The FTC and Those GM Ads

I’m usually in enthusiastic accord with our friends over at the Competitive Enterprise Institute, but it seems to me they’ve made a mistake by petitioning the Federal Trade Commission (FTC) to crack down on GM’s ridiculous “we repaid our federal loan” ad. Some zealous enforcers would love for the FTC to do more to regulate speech by American business on matters of public concern, and it seems to me the last thing we should do is encourage such a trend.

For those who came in late, General Motors and its CEO Ed Whitmire were widely and rightly assailed here and elsewhere for asserting (in a column whose message was repeated in much-played TV ads) that the company had repaid its bailout loan “in full, with interest, years ahead of schedule.” Actually, as the inspector general of the government’s TARP program readily acknowledged, the firm had merely used one pot of federal money to repay another. Iowa Sen. Charles Grassley helped expose the dodge, and publications ranging from FoxNews.com to the New York Times joined in with scathing coverage.

Yesterday CEI announced that it had filed a formal complaint [PDF] with the FTC urging the commission to investigate the automaker’s ad campaign as misleading. It alleges that the ad campaign “could unfairly dupe consumers into a false, renewed confidence in the company” and that “consumer purchasing decisions can easily be affected by such considerations.” Nick Gillespie at Reason, CEI general counsel Hans Bader, and Todd Zywicki at Volokh have more.

There’s a long history of businesses’ responding to public criticism of their operations or products – and getting in further legal or regulatory trouble because of that very response. In one early case, the FTC went after egg producers for asserting, in the midst of a cholesterol scare that in hindsight appears overblown, that their ovoid wares were not in fact a menace to cardiac health. Sen. Charles Schumer (D-N.Y.) and the Center to Prevent Handgun Violence have asked the FTC to prohibit ads that imply that keeping a loaded weapon on hand will make a family safer. In Nike v. Kasky, a famous case that reached the Supreme Court [Thomas Goldstein, Cato Supreme Court Review 2003, PDF], shoemaker Nike was sued under a California law over the public defense it had put forward of its labor practices in overseas factories. Environmentalists have sought to suppress ads claiming that nuclear power is nonpolluting, and so forth.

Free-market advocates have generally argued that whatever the merits of laws or regulations banning misleading advertising in garden-variety commercial contexts, there are special dangers to the First Amendment and to robust debate generally in letting agencies and courts second-guess the content of “issue ads” and speech on topics of public controversy. To begin with, it encourages advocates to turn to the law to silence disagreeable speech rather than muster their best arguments to rebut it. In one grotesque example, MoveOn.org and Common Cause actually petitioned the FTC to institute a complaint against Fox News over its use of the slogan “Fair and Balanced”, since (they said) the network was neither.

Despite its current dependence on government, GM is in every relevant legal sense a private company, so any precedents forged against it will wind up applying to every other private enterprise that might wish to advertise on matters of public controversy. Which makes it a concern that CEI’s complaint cites with seeming enthusiasm broad FTC interpretations of authority – for example, its authority to suppress speech that might not be in itself false but could leave a potentially misleading impression.

If there is a continuum extending from more or less purely commercial speech (“Our tires last 40,000 miles”) to more or less purely political speech (“Our business is badly overtaxed”), GM’s ad campaign surely falls way over toward the “political” side. CEI’s response to this is to argue that the campaign might influence consumers’ purely economic calculations (as opposed to the political reasons they have to feel angry at GM) by making them more likely to see the company as solvent and thus as capable of making good its warranty promises. The words “strained” and “makeweight” come to mind to describe this argument. Does CEI really want to establish the future principle that a company’s over-sunny talk about its financial prospects will henceforth get it in trouble with two federal agencies, the FTC and SEC, rather than the SEC alone?

It all seems a rather high price to pay in principle for keeping the GM-TARP story in the papers for another day or two.