Jawboning

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During the mid to late 1960s, the Lyndon B. Johnson Administration tried to deal with the mounting inflationary pressures by direct government influence. Wage-price guideposts were set up, and the power of the presidency was used to coerce big businesses and labor into going along with these guideposts. This general approach came to be known as "jawboning" (sometimes known as "moral suasion") — an unofficial but usually quite effective technique of arm-twisting to prevent labor and businesses from getting big wage or price increases, which works essentially by the implicit threat of future Government "regulation" of their industry, such that would impair their profitability.

The actual economic downshot of preventing price increases is that businesses are forced to bear the cost of inflation, which in turn naturally reduces their ability to hire, since they have less money. This increases unemployment, and so in the end the people who bear the cost of inflation are private individuals, since they are paid less and some have no work at all.

The actual economic upshot of preventing wage increases is to force private individuals to directly bear the cost of inflation. This would have happened anyway, indirectly, since if the pay rises had been given, the increase in costs due to inflation would have led to private individuals bearing the cost of inflation anyway.

Attempts to "reduce" inflation which don't actually involve real economic changes invariably only redistribute the cost inflation, and usually in very unfair ways.

The phrase also refers to Herbert Hoover's efforts to convince employers to keep wages high as prices fell during the Great Depression. While Hoover was successful in obtaining such agreements, they did little to alleviate mushrooming unemployment.

The term has been used more recently in other contexts. During the 2000 U.S. Presidential Election, George W. Bush criticized outgoing president Bill Clinton for not attempting to lower oil prices by "jawboning OPEC" to increase supply. (This is a different situation to dealing with inflation, since OPEC is something of a monopoly supplier; increases in supply from them really do lower prices).

The Canadian-American economist J. K. Galbraith considers this word "entered the language" over the activities of the U.S. Office of Price Administration and Civilian Supply, formed in April 1941 (Galbraith, J. K. (1976). Money: whence it came,where it went. Penguin: London, p. 252).

In 1835 William Ellery Channing published a pamphlet called Slavery, in which he spoke out against both the slave-owners and the abolitionists; furthermore, he advocated a policy of moral suasion in order to persuade the South to end slavery, rather than the traditional approach of political coercion (Menand, Louis. The Metaphysical Club. 1st ed. New York: Farrar, Straus & Giroux, 2001, p. 12).

[edit] Examples of usage

1979 Solutions to Inflation, by David C. Colander, has section heading "Wage-Price Controls, Guidelines, Guideposts, Jawboning and such" (p.105).
1999 (Dec) George W Bush, in the first Republican primary debate, said President Clinton “must jawbone OPEC members to lower prices.”
2003 Global Climate Change: The Science, Economics and Politics, by James M. Griffin, pp. 86-87 discusses effect of government jawboning to reduce the consumption of fossil fuels.
2004 (May 19) New York Times "Mr. McAuliffe, Mr. Vilsack and Mr. Kerry each cited a comment Mr. Bush made in 2000 while campaigning in New Hampshire, when he said that as president, he would jawbone leaders from Saudi Arabia and other oil-producing nations to pressure them to expand oil production. Well, I haven't seen any jawboning, have you? Mr. Kerry asked the crowd here."