Evoking Keynes and Truman, Obama’s plan is good policy and smart politics

President Obama has proposed $US1.5 trillion worth of tax increases for the rich. AAP

Sometimes good policy and good politics are the same thing.

By tying together lessons learned from economist John Maynard Keynes and former president Harry Truman, Barack Obama is taking steps that may promote growth and his own re-election prospects.

His recent economic proposals, including today’s announcement of a plan to raise taxes for the rich, are very much first steps. The US economy is in poor shape, and Republicans are likely to oppose much of what Obama suggests.

Nevertheless, his recent proposals represent important steps in the correct, Keynesian direction. Perhaps more importantly, they reflect the lessons learned from Harry Truman about how a president can best achieve a political reversal of fortune.

First, the Keynesian lessons. Obama has proposed $US1.5 trillion in tax increases designed to reduce the US budget deficit over the long term.

Approximately $US800 billion of these savings will come from letting the tax cuts on the wealthy signed by George W Bush expire. This will restore tax rates to the levels they were at under Bill Clinton in 1990s – when the US economy produced 23 million jobs and real wages entered their most sustained upturn of the past three decades.

In Keynesian terms, the more balanced taxes of the 1990s did more than promote fairness – they promoted demand. Keynes’s essential insight was that the poor and middle class spend more than the rich, spurring demand.

Where demand induces entrepreneurs to expand production and hire more workers, growth can be revived. Combined with his $US450 billion stimulus program last week, Obama’s proposals could help level the playing field of the US economy.

Secondly, and more heartening, are the potential lessons learned from Truman. Obama’s support has been falling for the better part of a year as he has sought to accommodate Republican policy preferences.

This strategy culminated in the debt ceiling showdown, when Obama acceded, as House Speaker John Boehner put it, to about “98%” of what the Republicans wanted.

Obama’s more recent plans reflect an about-face. Perhaps most dramatically, in Obama’s support for the “Buffett Rule”, he has adopted billionaire investor Warren Buffett’s call for an increase in taxes on Americans earning over $US1 million.

While Obama may not draw much support from Republicans on this point, he will draw a contrast in the minds of voters. Like any unpopular president approaching a re-election campaign, Obama is drawing inspiration from Harry Truman and recognising the importance of distinguishing himself from his rivals.

Truman’s 1948 come-from-behind victory represents the most dramatic reversal of fortune in the history of American politics. Written off as a pretender to the throne, Truman was seen as an “accidental president” who had inherited the White House from the revered Franklin Roosevelt.

Indeed, Truman’s stock fell so low that he himself offered to cede the top of ticket to Dwight Eisenhower, should Ike wish to run as a Democrat. Ike refused, and Truman’s situation in the fall of 1947 looked dire.

At this point, the road to salvation was identified by a young White House staffer named Clark Clifford. Clifford would go on to advise Presidents Kennedy and Johnson, but he cut his teeth advising Truman, writing a famous memo called “Politics of 1948”.

In this memo, Clifford laid out a master plan, reflecting a keen sense of Republican politics and coalitional challenges. Most importantly, he recognised that campaigning is about drawing contrasts.

Indeed, if one wishes to understand the Obama of 2011, one can quote verbatim the advice Clifford gave to Truman in 1947.

Clifford urged Truman to “present his recommendations simply and clearly to the Congress so that the people will know what the president is asking the Congress to do.”

He knew that Truman would not get everything he wanted: “There is little possibility that he will get much cooperation from the Congress but we want the president to be in position to receive the credit for whatever they do accomplish while also being in position to criticize the Congress for being obstructionists in failing to comply with other recommendations.”

In this way, speaking across 63 years, one Democratic administration offers advice to another.