Measuring Bureaucractic Savings
Last week the Federal Trade Commission issued a document entitled “Performance and Accountability Report Fiscal Year 2006.” The function of this document is to create the illusion that the FTC actually produces something that can be measured in market terms. Of course, it’s nothing more than a hodgepodge of random numbers arranged to resemble a corporate annual report.
The most amusing element of the FTC’s report is the various “targets” established for measuring law enforcement activities. In consumer protection, the FTC’s fiscal year target was to “save consumers more than $400 million by stopping fraudulent practices in the marketplace.” The Commission fell short there, “saving” us downtrodden consumers just under $300 million. But, the report notes, the FTC can still meet its five-year target of saving us a total of $2 billion.
In the area of competition—antitrust—enforcement, the targets are defined by the size of the markets regulated:
The five-year target for the volume of commerce in markets benefiting from FTC merger enforcement action is $200 billion, or $40 billion per year. In FY 2006, the FTC’s merger enforcement actions affected markets in which the total volume of commerce was $13.4 billion; over the first three fiscal years of the five year plan (2004 through 2006) the total volume of commerce in affected markets has been approximately $84.2 billion, or approximately 70 percent of the three-year target.The FTC insists, however, that these targets aren’t quotas. At the same time, the five-year plan is to “take actions against mergers likely to harm competition in markets with a total of at least $125 billion in sales.” It sure sounds like a quota, the FTC’s denial notwithstanding. At the very least, the FTC has a great deal of faith in its ability to forecast the total sales of markets where future mergers will take place that will be found “likely to harm competition.”The five-year target for the volume of commerce in markets benefiting from FTC nonmerger enforcement action is $100 billion, or $20 billion per year. In the course of FY 2006, the FTC’s nonmerger enforcement actions affected markets in which the total volume of commerce was $1.4 billion. This measure has fluctuated greatly, going from $2.6 bil¬lion in FY 2004 to $19 billion in FY 2005 and back down to $1.4 billion for FY 2006. During the first three years that this measure has been in place, the overall volume-of-commerce for nonmerger enforcement actions has thus been approximately $23.3 billion or 39 percent of the three-year target.
The FTC has also forecast the total “consumer savings” from its future merger enforcement will be $400 million (and another $400 million from non-merger enforcement.) This means that when the FTC prevents or imposes conditions on a future merger, the agency’s intervention will prevent hypothetical short-term price increases that might have otherwise taken place and “injured” consumers.
There’s of course no basis for any of the FTC’s self-selected performance targets, and as best I can tell, no particularly incentives or consequences related to the targets. The entire “Performance Review” is an exercise directed by the White House and the Office of Management and Budget to give those agencies’ bureaucrats something to do to pass the time. Heck, if I were the FTC, I’d laugh at these so-called targets, because they bear no relation to the agency’s actual operations.
Everything the FTC does is self-directed. The agency is not a local police force responding to violent crimes like murders or rapes that can be cataloged and analyzed. The FTC itself decides what business practices are illegal, and it can be as consistent or inconsistent in the definitions as it chooses.
And basing targets on total market sales is even more misleading, because the FTC itself decides the market definition in every case it brings, meaning it can arbitrarily include or exclude certain businesses to meet the target.
The FTC also never accounts for the costs its own actions impose on the market. This includes not just the costs of defending against FTC enforcement actions, but the costs incurred by entire markets in anticipation of FTC regulation or enforcement. When the FTC issues a vague directive prohibiting certain business practices, companies spend thousands (even millions) of dollars retaining antitrust “experts”—many of whom are former FTC officials—to help decipher and interpret the new rules. These costs are ultimately borne by the consumer.
Mises correctly observed in Bureaucracy that “[t]he objectives of public administration cannot be measured in money terms and cannot be checked by accountancy methods.” In the absence of profit motive, as is the case with a state agency, “there is no connection between revenue and expenditure.” The FTC’s activities have no market value whatsoever, and the “Performance and Accountability Report” is an attempt to evade that simple truth.
