Rising Clamor for the Jawbone

At his first White House press conference 15 months ago, President Nixon made what has turned out to be the most controversial economic pronouncement of his Administration. "I do not go along with the suggestion," said the President, "that inflation can be effectively controlled by exhorting labor and management and industry to follow certain guidelines."

His words signaled the end of the Kennedy-Johnson strategy of "jawboning" --exerting presidential pressure against individual wage and price increases that the White House deemed excessive. Nixon has addressed some generalized pleas to labor and management, but he has not defined his guidelines. Neither he nor his advisers have publicly criticized any specific pay or price rises. Last week, for example, steel and gasoline prices were increased, and the price of copper rose for the sixth time in 15 months--yet the White House remained silent. The President said nothing about labor's rising wage demands and threats of nationwide strikes.

Worried by the presidential silence, many economists and politicians are urging Nixon to put the jawbone back to work. Walter Heller, onetime chairman of the Council of Economic Advisers, calls Nixon's mild admonitions to labor and business "an open-mouth policy without teeth." Arthur Okun, another former CEA chairman, contends that Nixon has in effect declared "open season" for unions and companies to get all they can. Okun figures that between 1966 and 1968, wholesale prices rose an average 2.3% a year for most industries; they went up only 1.7% in 15 "jawboned" industries, including steel, copper, autos and aluminum. During 1969, says Okun, prices in those formerly jawboned industries rose 6%, v. a 3.5% rise for other industrials.

Democratic critics are now picking up some Republican support. On behalf of the G.O.P. members of the Congressional Joint Economic Committee, New York's Senator Jacob Javits last month urged that the Council of Economic Advisers calculate and publicize the effects on the consumer of unusually large wage or price increases. The Javits paper, which also advocated voluntary credit rationing, was approved in general by all 43 Senators of the Republican policy group.

Violating Freedom? Many of Nixon's advisers answer that jawboning violates the principles of a free market --and might anger the President's business supporters. Some economists also dispute the contention that jawboning really works. Inflation, they stress, is caused by loose Government fiscal and monetary policy, which unleashes excessive demand in the economy. Jawboning may hold down prices in individual industries, says Nixon's CEA Chairman Paul McCracken, but that "may only divert inflationary pressure and make other wages and prices rise more."

Labor Secretary George Shultz argues that jawboning is also inequitable, hitting primarily at conspicuous and concentrated industries, like oil and steel. "It is applied to those whom it is easy to jawbone," he says, "not necessarily to such exceptionally high-price-increase industries as food, medicine and construction."

Whatever their merit, such arguments now seem somewhat irrelevant. Jawboning may indeed only divert inflationary pressure during a period of excess demand, but Arthur Burns, chairman of the Federal Reserve Board, believes that the deflationary policies of the last year have already succeeded in wringing excess demand out of the economy. Inflationary pressure now comes from 1) union drives for huge wage increases to catch up with past price boosts, and 2) businessmen's insistence on passing along pay increases by raising prices. It is precisely in such a situation that jawboning and the use of guidelines can be most effective.

Tough on Consumers. White House guidelines for noninflationary wage increases could give businessmen a bargaining point to use in labor negotiations. Labor's official position is that it will oppose any guidelines for wages unless there are equivalent restraints on prices, profits, dividends, rents and executive salaries and bonuses (see following story). Even so, presidential guidelines could give union leaders at least a talking point in trying to restrain their own rebellious members. Wage increases might go beyond the guidelines, but they probably would be smaller than if there were no guidelines at all.

Furthermore, continued inflation works far greater inequity on the consumer than jawboning does on any union or company. And jawboning need not lead to spectacular White House-industry battles. In 1968, for example, when the Council of Economic Advisers expected auto prices to go up an average $100 per car, Lyndon Johnson's CEA invited General Motors Chairman James Roche to Washington for a private session. G.M. and CEA technicians exchanged figures on how much higher production costs would force G.M. to raise prices on its 1969 models. No explicit promises or threats were made, but G.M. wound up raising prices only an average $52 per car.

Sometimes the mere threat of jawboning has been effective. Manhattan Economic Consultant Pierre Rinfret recalls that during the Kennedy-Johnson years, he frequently advised corporate clients that they would be "bombed" by the White House if they put through planned price boosts. In some cases, he says the clients did not raise prices; in others they did, but told him later that they wished they had not. After Nixon's press-conference remark discarding the jawbone, Rinfret sent telegrams to all his corporate clients advising them to go ahead and make any price boosts they had in mind. Some did.

Given Nixon's commitments, it is unrealistic to expect him to use public jawboning on any wide scale. But he might at least modify his insistence that he will never jawbone at all. Such a change would keep union and business leaders guessing as to how big a wage or price boost might draw presidential wrath. And that unccrtainty might serve to help slow the rate of inflation.

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