Will Eisenhower Era Jawboning Work on Stocks Today?

Those who believe that Trump will “make America great again” are thinking of the 1950’s, the years when Ike (5 star general turned president Eisenhower) was in the oval office. During his time in office Ike was known to call the president of US Steel and “jawbone” him into not raising the price of steel because when steel prices went up so did the price of every item made with steel or by machines with steel parts. It was considered the first step in inflation. The same approach was used by President Lyndon Johnson during the 1960’s when the word came into more common use. Merriam Webster defines jawboning.

Definition of jawboning :  the use of public appeals (as by a president) to influence the actions especially of business and labor leaders; broadly :  the use of spoken persuasion

Today President Elect Trump is publicly taking companies to task for moving jobs offshore. Although he does this by way of his twitter account it is in effect jawboning of the sort that Eisenhower used. Will this approach be effective in this era? And how will Eisenhower era jawboning work on stocks today?

Good Politics and Bad Economics

The Washington Post looked at Trumps jawboning and is concerned. They think that his approach, while good politics, may not be good economics.

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.

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.

While jawboning worked to a degree during the Eisenhower years it was not all that effective in the Johnson years as war and social program costs overwhelmed the budget and the economy. In the end bulling businesses 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.

In the end US manufacturers went overseas to cheaper labor or they went out of business as foreign competitors under sold them back in America. That is the situation we find ourselves in today. Manufacturers also relocate offshore because they sell to those growing markets as well. The money made in those markets also finds its way back home to researchers, engineers, designers and those at the home office. Threaten these companies and they have two choices. The first is to knuckle under so that Trump looks good and then slowly go out of business with their stocks sliding into oblivion. The second is to move more production and the majority of their business offshore so that they are not American companies anymore and don’t employ American workers. That is how Eisenhower/Johnson era jawboning could work out today.

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