The “Did You Ever Notice” Analysts at Freakonomics Tackle the Art Market
It seemed like an interesting premise, iconoclastic economics bloggers turn their attention to the art market. But the resulting interview with Olav Velthuis and David Galenson, provoked by the $33.6 million Freud, “Benefits Supervisor Sleeping.”
Here are some of the pearls:
Velthuis: Of course, what’s difficult about prices for art is that they have no “fundamental value,” unlike, for instance, real estate prices or stocks. But the pace of price increases on the art market in the last three or four years is simply unsustainable. Pundits say it’s because “new world billionaires” like Abramovich have entered the market, but I don’t see how such a small number of new collectors in Russia, the Middle East, or China can or will support the present price level much longer.
This observation raises an interesting issue. When both “fundamental” markets mentioned here have experienced serious bubbles in the last decade, does that mean the art market is substantially different. In other words, when fundamental markets are bubble-prone, does that mean a non-fundamental market is more susceptible to bubbles or less?
Galenson: experts like to claim art markets are irrational — but they are wrong.
It’s an interview, so there’s nothing to support this interesting comment. When commentators declare a market irrational, they usually mean the market defies their understanding. In other words, the logic that may support the buying, selling and prices established is too difficult to discern. That would certainly be an apt characterization of the way many react to prices in the art market (or any other market where there is no fundamental underpinning.) The fact that markets like real estate have provoked the same irrationality comments is another reason many feel the art market is in the midst of a bubble.
Velthuis on limited editions of easily reproduced electronic or video works: This may not only be against the interest of the gallery and the artists (I call gallerists price maximizers rather than profit maximizers), it also goes against the ideology of the art world — at least of its more critical parts, which hold that art is or should be democratic. But by making works in limited editions, its elitist character is maintained.
Velthuis is the author of Talking Prices: Symbolic Meanings for Prices on the Market for Contemporary Art. Galenson is a Professor of Economics at the University of Chicago and author of Old Masters and Young Geniuses.