Spotlight: Agency Activist

Wesley J. Liebeler

When asked about his views in a 1973 interview, the candidate told Federal Trade Commission Chairman Lewis A. Engman that unless the institution substantially changed its stripes the FTC should be abolished. The subsequent appointment of free-market-oriented Wesley J. Liebeler to direct the Commission's Policy Planning and Evaluation Office generated controversy not only within the FTC itself but also in antitrust circles generally. The Policy Planning Office—created after criticism of the FTC by the American Bar Association, had not yet become much of a force. Under this new leadership, however, it produced a series of budget reviews, large portions of which were later published in the antitrust trade press, which severely criticized the Commission's performance in both antitrust and consumer protection.

Liebeler, professor of law at the UCLA Law School, is one of the intellectual and practical pioneers of the deregulation movement. His unbounded enthusiasm both stimulates his students (not always, of course, to agree with him) and helps to sustain a steady flow of scholarly work. Liebeler's knowledge and experience with federal regulatory agencies centers upon his relationship with the FTC, the grandfather of bureaucracies. Besides being Director of the Policy Planning Office, he also served as a consultant, both to the Commission's chairman and to the Commission as a whole, in 1973 and in 1976, before and after his stint as Planning Director. In 1976 he produced a series of policy memoranda on different antitrust issues that were to serve as a base for new FTC guidelines. A change in the national administration, however, produced a sharply different view of antitrust enforcement. No guidelines were adopted.

Liebeler's academic career dates back to the University of Chicago Law School. His earlier free-market predilections were influenced and amplified by his contact with Aaron Director, who was Professor of Economics in the Law School at that time. "I took every course that Prof. Director taught, and wished there were more. Like most students, at least of that vintage," Liebeler says, "I stood in a certain amount of awe as regards my teachers. The only one I have not lost that feeling about is Aaron Director. There was nothing quite like the intellectual integrity of the man and the power of his analysis. When he turned those qualities on a problem, what most others accepted as 'analysis' became nothing but words—usually without discernible connection. And so it is with most justifications for government regulation and intervention into market processes."

After he graduated from Chicago in 1957, Liebeler went with a prominent New York law firm where he specialized in commercial litigation. He stayed with the firm until 1964 when he became an assistant counsel to the Warren Commission for its duration. Thereafter, Liebeler joined the faculty of the law school at UCLA.

According to Liebeler, it became obvious that he needed a crash course to advance his understanding of economics when he began to teach the Antitrust course for the first time: "I found that it was not possible to teach that course using the usual and time-honored techniques of legal reasoning. While you could relate the cases to each other in a superficial, primarily verbal way, the subject just would not hang together in any consistent, coherent way."

He turned, in part, to the UCLA Economics Department for a solution. Out of that developed a close and long-lasting relationship with Prof. Harold Demsetz, who in the opinion of many is the nation's leading industrial organization economist. In his Law and Economics course this year, for example, Liebeler's reading assignments include Henry Manne's The Economics of Legal Relationships; four of the leading articles were by Demsetz.

At the FTC Liebeler thought Engman viewed him as something of a "stalking horse." If a particular idea received a favorable response, Engman was all for it and would try to lead the Commission to back it; if the response was less favorable, Liebeler could have all the "credit." Liebeler's first major proposal was to assert the FTC's power to strike down state laws that had the effect of injuring consumers. The first target was the prescription drug industry; one type of state law prevented the advertising of retail prices of such drugs; another prohibited pharmacists from dispensing generic drugs if the prescription was written to call for a particular brand of a generic drug. While Engman was dubious about the political pressures that might be generated by pharmacists and pharmaceutical manufacturers, he did appoint a task force with Liebeler at its head to draft and submit specific proposals to the Commission.

Staff members of this task force, aside from those from Liebeler's own office, were extremely doubtful that the Commission itself would ever adopt either of Liebeler's proposals. The head of the Bureau of Competition adamantly refused to endorse the task force recommendation that the FTC proceed against the advertising restrictions by way of a trade regulation. But the Bureau of Economics and Bureau of Competition adamantly refused support the proposal and eventually after the Commission itself unanimously accepted the task force recommendations, the Bureau of Consumer Protection was given operational responsibility to conduct the trade regulation rule proceeding. After Eric Sevareid, discussing the proposal on the CBS Evening News, opined that it was the most sensible thing he had seen come from the regulatory agencies in over a generation, Engman formally announced the new program before a national meeting of advertising agency personnel.

The prescription drug rule was followed quickly by one on prescription eyeglasses. Liebeler proposed a general FTC attack on state occupational licensure programs, on the theory that the necessary effect of all of them was to injure consumers. He eventually proposed that more than half of the Bureau of Consumer Protection's resources be devoted to attacks on various state regulatory schemes and to monitoring and critiquing the activities of other federal agencies. He proposed an attack on advertising restrictions on doctors, lawyers, and other professionals. His office urged the Commission to move against state laws that limit competition in the fluid milk market. The Policy Planning Office began involving itself in proceedings before the cab and in Congressional activities aimed at deregulation.

But Liebeler recognizes the limits of this type of inter-bureaucratic warfare. "There is a very serious problem with my attempts to use one regulatory agency to rid ourselves of other forms of regulation or to rid ourselves of inefficient work rules and the like which have resulted from government intervention in the market place on the side of trade unions. While my efforts were, of course, 'benign,' in the sense that they were truly pro-market, there is nothing to prevent the next bunch which happens to get control of the FTC to use its power, which my approach would have greatly expanded, to do quite different things. I understand that the present FTC Chairman has mentioned the possibility of finding the employment of workers who do not have their working papers in order to be a violation of Section 5 of the Act. This is an anti-market proposal, of course, but I'm sure it would not be hard to find those who did not understand that. On the other hand, if the FTC is going to be spending the taxpayer's money it ought to be doing things that have at least some chance of improving the economic welfare of the community. Most of its traditional activities do not fall in that category; at least in the short run my deregulation proposals did."

The unauthorized publication in BNA's Antitrust & Trade Regulation Reporter of Liebeler's detailed, controversial, and confidential studies of the FTC's internal budget proposals caused considerable outcry. These memoranda, which were internal staff products, leveled serious criticisms at the Commission's current antitrust and consumer protection activities. Liebeler urged significant changes in the FTC's case selection methods, proposing a set of objective standards based on the estimated effect of its activity on consumer welfare. These standards, Liebeler argued, would not only force the FTC to be more accountable and predictable, but also would improve its use of resources by redirecting its activities to where the pay-out for consumers would be highest, such as the deregulation proposals mentioned above.

Liebeler favors the outright abolition of many federal agencies and is not particularly concerned that such moves would probably cause private losses to some who have benefitted from the agencies' activities in the past. He recognizes, however, that it maybe necessary to compensate some of those private interests, if only to overcome political opposition to the reintroduction of market forces into previously sheltered areas.

As to the future of deregulation, Liebeler is cautious. He notes that the "efforts in the airline industry look promising, but at the same time new and much larger and more powerful regulatory agencies have recently mushroomed." He observes, for example, that the growth of the Environmental Protection Agency and the creation of the Federal Energy Administration—during a Republican administration—have created power centers that far exceed anything that can be found in the old-line regulatory agencies.

"In a sense those of us who oppose government's interference in the market are involved in an enterprise that is the reverse of that of Sisyphus," Liebeler suggests. "We get to the point where we are about to kick the CAB down the hill and we turn around to find EPA, FEA and a host of other dead weights right behind us."

The answer? "As with Sisyphus, more of the same, I suppose," concludes Professor Liebeler. By that he means more of the education, scholarship, litigation and so on that has brought the deregulation movement as far as it has come today.