The SEC’s War on American Consumers

Despite being touted by Joe Biden’s supporters (including highly partisan economists such as Princeton’s Alan Blinder) as a massive success, it is clear now that the president’s economic program, which the administration has dubbed “Bidenomics,” has been defined by higher inflation and more financial hardships for the majority of Americans. But there is another, less widely noticed way in which Biden’s policies have wreaked havoc on the economy.

Just two weeks after Biden’s inauguration, he announced his intention to name a young 32-year-old law professor, Lina Khan, to the Federal Trade Commission. After the Senate ratified the nomination by a 69-28 vote, Biden then took the highly unusual step of immediately designating her the FTC’s chair.

Had Senate Republicans looked more closely at Khan’s record, the confirmation vote in all likelihood would have been a lot closer.

As a law student at Yale, Khan had openly expressed her determination to bring about a “transformation” in antitrust law, which the FTC administers. Rather than the FTC’s emphasis over the past half century on the standard of “consumer welfare” in assessing potential corporate mergers, Khan advocated a stricter test that would take account of such factors as whether low prices resulting from a merger were “sustainable,” and what a merger’s effect would be on an industry’s “structure” and companies’ “bargaining power.” Khan continued to lobby for her new approach following her law school graduation.

The FTC, it must be emphasized, is an independent regulatory agency, charged with enforcing the terms of the loosely-phrased Sherman Antitrust Act (1890) and subsequent legislation. Once appointed to their seven-year terms, members cannot be removed by the president and thus cannot be held directly accountable to him.

But given Khan’s record of activism, President Biden (or at least his closest advisers) must have known what he was getting when he appointed Khan to the commission – let alone when he immediately named her its chair.

Ever since her appointment, Khan has set a remarkable record of stretching the boundaries of law to take action against mergers that in her view might “threaten competition.”

By law, the FTC board includes two members of the minority party, along with three, including the chair, appointed by the president with the Senate’s consent. But observing the heavy-handed way in which Khan and her fellow Democrats have engaged in policymaking, the commission’s Republicans have recently stepped aside, realizing they could not influence its decisions.

Khan’s record of arbitrary, lawless action was thoroughly documented by constitutional scholar Adam J. White’s article in the March 2024 issue of Commentary in a piece entitled “The Power Broker: The Rise and (Maybe) Fall of Lina Khan.” But an action taken on February 26, just after White’s essay was published, provides a particularly egregious example of the abuse of the commission’s powers.

On that date, the FTC voted to challenge the acquisition by supermarket chain Kroger of another chain, Albertsons. The ground given for the challenge was that the merger would eliminate competition between the two retailers, thus leading to higher consumer prices and lower-quality products.

As a February 27 Wall Street Journal editorial observed, the FTC’s decision made it appear that the commissioners were “still living in the 1970s,” prior to the entry into the market for food and household items of such sources as online delivery services, big-box retailers, dollar stores, and farmers’ markets. Such increased competition has already “driven hundreds of supermarket stores to close in recent years.” The Kroger-Albertson merger, the Journal explains, was aimed at making them more competitive with other retail outlets “by increasing their leverage with suppliers and making their supply chains more efficient.”

Remarkably, as the Journal points out, the real reason for the FTC’s opposition to the merger had nothing to do with consumer welfare, in terms of either prices or quality of goods, but rather opposition from the United Food and Commercial Workers Union, which represents employees at both chains. As the FTC acknowledges, the union “often plays the supermarkets against each other in collective bargaining to obtain bigger wage and benefit increases.”

Adopting the union’s cause, the FTC warned that the proposed deal “would immediately erase aggressive competition” between the two chains for workers.

Whatever one thinks of the wages and benefits that supermarket employees should receive, it can hardly be said that raising the labor costs that the chains must pay will lower consumer prices. (And it’s not as if supermarket workers don’t have other vocational options available to them in retail work.)

As the Journal observes, FTC Chair Khan explicitly “rewrote” the commission’s “long-standing merger guidelines” in order to consider not merely consumer welfare, but the welfare of union members – far outside the FTC’s authorized scope of concern.

Far from guaranteeing that workers will continue to earn the highest possible compensation so long as the merger is blocked, preventing the merger may well drive at least one of the chains out of business, owing to its inability to compete with non-supermarket outlets. Alternatively, the Journal notes, higher worker compensation will only encourage the already widespread trend of replacing checkout clerks and baggers with self-checkout systems.

The real message that Lina Khan’s actions are sending to corporate CEOs, as both White and the Journal observe, is that they should not even attempt a merger, or else risk a long, and potentially losing, legal battle.

The winners, if any, from blocking the supermarket merger will be neither consumers nor workers, but union bosses.

In this respect, Khan’s distorted version of antitrust policy embodies the same outlook as Bidenomics as a whole: dole out favors to selected political constituencies (college students whose debt is canceled, electric-car manufacturers, union heads, increased numbers of Medicaid recipients) without regard to the nation’s common good. After all, union members and economically interested students don’t merely vote, they do lots of volunteer campaigning as well.

Biden employed this same strategy with the grossly misnamed “Inflation Reduction Act” of 2022, which was really a set of giveaways to selected companies, such as “green” energy producers. The bill actually increased inflation by growing the money supply.

There’s no mystery, then, to why Joe Biden appointed Ms. Khan to her august position. What is mysterious is why anyone who doesn’t fall into one of the president’s favored constituencies should feel motivated by his economic policies to support him.

David Lewis Schaefer is a Professor Emeritus of Political Science at College of the Holy Cross.