In the past we’ve complained that economist Nouriel Roubini has talked about the need for regulation in the art market without providing specifics. We’d love to tell you that his recent post about art as an asset class addresses this omission but as you can see from points 9 & 10, below, we don’t get much more than confidence. It would be interesting and valuable to learn more about Roubini’s idea of regulation. From the comments he seems to equate regulation with transparency. Other than that, there are few clues:
9) While the art market is still challenged by a meaningful amount of opacity, there has been, over time, an increasing amount of price transparency. There are, for example, public auctions that provide price discovery as well as the indices I discussed earlier. However, the market is not yet fully transparent. Regulation is still missing from the equation. In my view, however, market regulation is coming to the art world. New regulation will increase market transparency and perhaps increase turnover. Of course, art market insiders may prefer not to have this transparency. But if you view regulation from a broader perspective, rather than from the perspective of dealers and galleries, the impact on the art market will be, in my view, a net positive. It is more beneficial to create more trust in the asset class. Perhaps this may be in the long term interest of even the art industry insiders.
10) There is a lack of a fundamental pricing model for art. Aside from the psychic pleasure art produces, there is no clear income stream that flows from art. Other assets have both an income stream as well as a potential capital gain. Stocks provide dividends, bonds provide coupon payments, and real estate can generate rent. Art, in some ways, is closer to gold. But at the same time art is less liquid and less homogenous than gold. Copper is copper. Gold is gold. A share of Apple or GM is always the same. Meanwhile, not only is one piece of art not the same as another, but there are even different measuring standards for the same artist depending on the medium – drawings versus paintings, for example – and at what point in the artist’s career the work was created.
Why Art Is an Asset Class (Roubini’s Edge)