Art prices

An interesting, but probably not immortal, Bacon sold for $142 million at auction yesterday. Note that it’s a tryptych, which might (depending on the droit d’integrité laws in effect where it winds up), be broken up and treated as three paintings, so maybe this wasn’t the high point being proclaimed: asterisk  in the record books. This got a work of contemporary art (well, less than half a century old) on the front page of the NYT along with a story that said nothing, not a word, about it as a painting, and then went on to wallow in miscellaneous additional art price porn and celebrity collector gossip.

OK, I guess the important thing here is the transaction.  What happened here?  First, it was a transfer in which practically no real economic resources were consumed. The painting went from someone’s wall or storage to someone else’s.   This is a very different matter from commissioning a work, or building an office building. About a fifth went to Christie’s, which is a nice hourly rate for the use of the hall and gavel.

What were the high bidders thinking, though? Giving up control of $140m in return for something either means you are an idiot beyond rational analysis, or you expect the something to get you a stream of benefits that tots up to more.  For example, you might be making a pure speculative play, counting on someone else to pay close to $200m to cover your commissions, storage costs, insurance, and foregone interest on the investment until you sell it on.  If that’s all there is to this, it’s a bubble and someone along the line is revealed to be the fool holding the bag.

You might be making a gesture like Pogner in Die Meistersinger, who put his daughter up as a prize in a singing contest to prove how admirable he and his insecure bourgeois pals are by embracing art.  As the buyer is not publicly known yet, this gesture might be for the quiet, discreet admiration of his rarefied small circle of friends.  (The Northwest Indians had a ceremony in which the chief would act out generosity at a big party with gifts to all and sundry to demonstrate his merit; of course the gifts had to be redistributed with interest, so this preserved and reinforced the chief’s relative status.)  For this purpose, the stream of benefits is an elevation of the buyer’s positional standing, and all it requires is that it be known in the right circles that he spent enough money on advice from art experts, and the purchase itself, to stand in the reflected glow of this painting.  It’s a little like the scene in La Dolce Vita where a Morandi on the wall certifies Steiner’s cultural standing to Marcello (whether or not it should). What’s important about this angle is that, like the Times story, it has nothing to do with the painting itself, only reputation and the fact of the purchase.

Speculative investments, if they aren’t a bubble, rest on the expectation that an asset will eventually create real economic value (not necessarily value priced in money) for someone or some people.  For a painting, this value might reasonably have to do with people engaging with it as a painting, and this can happen in two ways.  The obvious one is the old-fashioned way, standing in front of it, looking, and letting it do stuff to the inside of your head.  If that’s what this is about, Bacon’s work will have to generate (at 5%) something like $3600 worth of this value/working hour forever; maybe ten people each benefiting at a rate of $360/hr eight hours a day, M-F?  The best seat at the Metropolitan Opera costs about $150/hr., but maybe une expérience plus raffinée is a better comparison: I see tickets to the 49ers on sale for more like $500 per hour of presence, $1500 per hour of actual playing.  In the case of a painting, though, I’m not aware of anyone able to sell access at rates anything like that, much less day after day forever.  There are not a lot of works in the world with a gaggle of ten people in front of them all the time, even at much lower ticket prices; even MOMA only costs $25/hr for a short visit, less than $4 if you make a day of it.

It can also be consumed in reproduction, but whether the buyer got that piece of the package is not known; did Bacon’s estate sell the copyright along with the canvases? It seems from the photo credit that the Times had to obtain rights to its picture from the Artists Rights Society representing Bacon’s estate, but even if reproduction rights are included in the purchase, and the painting somehow becomes a must for every history of art book ever published until forever, and maybe gets on a stamp or blows away the poster market, I can’t make up a $140m story for it.

What should we think about this nonsense from a societal perspective?  On the one hand, it’s a little worrying that people with such poor judgment have so much money to throw back and forth to each other.  But maybe it’s good for art: painters in garrets will observe this windfall for Bacon’s heirs and redouble their efforts to make great works that will someday be worth millions, works that will enrich our lives!

Right. Like the kids shooting hoops instead of doing homework in order to have a zillion-dollar NBA contract and buy their mothers nice new houses. This is not an efficient allocation of labor and effort.

What could you do with $140m if you really cared about art (and artists)?  Well, you could leave that painting to the next bidder (it’s not leaving the planet if you don’t buy it) and invest it to earn a cool $7m per year to provide twenty live-work spaces, for artists being driven out of the neighborhoods they gentrify for you and your rich hipster friends, again and again. You could hire a hundred art teachers for public schools, forever.  You could build a really nice community black-box theater where people could make the magic of performance for their neighbors.

But if you did one of those things,  you couldn’t have your rich friends to an exquisite dinner, with that painting on the wall certifying how much you love art. Do I hear $150m, in the back on the right? Are you all in, and all done…?

 

 

Comments

  1. prasad says

    For ease of reference, here are pictures of the other high bid sales at that auction. This balloon dog sculpture by Jeff Koons went for 58M. Here’s the 57 million Warhol, and the 46M Rothko. And to think people say the elite visual arts are in decline.

    • RichardC says

      On the Koons and Warhol, sure. I wouldn’t put Rothko in with them though -
      the whole room of large Rothko’s at the Tate Modern is quite an experience.
      And a 1-inch square on your computer screen is bound to subtract precisely
      the qualities that matter in his work.

  2. James Wimberley says

    The price that shook me is the $58.4m for Jeff Koons’ “Balloon Dog (Orange)”, basically a clever joke.

    The Pogner explanation is the most convincing. Paintings are assets; as long as the price doesn’t go down, the cost of the purchase is the foregone income from a conventional investment, say $10m a year. The opportunity cost may be not running a super-yacht. The very, very rich are not like you and me.

    • Mike says

      Maybe art isn’t really an “asset”? It strikes me as conspicuous consumption. The only real cost, assuming it holds its value, will ultimately only be the difference paid when bought vs when sold. If it ends up in someone’s estate, I suppose then the heirs will gain something of value, but still it hardly strike me as a “productive investment” at all.

      In fact, the assumptions about rate of return, etc all seem designed to dress up this mess of pottage as a productive asset when it is of strikingly little value to the public — beyond its value as art anyway. It produces no jobs, moves little in the way of other materials, has no intrinsic value beyond something to burn to keep warm…

      In fact, I’d argue this is another example of the excesses of wealth trying to dress itself up in the cloak of productive enterprise. Nothing productive about it — and relatively little value beyond what it does for you when you look at it — at least versus owning it, I suppose.

      Would they actually count something like this as part of the GDP? I hope not. There’s already too much of our socioeconomic metrics that measure the cost of everything — but can hardly tell us anything about its value. The rich are enjoying the “recovery” and the rest of us are just getting by. I don’t think trickle-down works any better now than when Reagan unveiled it as his economic mantra decades ago.

      • SamChevre says

        I think art’s value as art–enjoyment, amusement, seeing the world differently–is important. (Would I spend $142 on the above picture? No. But there are artworks that I would pay for, and there are artworks I greatly enjoy that I didn’t pay for, like the pretty wall which my children admire every time we walk past.

    • Ed Whitney says

      Not to mention other opportunity costs, like not snorting as many lines of blow off an Italian supermodel’s ass on your yacht.

      • James Wimberley says

        Now, now, no ethnic and gender stereotyping. They could also be not snorting off the six-pack abs of a Californian surfer dude.

  3. agorabum says

    Remind me again why we can’t create higher tax brackets, like on $1 million and $5 million levels?
    Not only is the top capturing the majority of the economic surplus, they are capturing so much that they don’t even know what to do with it, other than massively bid up the cost of elite status items. Warhol sold his soup can paintings back in the early 60s for $100…

    • Fred says

      Yes but that was when $100 was worth something. Now days the canvas and stretchers would cost $100. Also, have you really looked at those paintings? Warhol was a smart marketer but as an artist? Ehh…

  4. BM says

    Can someone explain what economic harm, if any, would result from a 200% sales tax on:

    a) Resale of artworks above $1M
    b) Bar or restaurant sales of wine, liquor, and champagne above $500/bottle
    c) Endangered rhinoceros hunting licenses

    If what you’re really buying is “a reputation as the biggest Cristal drinker in Vegas”, then you get the same thing by sending $200 to the bar and $400 to the state general fund, versus actually sending $600 to the bar. It doesn’t cost Louis Roederer $600 to bottle the damn stuff.

  5. ferd says

    The more cash the super rich stuff into one another’s pockets at the top; the more cash we need to inject at the bottom to grease the economic gears; and the more ROOM there is to make such injections without risking inflation. Or something.

  6. ferd says

    We, the bored, super rich, demand the right to dispose of our never-ending rivers of cash in whatever ways we desire. If we desire to hand a never-ending rivulet of cash to the creator or owner of a work of art, it is our right to do so. That creator or owner is now officially one of us, and you, down there are to serve him or her.

  7. Donald A. Coffin says

    Allow me to point out that, should that painting be sold for more than the purchase price, the gain will be taxed at a preferential rate–the rate on capital gains–20% for individuals earning over $400,000 per year (which I suspect would include the purchaser of this painting, and any subsequent purchasers), rather than at the (marginal) tax rate on ordinary income for individuals with $400,000 or more in income (39.6%). So suppose it sells for %200 million. Then, the tax paid on it will be $12 million instead of nearly $24 million (absent and additional tax-sheltering gimmicks). Which means that the rest of us are subsidizing this charade.

    Unless someone has a truly convincing explanation of why gains like this should be treated as something other than ordinary income.

    • Ed Whitney says

      I believe that is under US tax law. Do we even know the nationality of the purchaser? Could it have been someone from Hong Kong or from the UAE or from Shanghai? There are plutocrats from other economies who could have afforded the price for which the article sold. Could the incentives for purchase be different in different parts of the world?

      • Warren Terra says

        I think we can guarantee that the owner for tax purposes will be sheltered from capital gains taxes. If the purchaser happens to be American, the sale will happen through some Bahamian company they own. They’ll probably even manage to take a tax loss on the ownership of the company.

        • Donald A. Coffin says

          Detailed, country-by-country information on capital gains taxes may be found here: http://en.wikipedia.org/wiki/Capital_gains_tax

          The US, in fact, has among the highest capital gains taxes in the world. Hong Kong does not tax (most) capital gains. In China, capital gains are treated as ordinary income and the tax rate is 25%; non-resident corporations pay 10%. And this, about the UAE: “Personal incomes, including all forms of salary and capital gains wherever arising, are not subject to taxation in any of the Emirates.” So it wouldn’t matter there, either. I can’t tell you about the Bahamas right off, but, “a Cayman Islands entity may be subject to taxation on capital gains made in other jurisdictions.”

          The point simply is that, in general, this thing will be treated generously for tax purposes, which seems silly to me.

          • Warren Terra says

            “a Cayman Islands entity may be subject to taxation on capital gains made in other jurisdictions”

            As a US citizen, I’m liable for any income I earn anywhere.

            On the other hand, if I happen to own a company that makes a fortune overseas, and banks it overseas, and doesn’t pay me the money (as income or as dividends) and I don’t sell any part of the company, I haven’t realized any capital gains, even though my net worth has greatly increased. I’m sure there are details to the execution of this scheme that require expertise (I think creating a company solely owned by one person is so transparent a legal fiction that it isn’t respected, if I recall), but I’m equally sure the requisite expertise has been deployed.

    • J. Michael Neal says

      Allow me to point out that, should that painting be sold for more than the purchase price, the gain will be taxed at a preferential rate–the rate on capital gains–20% for individuals earning over $400,000 per year (which I suspect would include the purchaser of this painting, and any subsequent purchasers), rather than at the (marginal) tax rate on ordinary income for individuals with $400,000 or more in income (39.6%).

      This is incorrect. Art is considered a collectible which is never subject to the preferential capital gains rules. It will always be taxed at the same rate as regular income.

      • J. Michael Neal says

        Sorry. Hit Submit too quickly. It will be taxed at the same rate as ordinary income except that it is capped at 28%.

  8. Ebenezer Scrooge says

    I would look back to the Middle Ages, where lords proved their lordship by endowing a large monastery. It didn’t necessarily mean that they were Godly sorts themselves, but they thought it good to make a public display of piety. Art-worship has replaced God-worship, at least among the rich. Art is where you find transcendence (or the social signifiers of respecting transcendence) is a materialistic age. But art, like God, is easily vulgarized.

    • Richard Hershberger says

      I don’t think this is quite right. In the Middle Ages, merit leading to eternal salvation was regarded as a transferable good. If it could be transferred, it could be purchased. The point of those monastic endowments was that it was a transaction: the monks would pray for the patron (or, after his death, his sole) thereby creating (or, more technically accurately, tapping into the treasury of) merit to ensure the patron’s salvation (ideally by getting into heaven directly, or at least by minimizing time in purgatory). The monks in turn were provided with a living.

      In other words, whether or not the patron was himself godly was beside the point: godliness could be outsourced.

    • dn says

      Either art, or sports (if the lord sees himself as a man of the people).

      For the masses, a football game is a morality play; for the lord himself, the masses are just part of the power-confirming display (in an age where stadiums are built around luxury boxes and bleachers only exist because you need them to have a good spectacle).

  9. Betsy says

    This shows that how greatly the marginal utility of a dollar declines at the top. The 145m just doesn’t mean that much to the payor.

    Also their money goes looking for assets and creates bubbles, and then the people throughout the income spectrum all suffer when the bubble pops.

    Get more of the money in circulation for more utile expenditures, where it cando some good, — instead of being recirculated around the top for positional goods, and in commodity bubbles where it wreaks havoc on lives and the environment.

  10. paul says

    It’s conspicuous consumption without the consumption. But for many of the rich, that’s a perceived as a good thing. Actually employing people is so declasse these days.

  11. says

    Those who are interested in this topic might want to follow Felix Salmon at http://blogs.reuters.com/felix-salmon/. The art market is one of several economics topics on which he provides generally very insightful posts, I would say once a month or so as to art in particular. If he is correct, the high end art market is nearly always manipulated in interesting and complex ways that don’t show up in a news story like those of this sale.

      • H says

        I agree with Ken’s point which is that the high end art market is highly manipulated. The posted prices, even those supposedly set by an open cry auction don’t mean a whole lot.

        By the way, no matter what Christies says I suspect they got nowhere near 20% of the real take. There is very likely a very large rebate or some other manipulation.

        I have been told that these auctions (not so much in NYC, but in other lands) are an excellent way evade taxes and launder money. In which case, higher may be better.

  12. Richard Hershberger says

    “What could you do with $140m if you really cared about art (and artists)?”

    Patronage. Not in the modern sense of getting a wing of the museum named after you. I mean subsidizing artists of merit who have not successfully tapped into the politics of art marketing. This is the older system. While it had its flaws, it also produced centuries of masterpieces.