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If you ignore the silly but parts about me inventing law and economics, optimal deterrence, or harm-based penalties at the FTC -- hold your breath dear readers -- but @matthewstoller has a point here. Yeah, I think that requires a THREAD. (1/x)
Optimal deterrence is the core of economic theory regarding penalties, Becker (1968). The fundamental idea is that if the expected value of unlawful behavior net of legal sanctions is positive, then the market will produce it. (2/x)
A lot has been written about optimal deterrence in courts and agencies. See, e.g. Polinsky & Shavell; Mungan; Sunstein. Here is Ginsburg & Wright for an example calling for novel sanctions in the price-fixing context. (3/x) papers.ssrn.com/sol3/papers.cf…
A constant battle for econs in the FTC, & econ minded Commissioners,has been to inject economic thinking into penalty calculus.Lest one think that is code for "lower penalties," there are many examples where econs argue for higher penalties than lawyers or the law permits. (4/x)
Back to the FTC. Matt, and more importantly, @chopraftc, ask where the $5b number came from? There are many possibilities. Negotiation compromise, some analytical framework, etc. Commissioner Chopra contends the number is not "empirically well grounded." (5/x)
Here's @chopraftc dissent: "The Commissioners supporting the proposed penalty do not cite any methodology or analysis on Facebook’s unjust enrichment from violating the Commission’s order." (6/x)
More: "In my view, a rigorous analysis of unjust enrichment alone – which, notably, the Commission can seek without the assistance of the Attorney General – would likely yield a figure well above $5 billion." (7/x)
The FTC points out the 5b is "9% of Facebook’s 2018 revenue, and approximately 23% of its 2018 profit," and it compares it to historical fines. What it doesn't do is tell us if the number is related to any sort of analysis.Does 5b optimize anything? Or is it just a number? (8/x)
Let me be absolutely clear: I have no idea whether the sanction figure actually IS the product of some economic analysis. I'm skeptical because I would imagine the majority statement would respond to Commissioner Chopra were that the case. But perhaps it does. (9/x)
Economic analysis helps shape sanctions to optimize deterrence given agency resources, it makes sanctions predictable and fosters the rule of law, and brings analytical rigor to an area that has long needed it. 10/x
I've criticized @chopraftc for appearing to reject harm-based penalties. But to his credit, he comes much closer to endorsing this view than the majority, endorsing a penalty that would exceed unjust gains from the business practice. He asks the majority for their approach.(11/x)
Matt Stoller says there was no methodology bc the Chairman said, essentially, that $10b is better than $5b but the FTC got all they could get get under existing law. Easy to read too much into a press quote -- but the FTC silence on methodology also makes it easy to do so.(12/x)
Obviously the idea that one settlement -- even a big one -- says anything about the value of the economic approach to penalties is wrong. The value in those ideas is greater when the agency deviates from them. The settlement does raise important questions.(13/x)
Especially with a strong push for the FTC to pursue civil penalties more broadly -- making clear its methodological commitments in calculating penalties is more important than ever.I am a believer in the economic approach to consumer protection generally, including penalties.(14)
Often times that belief puts me in tension with other conservatives because that approach calls for more significant corporate or individual penalties in some instances, e.g. price-fixing. (15)
The econ approach disciplines the agency and helps it achieve its objectives -- that discipline is most important in big cases with outside pressure. The FTC was never going to make everyone happy, but I am disappointed they did not make transparent its methodology here. (16)
And I do hope that it will take the opportunity in the future to make its commitments on analytical approaches to sanctions clear. (17/17...END)
