Trump's job 'jawboning' may be good politics — but it's not good economics - Washington Post

Jawboning is back in style, courtesy of Donald Trump. Those with long memories will recall that “jawboning” is a term that became fashionable in the 1960s. It signified an effort by the government, usually the president, to persuade companies — through intimidation, bullying or shaming — to do what the president asked in the “national interest” even if it wasn’t in the firms’ immediate self-interest.

This is what Trump has been doing. First, he pressured Carrier, a maker of heating and air-conditioning units, not to move some work to Mexico, saving 800 to 1,000 jobs (various figures have been published). Next, he pushed Ford not to build a new $1.6 billion assembly plant in Mexico; this purportedly saves 700 American jobs. More recently, he’s made nasty noises about General Motors’ and Toyota’s Mexican operations.

All this may be good politics — but it’s not good economics.

In our mind’s eye, Trump is standing up for American blue-collar workers and redeeming his campaign promises to revive the industrial base. The reality is that his jawboning won’t create many new jobs and could actually lose U.S. jobs if American vehicle producers are saddled with uncompetitive costs. History suggests that Trump’s high-profile arm-twisting will disappoint.

That’s what happened in the 1960s. The goal then was to keep price inflation down without resorting to higher interest rates that would increase unemployment, which in 1966 was 3.8 percent. To accomplish this, Lyndon Johnson’s administration calculated that higher productivity would enable firms to increase wages by about 3 percent without raising prices. And if they did raise prices, they incurred Johnson’s wrath.

His frantic efforts to contain inflation by jawboning make Trump look like a piker. When Bethlehem Steel, a major producer, broke its pledge not to boost prices, Johnson denounced the firm’s executives as unpatriotic and forced them to back down. When aluminum companies raised prices, he released supplies from government stockpiles to undo the increase. It worked. Johnson’s interventions were many and varied.

“Shoe prices went up, so LBJ slapped export controls on hides to increase the supply of leather,” aide Joseph Califano later wrote. “The president told the CEA [Council of Economic Advisers] and me to move on household appliances, paper cartons, newsprint, men’s underwear, women’s hosiery, glass containers, cellulose . . . [and] air conditioners.”

It failed. Inflationary pressures — reflecting cheap credit and Vietnam War spending — overwhelmed the jawboning. Wages and prices were bid up. By 1969, consumer price inflation was 6 percent, up from just above 1 percent in 1960. The ’70s were spent trying to contain inflation, which reached an annual peak of 13 percent in 1979 and 1980.

There are parallels between then and now. The lesson of LBJ’s jawboning is that the government can’t easily offset the economy’s powerful, underlying forces. This remains true. Manufacturing employment will probably never again reach its level before the Great Recession, but the main reason isn’t imports or factories’ flight abroad.

“There are so many reasons for manufacturing job loss,” says Stephen Gold of the Manufacturers Alliance for Productivity and Innovation. Automation is probably the most important. “We can do more with a lot less,” says Gold. Since 1990, manufacturing employment is down about a third, while output is up almost three-quarters. Other causes of job loss include bankruptcies during recessions and new technologies, which squeeze firms dependent on older technologies.

American producers also suffer from a strong dollar. Its exchange rate is boosted because the greenback is the main international currency used in global trade and investment. In turn, the stronger dollar makes U.S. exports more expensive and U.S. imports cheaper. This may be one reason U.S. multinational firms build foreign factories, where many costs are in local currencies.

But there is a bigger reason. “Our members locate abroad, because that’s where the growing markets are,” says Gold. “Companies need to be close to their customers.” Even so, studies find that sales abroad by foreign affiliates of American firms stimulate U.S. economic growth by boosting exports and research and development, says Gary Hufbauer of the Peterson Institute for International Economics, a pro-trade think tank.

By itself, manufacturing can’t sustain strong U.S. job growth. It’s employment base is too small, about 12 million payroll jobs out of a total of 145 million. That’s about 8 percent. Hufbauer suggests this hypothetical: Suppose, optimistically, that Trump saved one factory a week with 1,000 workers from moving abroad. After a year, that would be 50,000 jobs, which is roughly a quarter of one month’s average job growth.

Factory jobs are important to the people who have them, but they are no panacea for the economy and can’t justify policies — protectionism, self-serving jawboning — that are undesirable on other grounds. As noted, patriotism may be good politics; it is not always good economics.

Read more from Robert Samuelson’s archive.