their kid and this ER doctor having to think that he didn’t even have the time to
0:36:46 commiserate with this parent because he felt such significant financial pressure to meet
0:36:47 this quota.
0:36:54 If the government is concerned about over-consolidation in those kinds of spaces, healthcare, whether
0:37:00 human, animal, whatever, would it be viable to consider something like low-interest loans
0:37:07 to junior partners to help keep firms a smaller size rather than succumb to the one possible
0:37:11 sell-out outcome, which is to a bigger investment firm like private equity?
0:37:14 That’s a really interesting idea and not something I’ve heard proposed before.
0:37:17 I could imagine it could make a difference.
0:37:22 Let’s talk for a minute about the merger guidelines released by the FTC under your watch.
0:37:26 Let’s start with the process, maybe the idea or the theory, and then the drafting.
0:37:31 What were you hoping to accomplish and why did you think it was important?
0:37:37 The merger guidelines can sound like this arcane document, but the core of it is a road map
0:37:43 for how enforcers review and assess mergers that are before them.
0:37:50 There have been guidelines going back to 1968, and periodically these have been updated.
0:37:56 We undertook a process starting in late 2021 to revise these merger guidelines with a couple
0:37:58 of goals in mind.
0:38:03 First was wanting to make sure that these guidelines were actually reflecting the law.
0:38:09 We had seen that in some prior instances enforcers had actually handicapped themselves and written
0:38:15 guidelines with very cramped or sometimes just inaccurate expressions of what the law
0:38:20 really was, which we thought was not being faithful to Congress or the courts.
0:38:26 We also wanted to make sure these guidelines were up to date and reflecting the realities
0:38:28 of the 21st century economy.
0:38:33 We wanted to make sure they were addressing things like digital markets and platforms.
0:38:37 We wanted to make sure they were addressing labor markets, which had been a big blind
0:38:41 spot in the past and issues like serial acquisitions.
0:38:48 And we wanted to make sure that we were hearing from a broad set of market participants.
0:38:51 Antitrust in recent decades has been quite insular.
0:38:58 You’ll hear from very smart and accomplished experts, but the broader public as a whole
0:38:59 has often been neglected.
0:39:05 We wanted to change that and ended up getting thousands upon thousands of comments from
0:39:06 the public.
0:39:12 A lot of healthcare workers participated, including doctors, nurses, people who had
0:39:19 seen their field and their practice change based on increasing consolidation.
0:39:26 We heard from farmers, we heard from musicians, heard from teachers, ordinary Americans who
0:39:33 don’t spend their days practicing antitrust law, but whose life has shown them that whether
0:39:38 markets are extremely consolidated and monopolized or whether they’re opening competitive makes
0:39:40 a real difference.
0:39:42 What about from the industry side?
0:39:45 The draft of the merger guidelines was open to them as well.
0:39:50 It sounds like you’re saying most of the public sentiment was saying, yes, we would like stronger
0:39:51 guidelines.
0:39:53 What about from industry, though?
0:39:57 Industry spans a broad set of market actors.
0:40:03 We heard from a lot of small businesses including independent pharmacists, independent grocers.
0:40:09 We heard a lot from entrepreneurs and startups and founders who have seen that when you have
0:40:14 these big gatekeepers that can shut them out of the market, that can have real problems.
0:40:19 Even within industry and the business community, we heard a lot of interest in favor of stronger
0:40:20 antitrust.
0:40:26 Of course, we did also hear from existing monopolists and incumbents and dominant firms who would
0:40:30 prefer that antitrust enforcement be quite weak.
0:40:36 I assume that the goal of these merger guidelines is to act as a deterrent against some mergers
0:40:40 that might be seen later as anti-competitive.
0:40:44 Assuming that is true, how do you measure the effect of deterrence?
0:40:50 The goal of the guidelines is really to provide clarity to the public about how it is that
0:40:54 enforcers will look at mergers and analyze them.
0:41:00 On the deterrence question, of course, as a law enforcer, you don’t want illegal behavior
0:41:03 to occur in the first instance.
0:41:10 If through that type of guidance, you are deterring illegal mergers, that is a net good.
0:41:13 In terms of how you measure deterrence, it’s a good question.
0:41:19 I don’t think it’s a precise science, but over the years when I was serving at the FTC,
0:41:25 we got some data points like what senior deal makers would be saying around how several
0:41:30 years ago when they were counseling clients, they wouldn’t really talk about antitrust
0:41:36 until the very, very end of the discussion, whereas over the last couple of years, antitrust
0:41:39 was up front and center right at the beginning.
0:41:44 We also heard from deal makers and senior executives about how certain deals that were
0:41:50 initially being discussed ended up not being proposed because there was a recognition that
0:41:52 the legal risk was too high.
0:42:00 We also saw deals where once they were proposed and the FTC started investigating, the firms
0:42:02 ended up abandoning.
0:42:08 There was a practice in the past where firms sometimes recognized that there was significant
0:42:12 legal risk, but would kind of roll the dice and say, “Well, maybe enforcers will look
0:42:15 the other way or maybe they’ll miss it.”
0:42:19 Once we started taking a closer look and a more stringent approach, some of those deals
0:42:21 abandoned as well.
0:42:27 If you read the Wall Street Journal editorial pages, these merger guidelines are an attack
0:42:28 on the free markets.
0:42:31 There’s been a lot of criticism on that front.
0:42:37 Mark Andreessen, the very prominent venture capitalist, he said when Trump was reelected,
0:42:42 it was like “getting a boot off the throat for people like him, for people in the tech
0:42:44 and business sectors.”
0:42:49 I gather that you’re the person wearing that boot in the Andreessen comment.
0:42:55 What we heard from startups and founders was that they wanted a chance to compete.
0:43:01 When you have markets where the only option is to be bought up, that’s not giving founders
0:43:04 the opportunity to really scale organically.
0:43:07 I think the story is a bit more textured here.
0:43:13 We’ve learned recently that the merger guidelines put out on your watch will be retained by
0:43:14 the Trump administration.
0:43:16 Are you surprised by that?
0:43:23 I personally am not that surprised, in part because issues around antitrust and anti-monopoly
0:43:28 have had a strong bipartisan current in recent years.
0:43:32 Some of the initial lawsuits that were filed against large technology companies, including
0:43:37 Facebook and Google, actually were initiated during the first Trump administration.
0:43:40 I know JD Vance is a fan of yours.
0:43:44 He recently said, “I look at Lina Khan as one of the few people in the Biden administration
0:43:48 that I actually think is doing a pretty good job.
0:43:55 Considering how much Biden administration work has already been undone by the Trump administration,
0:44:00 I wonder what it feels like for you to have one of your signature policies continue under
0:44:01 Trump.”
0:44:05 It’s too early to say what the big picture is going to look like in terms of whether
0:44:08 we’re going to continue to see strong enforcement.
0:44:14 Of course, seeing other law enforcers be dismantled, including the Consumer Financial Protection
0:44:17 Bureau is quite troubling.
0:44:23 But of course, the fact that at this stage, it’s clear there is bipartisan support for
0:44:30 strong merger guidelines that’s going to protect more Americans from consolidation and monopolization.
0:44:35 I think we can have some cautious optimism on that small front, even as we’re going to
0:44:38 have to wait and see what happens more generally.
0:44:42 You once wrote that your hobbies include, quote, “Trying to find the most obscure industry
0:44:45 where I can find consolidation.”
0:44:52 Can you name some industries that we may not think of as heavily consolidated but are?
0:44:54 That’s a good question.
0:45:00 One industry that I actually came to learn about, it was a market for basically ugly
0:45:06 produce, I don’t know how else to put it, produce that is seen as not being attractive
0:45:11 enough for supermarket shelves, and then it gets sent off to certain other markets.
0:45:16 I remember there was a merger being reviewed that was focused on that market that actually
0:45:20 was more consolidated than I expected.
0:45:27 Lina Khan’s example here, a consolidated market in ugly produce, points to a larger
0:45:31 philosophical argument about how the US economy should work.
0:45:37 Just about every economist agrees that consolidation above a certain level can be a big problem.
0:45:43 The history of our economy includes a long line of creators and innovators, operators
0:45:51 and aggregators who through their grit and savvy cornered markets or created monopolies.
0:45:56 Some of these companies were intensely exploitative, but they were also helping create what would
0:46:02 become perhaps the most dynamic economy in the history of the world, and this dynamic
0:46:08 capitalism has helped produce huge gains for many people over the years.
0:46:13 It’s hardly perfect, everybody knows that, and over consolidation is one big flaw.
0:46:21 But how do you dampen the appetite for domination while keeping alive the incentives to create?
0:46:26 How do you encourage people to keep risking their time and money and rain power if they’re
0:46:30 punished for winning too big?
0:46:35 If someone comes up with a clever idea, like buying up ugly produce and building a market
0:46:42 around it, and they come to dominate that market, is that reason alone to break them up?
0:46:47 That is essentially the same question Google is facing in court right now.
0:46:51 So where is the appropriate middle ground?
0:46:53 With the break, we will try to find it.
0:46:58 Constructive engagement is always valuable, but you also have to be able to separate that
0:47:00 from some of the hysteria.
0:47:15 I’m Stephen Dubner, this is Freakonomics Radio, we’ll be right back.
0:47:21 Innecon had plenty of critics during her tenure as FTC chair from a variety of ideological
0:47:22 camps.
0:47:27 Some conservatives accused her of overreach, some liberals said she was more bark than
0:47:32 bite, but there is one thing about her that just about everyone agrees on.
0:47:39 She is a serious person who eats, sleeps, and breathes antitrust reform.
0:47:44 She has been fixated on corporate power since she was at least a high school sophomore.
0:47:49 In 2004, she wrote an article for her school newspaper about a nearby Starbucks that wouldn’t
0:47:51 allow students to congregate.
0:47:55 The New York Times followed up her article with one of their own called “A Tempest in
0:47:57 a Coffee Shop.”
0:48:03 I asked Kahn if she could identify where this crusading spirit of hers comes from.
0:48:08 I think from a young age, I was really struck by journalists and the efforts that they undertake
0:48:16 to hold power to account, both powerful corporations as well as powerful actors in government,
0:48:20 especially growing up after September 11th and seeing the incredible important role that
0:48:24 journalists were playing then really made a big impression on me.
0:48:29 You have been praised in some quarters for your work at the FTC, but also attacked, and
0:48:34 I would argue the attacks were much more intense than is typical for the FTC chair.
0:48:37 How do you manage the criticism?
0:48:42 Do you try to seek out criticism that has value and try to learn from it and sort that
0:48:45 out from the rest that’s just noise?
0:48:46 Do you not pay attention to any of it?
0:48:49 You know, I’m a public servant, I serve the public.
0:48:55 So it’s absolutely important for me to be soliciting and getting feedback and input
0:48:58 and understanding what the public response is.
0:49:04 But of course, you need to place more value on feedback and input that is actually tethered
0:49:06 to reality and tethered to facts.
0:49:11 Good faith constructive engagement is always valuable, but you also have to be able to
0:49:14 separate that from the hysteria.
0:49:21 Where does the Wall Street Journal editorial page sit on the tethered to facts spectrum?
0:49:24 I was surprised sometimes by just the factual errors.
0:49:30 I think it does go back to this basic issue of economic reality versus theoretical assumptions
0:49:32 that are just out of date.
0:49:37 Although I will say this, one critic of yours, this is an academic who doesn’t like your
0:49:40 work very much, he works in the antitrust space.
0:49:46 He made the argument that your work is almost universally, in his view, ideological and not
0:49:47 empirical.
0:49:48 How would you respond to that?
0:49:57 I think the fact that this work has gotten so much traction so quickly was entirely because
0:49:59 it was on the side of reality.
0:50:05 The antitrust enforcement model that had been followed for 40 years had failed to keep markets
0:50:12 open and fair and competitive, and so it was really empiricism that drove this work forward.
0:50:14 What kind of a boss are you?
0:50:19 I’m told you’re not the “let’s all grab a beer after work” kind of boss.
0:50:22 Any particular aspect of that that you’re interested in?
0:50:25 Some people complained about your leadership style.
0:50:28 People said there was low morale at the FTC during your tenure.
0:50:29 There were a lot of resignations.
0:50:33 I’m also aware that when you’re a political appointee coming into an agency like this
0:50:37 and you try to do things quite differently, there’s going to be friction.
0:50:42 Looking back now after four years, if you could start again, would you approach your
0:50:44 management style any differently?
0:50:49 Well, let me say first of all, the FTC is really fortunate to have extraordinarily hardworking,
0:50:54 talented career civil servants that are being pitted up against some of the largest, most
0:50:57 powerful companies in our country.
0:51:02 My hats off to them in terms of the grit and commitment that they bring every day.
0:51:09 Stepping back, my arrival, understandably, I think, was received by some as some type
0:51:11 of indictment of the agency.
0:51:17 I had been on the outside a critic of the FTC, arguing that both the FTC and the DOJ had
0:51:24 gotten things wrong, had taken decisions that ended up resulting in real harm to the American
0:51:25 people.
0:51:30 These criticisms were really directed at political leadership, the people that are calling the
0:51:31 shots.
0:51:37 Understandably, there was some questioning about what my criticisms were really about.
0:51:43 This was also a moment where you had the president say that the last 40 years of competition
0:51:45 policy had gone astray.
0:51:49 So these are people who were saying, “Look, I’ve been doing my job every day as a dedicated
0:51:53 civil servant, and now I’m being told that I’ve been doing it all wrong.”
0:51:58 It sounds as though you’re coming into an agency that had operated under a consistent
0:52:02 political ideology for, let’s call it, 40 years.
0:52:07 Does an agency like that therefore attract civil servants who jive with that ideology?
0:52:13 In other words, did you take over an agency that was staffed quite robustly by a bunch
0:52:18 of people who really liked the Reagan and the Bork and the Chicago School of Thinking?
0:52:23 Well, there are all sorts of different factors that drive people to public service.
0:52:27 For the most part, they want to serve their fellow Americans.
0:52:33 It was more about the antitrust enterprise as a whole, the ways that the law had drifted,
0:52:39 what type of analysis the law was privileging rather than any specific person or groups
0:52:40 of people.
0:52:45 Were there particular quadrants of the FTC that you bulked up on or tried to slim down?
0:52:51 We wanted, first of all, just to make sure we had the teams that we needed to pursue
0:52:52 some of these litigations.
0:52:58 I mean, the agency was actually smaller than it had been in the 1970s, especially we got
0:52:59 a budget increase.
0:53:03 We did hire more people, including very talented litigators.
0:53:09 We also wanted to make sure that the way we were looking at markets was actually reflecting
0:53:16 the reality on the ground, and that meant broadening the type of skill sets that we had.
0:53:24 We were not just hiring industrial organization economists, but also labor economists, accountants,
0:53:30 people who had slightly different skill sets that would be able to give us a more 360 view.
0:53:36 We also started a new office of technologists wanting to make sure that we had data scientists
0:53:43 and data engineers and AI experts, especially as more and more markets digitize.
0:53:49 We need people who can sit alongside the economists and the lawyers and explain how are these algorithms
0:53:51 actually working?
0:53:57 What share of this new wave of FTC employees would you say will still be there a month
0:53:58 or a year from now?
0:53:59 It’s hard to know.
0:54:04 Obviously, across government, there’s a lot of disruptive efforts right now that are
0:54:07 resulting in a lot of people being laid off and let go.
0:54:09 So it’s too early to say.
0:54:15 I will say the new administration has talked a lot about the importance of making sure
0:54:21 our technology markets and digital markets are open and fair and competitive.
0:54:28 If you are gutting the FTC by eliminating technologists and eliminating the litigating
0:54:33 teams that are supposed to be pursuing these cases, that’s going to really handicap your
0:54:34 ability.
0:54:37 What was your favorite thing about working in government?
0:54:44 I really loved getting to hear from people who had an issue that they thought the FTC
0:54:46 should be focusing on.
0:54:49 I had the chance to do a lot of listening sessions across the country.
0:54:54 I went to Ames, Iowa to hear from farmers that were worried about this particular fertilizer
0:54:58 merger, heard from pharmacists in Kansas City.
0:55:04 Those types of engagements were really important in keeping me focused and underscoring the
0:55:10 ways that seemingly arcane agencies like the FTC have a lot of opportunity to make a real
0:55:12 difference in people’s lives.
0:55:16 What are some of your least favorite things about working in government?
0:55:20 Sometimes it can take longer to get things done than is optimal.
0:55:25 We certainly streamlined certain processes and tried to eliminate red tape.
0:55:29 But I think there’s just more of that that could be done.
0:55:34 Of course, there’s a lot of baked-in pushback from monopolists and dominant firms.
0:55:39 I’m curious to know your thoughts on the choice of Kamala Harris as the candidate with
0:55:41 no outside competition after Biden withdrew.
0:55:47 I mean, doesn’t it feel that that was handled in a similar way to some of the anti-competitive
0:55:49 cronyism that you’re fighting?
0:55:54 I have zero comparative advantage in terms of weighing in on this, I’m kind of a policy
0:55:58 nerd, but I don’t really have much to add when it comes to some of the political analysis
0:55:59 here.
0:56:03 I don’t know if you’re familiar with the work of the political scientist Yu-Ni-Wen-Ong.
0:56:07 She studies at Johns Hopkins and she studies political corruption.
0:56:12 She makes the argument that countries like China and Russia have significant levels of
0:56:19 corruption in forms that to an American seem patently illegal, suitcases full of cash and
0:56:21 no bid contracts, things like that.
0:56:26 But she argues that political corruption in the US is also very significant.
0:56:33 It’s just that it’s essentially legal corruption in the form of corporate capture of government.
0:56:37 I’m curious to hear your thoughts on corporate capture and how serious you think that problem
0:56:38 is.
0:56:45 Americans certainly worry that government is not always serving their best interests
0:56:51 because large corporations have too much influence.
0:56:55 We see that concern expressed in all sorts of ways, including concern about the role
0:56:57 of money and elections.
0:57:04 I think there are all sorts of subtle ways beyond just how much money, large and wealthy
0:57:07 entities can pour into elections.
0:57:10 Intellectual capture can occur.
0:57:15 We see it through a lot of the funding of research and then what kinds of research is
0:57:19 even made available to regulators and enforcers.
0:57:25 There can be all sorts of ways that the information environment in which enforcers and regulators
0:57:30 are operating is already skewed by those well-heeled interests.
0:57:38 So Lena, your life has already had this amazing arc with a lot of accomplishment and drama.
0:57:43 It feels like enough to write a book about maybe an opera, but you’re still very young.
0:57:48 So let’s assume that your life to date is act one of that opera.
0:57:52 What do you want the second and third acts to look like?
0:57:55 I’m still just processing the last few years.
0:57:58 I ended my government service at the end of January.
0:58:05 So really just focused on the near term for now, but I care deeply about wanting to make
0:58:10 sure that markets in America are open and fair and competitive.
0:58:17 This is important for people materially, but these issues also go to the core values of
0:58:23 our country. The lawmakers who have initially passed the antitrust laws viewed them as being
0:58:29 a key safeguard against the concentration of power, that in the same way we needed checks
0:58:34 and balances in our government to protect against the exercise of arbitrary power, there
0:58:40 was a view that the antitrust and anti-monopoly laws would play a similar role in our economic
0:58:41 and commercial sphere.
0:58:48 So I view the stakes here as being enormous, as being existential for our country, and
0:58:51 I’m really committed to continuing to work on these issues and whatever opportunity I
0:58:52 have.
0:58:56 I understand you’re back teaching at Columbia now, at least for this semester, is that right?
0:58:59 Yeah, exactly. I had been on leave and I’m back at the law school.
0:59:05 Do you have any concrete items on your wish list? Does policy and politics remain toward
0:59:08 the top of that list or something quite different perhaps?
0:59:13 For now, just continuing to build out this work, there is a lot of enthusiasm and interest
0:59:19 among law students and young people in general. Of course, it was a great honor to serve
0:59:23 and if there was another opportunity, that’s of course something I would be open to.
0:59:27 If President Trump had asked you to stay on, I realize that may sound unlikely to a lot
0:59:31 of people hearing this, but the more they know about you and your work and how the Trump
0:59:35 administration thinks about your work, it’s actually maybe not so unlikely, but would
0:59:36 you have stayed under Trump?
0:59:42 I mean, you know, that was a hypothetical, but my term ended up expiring in September.
0:59:48 President Trump ended up nominating somebody new to fill my seat. So I had a great time
0:59:52 getting to work alongside Andrew Ferguson when he was a commissioner and I was chair.
0:59:59 And I do think it’s important for people to serve and the FTC historically has had bipartisan
1:00:03 commissioners that have continued to serve across administrations.
1:00:09 I see that Bernie Sanders has embarked on what he calls a national tour to fight oligarchy.
1:00:15 He’s drawing pretty big crowds, a lot of enthusiasm. I’m curious if he has asked you
1:00:19 to put in an appearance and if you would, if you were asked.
1:00:24 I’m a great admirer of Senator Sanders. He was a strong supporter of the FTC’s work.
1:00:30 There’s a real concern that very well-healed interests in this country are wielding enormous,
1:00:35 such as economic power, but political power and the antitrust and anti-monopoly laws were
1:00:39 supposed to be a bulwark against that. I leave it to the elected officials to do what they
1:00:43 do best, but of course I’m happy to support that work however I can.
1:00:49 When I hear you mention Ames, Iowa, I cannot help but think that perhaps you might have
1:00:53 aspirations of being elected to office one day. Is that the case?
1:00:54 No.
1:00:55 That’s a flat no.
1:01:03 No, I really enjoyed being a bureaucrat.
1:01:08 It’s always good to speak with someone who enjoys being a bureaucrat. I’d like to thank
1:01:13 Lena Kahn for the good conversation today. I learned a lot. I hope you did too. Let us
1:01:19 know what you are thinking. Our email is radio@freakonomics.com. Coming up next time
1:01:24 on the show, another one-on-one conversation around another set of important government
1:01:31 functions, but this person is not embraced by politicians on both sides.
1:01:35 My nonpartisan approach is to be critical of everybody in Washington.
1:01:37 Do you have any friends?
1:01:40 No. Not really.
1:01:45 Jessica Riedel has two main messages. Number one, the federal debt crisis is even worse
1:01:50 than you think, and few politicians have the courage to do anything about it.
1:01:56 And number two, just about everything you know about U.S. tax policy is wrong. That’s
1:02:02 next time on the show. Until then, take care of yourself. And if you can, someone else
1:02:03 too.
1:02:07 Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire
1:02:14 archive on any podcast app also at Freakonomics.com, where we publish transcripts and show notes.
1:02:19 This episode was produced by Teo Jacobs, with help from Zac Lipinski. The Freakonomics
1:02:24 Radio network staff includes Alina Cullman, Augusta Chapman, Dalvin Abouaji, Eleanor Osborn,
1:02:29 Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Jeremy Johnson,
1:02:35 John Schnars, Morgan Levy, Neil Coruth, and Sarah Lilly. Our theme song is Mr. Fortune
1:02:43 by the Hitchhikers. Our composer is Luis Guerra. As always, thanks for listening.
1:02:48 I know you’re married and have a young kid. Are they grateful that you’re no longer at
1:02:52 the White Hot Center of anti-monopoly?
1:03:00 I would think so, yes. Less multitasking while making dinner or breakfast.
1:03:10 The Freakonomics Radio network, the hidden side of everything.
1:03:13 [MUSIC PLAYING]
Lina Khan, the youngest F.T.C. chair in history, reset U.S. antitrust policy by thwarting mega-mergers and other monopolistic behavior. This earned her enemies in some places, and big fans in others — including the Trump administration. Stephen Dubner speaks with Khan about her tactics, her track record, and her future.
- SOURCES:
- Lina Khan, former commissioner of the Federal Trade Commission and professor of law at Columbia Law School.
- RESOURCES:
- “Merger Guidelines” (U.S. Department of Justice and the Federal Trade Commission, 2023).
- “The Rise of Market Power and the Macroeconomic Implications,” by Jan De Loecker, Jan Eeckhout, and Gabriel Unger (National Bureau of Economic Research, 2019).
- “US Antitrust Law and Policy in Historical Perspective,” by Laura Phillips Sawyer (Harvard Business School, 2019).
- The Curse of Bigness: Antitrust in the New Gilded Age, by Tim Wu (2018).
- “Amazon’s Antitrust Paradox,” by Lina Khan (Yale Law Journal, 2017).
- “A Tempest In a Coffee Shop,” by Tanya Mohn (New York Times, 2004).
- EXTRAS:
- “The Economics of Eyeglasses,” by Freakonomics Radio (2024).
- “Should You Trust Private Equity to Take Care of Your Dog?” by Freakonomics Radio (2023).
- “Are Private Equity Firms Plundering the U.S. Economy?” by Freakonomics Radio (2023).
- “Is the U.S. Really Less Corrupt Than China — and How About Russia? (Update)” by Freakonomics Radio (2022).