The Mature Keynesian Perspective II

As I previously noted, the older (and presumably wiser) John Maynard Keynes was skeptical of using infrastructure projects as a countercyclical tool. NYU economist Mario Rizzo now brings to my attention that the mature Mr Keynes also favored the payroll tax as a countercyclical policy instrument:

In correspondence with the economist James Meade in 1942 Keynes says he is �converted� to Meade�s idea of altering the social security payroll tax over the business cycle. Here are Keynes�s words:

I am converted to your proposal�for varying rates of contributions in good and bad times.

(June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.

�[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context� So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction
in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times.

(July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.