Can an Economist’s Theory Apply to Art?
"the rich are further increasing their wealth by buying art. Many millions have been made by a new breed of investor-collectors who buy Bacons, Warhols and Richters high, and sell even higher. Art by desirable investment-grade names makes the rich richer. And more and more wealthy individuals are now prepared to make bids of more than $100 million at auctions, while outside, beyond the shiny bubble of the art world, living standards in the rest of society stagnate or decline."
What's causing the price of art to skyrocket?
It's about more than just taste and bragging rights... One reason, says The Times, may be that more of the illicitly wealthy are using the art world to launder money.
Though there are no hard statistics on the amount of laundered money invested in art, law enforcements officials and scholars agree they are seeing more of it. The Basel Institute on Governance, a nonprofit research organization in Switzerland — the site of the world’s premier — warned last year of the high volume of illegal and suspicious transactions involving art. But regulation has been scattershot and difficult to coordinate internationally.
But art collectors don't have to break the law to jack up prices. As Allison Schrager explained in Quartz this summer, galleries keep a tight rein on prices, even in the secondary market.
Control over the market is so important to galleries that they won’t sell to collectors who will flip the art in the secondary market. Art on the secondary market is often sold at an auction house. Once an artist’s work goes to auction the prices are observable to the public, and anyone (often uttered with disdain) can buy it. It is not uncommon for gallery owners to bid on their artists work at the auction in order to control the market price.
A notable anomaly in the market is that old masters, with their limited supply, are now in less demand and are often priced more modestly than new artists, with unlimited supply. That defies economic logic — yet can be explained. Living artists print money. If you are a big buyer who helps set prices, you might be offered work at a goodly increase over an artist's last price point: $2 million, where the last sale was at $1 million. For that, you get one thrown in free, hence the deal has cost you nothing, but doubled the value for everybody else who holds the works, including the artist — leaving everybody happy."
"Fear of paper money lifts Christie's latest auction to record levels; Lichtenstein fetches $43M."
Art market analysts attribute this last week’s sky-high price tags to the emergence of this new class of super-wealthy art collectors from Asia, the Middle East and Latin America who are looking to invest their excess capital in the most collectable — and enjoyable — speculative commodity: art.
"It's not a function of art being better than it was. It’s a function of extreme amounts of excess capital combined with cheap money," much of it coming from emerging economies like China, Qatar, Brazil and India, said Todd Levin.
"The bottom line is there's an extreme amount of wealth aggregated in the hands of a small number of individuals, and they have to find a place to put it," he said.
"Do the skyrocketing prices reflect, as one might assume in a free market, the connoisseurship of an exclusive clique of brilliant collectors and their prescient art advisers? I think not.
Financiers know the value of hype. They understand that if artworks sell at exorbitant prices, those works — and the artists who created them — become newsworthy, regardless of whether they’re actually any good. And the media play right along, almost never questioning the quality of the works or the abilities of the artists.
Historically, time has been very cruel to the reputations of all but the very best artists. But today enormous sums of money are devoted to propping up the star power of a small group of wildly overrated cult figures. Have the masters of the universe created the unpoppable bubble? Or will the child’s voice somehow manage to rise above the buzz and proclaim that the emperor is, as many have suspected all along, buck naked? Time will tell..." William Cole.
List of expensive paintings:
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