Is it better to be loved than feared, or the reverse? The answer is that one would like to be both, but because it is difficult to fit them together, it is much more secure to be feared than loved, if it is necessary to do without one of the two.
—Machiavelli in The Prince
When it comes to his relationship with the business community, Lyndon Johnson does not believe that it is necessary to do without either—but he is certainly acting like a man who knows where the choice lies. Last week, after an intricate and mystery-shrouded confrontation that would do honor to Machiavelli, Johnson forced the $2.9 billion aluminum industry to bow to Government pressure and retreat from a price increase. It was the first such backdown since the steel industry's retreat before John Kennedy's wrath in 1962, and it marked the beginning of a new phase in Johnson's relations with U.S. business.
Long Regret. Johnson got what he wanted—but he paid a price. Though the clash did not wipe out the good will that Johnson has accumulated among businessmen—partly because the President carefully stayed behind the scenes—that old feeling will never be quite the same again. Even before the aluminum industry backed down, Chase Manhattan Bank President David Rockefeller warned: "We are in danger of backing inadvertently into a managed economy; this is not the high road to the good life." After the backdown, many businessmen expressed disappointment and chagrin. Even on Johnson's own staff, there were grumblings.
The aluminum industry is only a sacrificial symbol of Lyndon Johnson's wider war on inflation, which he feels he must wage to keep the economy healthy and to restore the balance of payments. The aluminum industry—one twenty-third the size of construction and one-tenth the size of automaking—is unlikely to cause an inflationary spiral by itself. Even some Government economists concede that the industry has as good a case as any for higher prices: it is earning a mere 4.9% on its investment, is running at 100% of its 2,700,000-ton capacity. Its price boosts—three in the last two years—have not kept pace with its wage hikes; the most recent wage increase, a guidepostshattering 4% rise, was greeted with no outcry from Washington.
Nonetheless, Lyndon Johnson decided that he had to show a strong hand. He has always regretted that he did not oppose the 4.8% auto settlement of 1964 that began the round of wage increases. Since then, more inflationary tendencies have continued to appear in the economy. Johnson looked beyond aluminum to the steel industry, which many economists believed was getting up courage for a price rise, and realized that he would not be able to block any steel increase unless he did something about aluminum. Assured by Chief Economic Adviser Gardner Ackley that the aluminum industry's profits were high and that any price rise would be unjustified, he set out to force back the 10 price rise to 25¢ per Ib.—which still left the metal selling for 1¢ per Ib. below its 1960 peak.