The genuine public interest in Callista’s jewelry

The New York Times today has a catty article today about Newt Gingrich’s half a million dollar credit line at Tiffany’s. (I characterized the article as “catty” before I even checked to see who wrote it. That is was a woman makes it even worse. It can’t do Sheryl Gay Stolberg’s career any good to strike this kind of pose, unless she believes Maureen Dowd is leaving soon.) The article gives the impression that the important thing is that the revelation shows Mr. Gingrich is rich and that’s bad in politics. Look at John Edward or John Kerry. But doesn’t everybody know Republican career politicians get rich? It’s not like they are carrying the water for the wealthy as a pro bono project. Even less dignified (and more Dowd-like) is the attempt to match the jewelry Callista wears with its description (including price) in Tiffany’s catalog. It makes the piece sound like the Times has now initiated product placement in articles as yet another revenue enhancer.

How do you suppose the Gingriches used their Bush tax cut?

But there is a reason the public should be interested in the jewelry: It gives the lie to Republican’s justification for tax cuts for the wealthy. All we ever head from the Group of Plutocrats Party is that high tax rates on the wealthy cost jobs. And conversely lower taxes on the wealthy will increase jobs. This is not a Keynesian argument (where increasing spending stimulates economic activity greater than the amount spent). It is a trickle down argument. That’s why they believe tax cuts should be regressive. It is a central tenet of so-called supply side mumbo jumbo. There is of course no empirical proof for this assertion. And if you give it any thought, there shouldn’t be any proof.

This is because the taxes on individuals (if the business is in the form of a partnership or LLC, which pass the profits directly to the proprietors) or corporations only pay income taxes on their net income. Wages are a deduction. A rational business man will hire (or keep) an employee so long as the marginal revenue produced by that employee will exceed the marginal cost of that employee. Income taxes have nothing to do with the marginal cost of the employee. If an employee costs my business $50,000 but his labor produces $60,000 I will hire him whether the marginal tax rate on the $10,000 profit is 0 or 75%. This is why there was not a massive depression during the Eisenhower Administration when marginal rates were as high as 90%.

What would make a difference in an employer’s decision is a reduction in the cost of that employee. One way to do this is to have a single-payer health system so that businesses no longer are responsible for their employees’ health insurance premiums. (Other ways of reducing employee cost are: 1) the Walmart way—simply let them do without  and 2) the Nike way—outsourcing the work to a place where subsistence wages are sufficient.)

What happens when rich people have extra disposable income? They buy jewelry. (That and write reviews of political thriller novels on Amazon.) Or they consume it in ways that do not create jobs. Yes, I know. Someone was employed at Tiffany each time Callista bought a $50,000 necklace or $25,000 set of ear-rings. But given the material costs of diamonds and gold and pearls are so high, only a small fraction of the purchase price goes to labor. So $500,000 in jewelry does not produce the jobs that 500,000 in government spending on say, education, does. Not to mention that society is now in greater need of teachers than jewelers.

It also says something particular about Newt as well. It’s a point the Times will never make because it ruins its product placement program. But here it is:  Everyone knows that Tiffany’s is a rip-off. While people like to get presents in a Tiffany’s box, all that the giver needs is the box, not a Tiffany jewel. So the key is to buy something very inexpensive (by Tiffany’s terms, like a key ring or something) and then go to the diamond district and haggle yourself a bargain. Put the bargain in the box, and voilà, a gift worthy of a fiscal conservative. If Gingrich doesn’t know this, and has no advisers on this point, you have to wonder what kind of executive he would make.

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