Before the American Advertising Federation
March 25, 1998
It is a pleasure to be here today before the American Advertising Federation.
It is a hard position to be in.
First, to talk between you and lunch.
Second, to talk to a group with discerning tastes about good speech and communications. Your expectations are high. I am not talking to a group of economists at the American Economics Association.
There is much that I could talk about today. About the economic importance of advertising. About advertising in the digital age.
But I don't want to talk about economics today. I want to talk about People. About responsibility. About trust. About the proper role of government.
Before anybody ever dreamed of the "information age," William Shakespeare wrote:
"Good name in man and woman, dear my lord, Is the immediate jewel of their souls: Who steals my purse steals trash; 'tis something, nothing; 'Twas mine, 'tis his, and has been slave to thousands: But he that filches from me my good name Robs me of that which not enriches him And makes me poor indeed."
Othello, Act III, scene 3.
Shakespeare had it right, then and now. Information is everything. False information can destroy. Who is to say what is true and what is false? It is too much to leave to the government alone. Only the individual can work this out for themselves.
There are cynics in our society who would assert that advertising is a necessary evil in our society. I disagree. It is rather a necessary good. It informs consumers. About new products and services. And it reminds them about familiar ones. It offers a means for new businesses to attract new customers. And a means for current businesses to retain customers.
Advertising is ultimately about people. About informing them. About persuading them. About expectations. About meeting wants. About conveying a sense of trust.
Americans love advertising. My favorite example is not the subtle refined example of professional advertising found in the mass media. Rather it is the unrefined free-for-all that you find at a county fair.
People walk mesmerized through a sea of beckoning messages. Sound and sight, smell and taste, pictures and words, combine to beckon people this way and that. Sense and sensibility, folly and frivolity sit next to each other. The Kiwanis Club has a booth next to the Hoochie-Koochie show; the Farmer's Pig exhibit is next to the two-headed freak show; the hall of mirrors is next to the PTA booth, and so on.
Hawkers at a county fair are some of the best advertisers on earth. They can size up each passing person and change their pitch.
Some people know where they are going; some don't. Some want to be seduced by a fantasy world; some don't.
There are no hard and formal rules for advertising at a county fair. It is a free for all.
Yet every one knows that, and everyone finds what they want. Despite the chaos, people trust the system. Left to their own devices, reasonable people will work things out --and they do. There is no need for the government to intervene, and the government does not.
The "county fair," where people discern their own truths without government intervention, is paradigmatic of the model that the Supreme Court follows in analyzing government regulation of advertising -- or, as the Court calls it, "commercial speech" -- under the First Amendment.
Historically, commercial speech has ranked relatively low on the scale of First Amendment values. It was not until 1976 that the Supreme Court even protected commercial speech.
But when it did so, it rejected what it called the "highly paternalistic" view that government should shield consumers from information that might encourage imprudent -- but lawful -- behavior. Instead, it opted for "the alternative":
"to assume that information is not in itself harmful, that people will perceive their own best interest if only they are well enough informed, and that the best means to that end is to open the channels of communication rather than close them."
Virginia Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 770 (1976).
But even then, commercial speech was not given full status under the First Amendment. Instead, it was afforded an intermediate level of protection, short of that granted to "political" speech.
Two years ago, however, all that started to change dramatically. In a landmark case, 44 Liquormart v. Rhode Island, the Supreme Court took a more protective stance toward commercial speech than it ever has in striking down a state law banning advertising of retail liquor prices.
The Court recognized the historical importance of advertising to the American traditions of free speech and free press. It wrote:
"Advertising has been a part of our culture throughout our history. Even in colonial days, the public relied on 'commercial speech' for vital information about the market . . . . Indeed, commercial messages played such a central role in public life prior to the Founding that Benjamin Franklin authored his early defense of a free press in support of his decision to print, of all things, an advertisement for voyages to Barbados."
116 S. Ct.1495, 1504 (1996).
The Court also affirmed the principle that we should be"especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good."
Justice Thomas would have done even more to protect commercial speech. He wrote that he would give commercial speech full First Amendment protection, writing that there was no "philosophical or historical basis for asserting that 'commercial' speech is of 'lower value' than 'noncommercial' speech." He noted the "near impossibility of severing 'commercial' speech from speech necessary to democratic decisionmaking," observing that "unless consumers are kept informed about the operations of the free market system, they cannot form 'intelligent opinions as to how that system ought to be regulated or altered.'"
The bottom line is that in 44 Liquormart the Court essentially held that truthful, non-misleading advertising about lawful activity can not be prohibited under the First Amendment.
This decision has a direct impact on several issues now bubbling up at the Commission.
First, it casts doubt upon the constitutionality of a federal law that authorizes the FCC to regulate broadcast advertising about lotteries and other "games of chance." Under FCC regulations, casinos are flatly prohibited from advertising their gambling amenities (though they can talk about food and lodging) and may not use the word "casino" except in connection with the legal name of their establishment.
The Court of Appeals for the Ninth Circuit has already ruled that this ban violates the First Amendment. Valley Broadcasting Co. v. United States. The Fifth Circuit, on the other hand, has reached the opposite conclusion.
In all likelihood, the Supreme Court will eventually address this split of opinion, and its decision will have a great impact on the ability of advertisers to freely communicate information about legal activity.
Second, 44 Liquormart also draws into question any effort the FCC might undertake to prohibit alcohol advertising. If Rhode Island could not outlaw advertising about the price of liquor, how could the FCC prohibit advertising about alcohol?
Perhaps one could come up with distinctions between hard liquor on the one hand and beer and wine on the other, but that is a hard distinction to make, especially for purposes of constitutional law, which does not turn on facts but principles. Others have suggested that something less than a blanket prohibition might be constitutional, but that would surely be an uphill legal battle.
Freedom of commercial speech is not only a constitutional right. It is also just plain good policy.
Advertising plays a critical role in our free enterprise system. It works hand-in-hand with industry to promote the sale of the goods and services that industry produces. All in all, consumers are better off when they have more information about goods -- who is selling them and at what price -- rather than less. Information is what makes consumer choice real.
To summarize a theory of John Calfee, a Resident Scholar at the American Enterprise Institute, "governments that restrict advertising will only raise prices, sustain monopolies, freeze markets, deny consumers information and generally harm their own interests." Fear of Persuasion (AEI 1997) (bookflap).
In short, as the Supreme Court has recognized, advertising played an essential part in the development of a free press in America, and therefore deserves constitutional protection. It has also contributed in immeasurable ways to the creation of the greatest and strongest economy in the world. We would be wise to regulate it with restraint.
Notwithstanding this proud tradition, there is floating around in Washington these days a proposal to directly regulate advertising -- it is called "free air time." In his State of the Union address, President Clinton asked the FCC, by regulation, to give politicians free air time on broadcast television. A growing number of politicians, public interest groups, and editorials in leading newspapers have joined the President's call.
As an FCC Commissioner, I intend to consider seriously at least two fundamental questions: does my agency actually possess statutory authority to adopt regulations mandating free air time? If the answer is unclear, what should we do?
These days, the FCC is a busy agency. Our statutorily-mandated duties do not, however, include the adoption of regulations to provide political candidates with free air time. No law governing the FCC gives us the power to command that politicians pay nothing for broadcast advertising spots. In fact, federal statutes already define the obligations of broadcasters to political candidates, and they stop far short of guaranteeing free time. Given all this, we might do better to focus on what we are explicitly required by law to do -- implementing Congress's legislation, reviewing the need for existing regulations, and processing license applications -- rather than searching for extracurricular activities.
To be sure, the FCC is not strictly limited to those areas listed in our governing statutes. Under the Communications Act, the FCC has discretionary authority to regulate broadcasting in the "public interest." It is certainly true, as proponents of agency jurisdiction over free air time have noted, that this authority is broad.
It is also not without limits. The Supreme Court has ruled that FCC actions not clearly authorized by law must be "reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting." The relevant legal issue thus is whether the free air time proposal bears a real connection to the efficient management of broadcast licensing. Presumably, this requires more than a showing that broadcasters provide a convenient means for solving a generalized problem of public disaffection with politicians.
The biggest obstacle to FCC authority under the public interest doctrine is that the proposal for free air time does not so much concern broadcast licensing -- the actual business of the FCC -- as campaign finance reform. The New York Times made this very point when it editorialized that at the heart of the free air time debate "is an argument about how to make campaigns cheaper and cleaner." Yet if that is the central purpose of free-air-time, the Commission has no more jurisdiction over the proposal than any other federal agency. After all, the agency was established to manage the electromagnetic spectrum, not political campaigns.
And when it comes to campaigns and the related topic of election law, the FCC has little or no institutional expertise or knowledge, and we thus cannot be expected to regulate competently in this area. Having the FCC formulate campaign finance reform on the theory that broadcasters send campaign commercials over the air makes as much sense as charging the Federal Aviation Administration with regulating agriculture because airplanes transport fruit and vegetables. Restructuring the election process is no task for on-the-job training.
Although free air time sounds simple enough in the abstract, consider some of the issues the FCC would have to resolve before it could even begin to say how the measure should be implemented. Who should be entitled to the time -- federal or state candidates, or both? Should only major party candidates qualify, to the exclusion of independents and write-ins? Should all elective offices count? How much "free" time is enough to solve the problems of campaign finance, indeed how widespread are those problems? The FCC is simply not in the best position to find the right answers to these thorny questions and could even do more harm than good.
One final problem with understanding the "public interest" to include free-air-time: the measure is quite possibly unconstitutional. Notwithstanding the euphemistic title, politicians' commercials would not be "free." Broadcasters would pay for them through lost advertising revenue in order to foster a purportedly stronger democracy. But forcing the few to bear the costs of something enjoyed by society at large -- and certainly all Americans benefit from democracy -- is generally considered an uncompensated "taking" under the Fifth Amendment. Compelling broadcasters to communicate political messages may also violate the First Amendment, which does not authorize government to create "more" or "better" speech; the Amendment is an express prohibition on governmental action abridging freedom of speech, including the choice of what to say and whether to speak at all.
Those who want the FCC to look into free air time should be troubled by the agency's questionable authority, because limits on administrative agencies preserve governmental accountability for the decisions that affect people's lives. Congress, not unelected officials, should make public policy and thereby provide Americans who disagree with the chosen policy a means of recourse -- the chance to cast a vote in protest.
Questions concerning the way in which campaigns for elective office will be conducted go to the very soul of our democratic process. Such fundamental issues should not be resolved by an independent administrative agency consisting of regulators who do not have to explain their decisions directly to the electorate. The basic democratic purpose of our jurisdictional limitations counsels against, not in favor of, agency action.
Over the past decade, Congress, which bears the burden of accountability, has consistently decided against free air time for political candidates. This decision is not attributable to any Congressional sense that the issue should be left in the hands of the FCC but to the simple lack of a majority that believes it would be a good idea. Congressional familiarity with the issue has bred caution.
Only fools rush in where angels fear to tread. If jurisdictional limits on the FCC are mowed down in a stampede for free television, then government itself -- not just campaign finance practices -- will be in need of reform.
Even if we clearly had jurisdiction in the "public interest," would free time even serve the best interest of the public? I believe that, at a minimum, the public interest requires that the benefits to the public will clearly exceed the costs. Free air time does not meet this basic test.
The benefits of free air time are obvious, at least if you are a politician.
The costs of free air time may be less obvious. It could lead to a proliferation of politicians and of spending on non-broadcast expenses. The real costs of free air time, however, are potentially more profound. Indeed, it takes just a moment's reflection to grasp the inaccuracy of the phrase "free air time." Somebody will surely pay for these campaign commercials. That somebody is the broadcaster, and ultimately the American consumer.
Through forfeited advertising income, broadcasters will loose revenue that cannot be recouped elsewhere. They will find it difficult to raise advertising rates because competing advertising outlets -- such as cable, the Internet, newspapers, and magazines -- are not subject to the regulation. This proposal thus amounts to a painful and targeted tax on broadcasters in order to fund something that proponents claim will produce general public benefit, a stronger democracy.
Broadcasters are not the only ones who might pay for "free" time. The American public has shown a decided distaste for most political advertisements; free air time will lead to more not fewer. Moreover, reduced revenues may force broadcasters to cut costs, quite possibly reducing the quality of other programming enjoyed by viewers. Viewers will get more of what they do not want, and less of what they do.
In the end, broadcast air time is not "free" at all. Proposals for free television merely shift
the costs of political advertising from those who willingly donate to political candidates and the
candidates themselves to the broadcast industry and American consumers. Today, most
Americans choose not to contribute to political campaigns and candidates; tomorrow, they may
not have that choice.
We underestimate the importance of that choice, and impinge upon it by way of governmental action, at our peril. It is an important part of this country's system of ordered liberty. One hundred and thirty-five years ago, Abraham Lincoln described the United States as a "nation conceived in liberty and dedicated to the proposition that all men are created equal."
These were noble ideals for a new nation. How did that young nation protect and nurture such ideals? Some might have guessed with a strong centralized government with unbounded authority.
But a powerful government was not to be the course of American history. To the contrary, the American colonists had rebelled against a government precisely because it sought to exercise expanded authority, precisely because it sought to impose new taxes, precisely because it sought to overregulate and stifle commerce, and precisely because it trampled on the individual's right to speak freely and to exercise religion freely.
The American reaction to an overactive British government was the U.S. Constitution, perhaps the political document of all time. It begins with "We the People," and its original Bill of Rights ended with two powerful sentences emphasizing that the government serves the people and not vice versa:
"The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people. The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States, respectively, or to the people."
U.S. Const., Amdts. IX and X.
Between the beginning and the ending dedication to the People are just a few short pages. In those pages is a description of a decidedly weak government, one that is defined more by what it may not do than by expansive, unlimited powers.
There are those who say that it is ironic that the most powerful Nation in the world has grown with only a limited government. And there are those of us who find no irony at all.
Someone once described the greatest and wisest power as self-restraint, both in individuals and in nations. A powerless country does not threaten its neighbor, because it cannot. A powerful country may threaten its neighbor, because it can. But the most powerful and wise of nations chooses not to threaten its neighbors, because it is bound by self-restraint, and its neighbors know it, and the world knows it. It would be irrational to threaten neighbors. It would be unwise. It would be wrong.
Similarly, the wisest form of regulation is self-restraint. Wise and powerful countries do not overregulate. They do not suffocate. They do not threaten. It is not that they are powerless to do so. Rather, they choose not to, because it would be irrational, unwise, and wrong. America must learn to regulate in a manner commensurate with our world leadership.