The Federal Trade Commission's witch hunt against Whole Foods Market (NASDAQ:WFMI) offers a good lesson for these crazy times. The FTC's bizarre response to a merger of two relatively small grocers -- Whole Foods and Wild Oats -- makes it the ultimate poster child for why government intervention can be dangerous to a vibrant economy.

Now Whole Foods has decided it's going to fight back. It's suing the FTC.

I'd say the FTC's vendetta is the product of either corruption or incompetence -- I'm not sure which, but neither bodes well for a competitive marketplace. Given the trend toward nationalizing business, anything that smacks of corruption or incompetence emanating from government agencies is part of the reason some of us are deeply concerned that we're facing the wholesale destruction of the American economy.

Don't bother us with the facts
The FTC's opposition to the acquisition of Wild Oats seemed outlandish from the start. Those of us who live in the real world realize that you can get organic stuff at Wal-Mart (NYSE:WMT), Safeway (NYSE:SWY), Kroger (NYSE:KR), Trader Joe's, regional specialty grocery stores, farmers' markets, and independent stores. Besides, nobody's putting a gun to our heads and demanding that we eat an organic diet.

Still, the FTC fought this case in court -- and lost. It even committed a major blunder by spilling competitive information. Now it wants a rematch.

Whole Foods' lawsuit against the FTC alleges violations of due process rights under the Constitution and charges that the FTC has also, in effect, "prejudged" the company. Apparently, the FTC expects Whole Foods to defend itself in trials in 29 separate geographic regions within a five-month period, and the company says it has not been given reasonable time to prepare. Whole Foods also said the FTC doesn't want the case retried in federal court and heard by an objective federal judge, but rather wants to do the hearing itself.  

Even people who aren't big fans of Whole Foods must think the FTC's stance sounds unreasonable. In that regard, at least the FTC's been consistent through this whole nightmare.

Let's talk about competition
The FTC's idea of what constitutes "fair competition" is skewed, to say the least. I recall Whole Foods CEO John Mackey's contention last year that the FTC asked for more documentation about his company's transaction than it did when Exxon and Mobil hooked up. You'd think the ExxonMobil (NYSE:XOM) megamerger would be a heck of a lot scarier than the joining of two moderately sized organic grocers.

Heck, critics have often accused Wal-Mart of entering small towns across the U.S. and driving out competition to become, yes, the only game in town. If Whole Foods' takeover of Wild Oats -- both in urban and suburban markets, where there is plenty of competition -- is such a problem, wouldn't Wal-Mart's complete retail dominance of so many small towns be, too? Call me crazy. 

Is it any wonder why some of us have a hard time believing that benevolent regulators are looking out for anyone's interests but their own? I've been ranting about con games lately, and the FTC's aversion to the Whole Foods/Wild Oats merger looks like another one. Spending taxpayer dollars to go after Whole Foods becomes even more offensive when you consider the serious problems our economy faces.

Winners, losers, and fighters
All of these situations remind me why I'm so passionate about the dangers of government intervention in the marketplace. The threat of cronyism and corruption is real, and true competition can easily be destroyed through the whims or misinterpretations of bureaucrats and academics. The utter lack of logic the FTC has shown in this case makes it hard for me to have any confidence in regulatory justice.

Sure, there are a lot of modern-day wannabe robber barons running around in the business world, but Whole Foods is not one of them. Besides, the Wild Oats acquisition hasn't even helped Whole Foods. If anything, it overloaded Whole Foods with debt that the company didn't have before, and it's been a major drag on profits. Whole Foods' stock price has plunged.

I admire Whole Foods for standing up for its rights, especially since the FTC's stance looked absurd even in better times. But as a shareholder, I'm also concerned that this crusade may cost us dearly -- as the merger itself already has. Ideological battles can be terrible for companies, both financially and in terms of the distraction they cause.  

Then again, if our economy is becoming the sort in which the government picks the winners and losers -- hello, financial companies; hello, General Motors (NYSE:GM) and Ford (NYSE:F) and all the others that want to become propped-up losers at taxpayer expense -- then maybe it's a good thing to refuse to go down without a fight. Go, Whole Foods!

Whole Foods Market is a Motley Fool Stock Advisor recommendation. Wal-Mart is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy.