In the last two years, two paintings have sold for about $100m each. Yesterday’s Picasso went for $51K per square inch, more than the largest US bill ($100,000) ever printed. It is not copyrighted, so only the physical object was in the deal.

What can prices like these mean? Suppose this capital asset were put to work sixteen hours per day forever. The ‘work’ a painting does is to be looked at (anything else, like being read about in research and criticism, enjoyment in memory, enjoyment in reproduction, etc., doesn’t require the actual painting), let’s say by three people at a time. At 5%, it would have to be worth $271 per hour. That’s not entirely crazy; people pay almost as much for opera seats and more to scalpers for various other performances, but can we imagine this really happening?

Paintings that have that intensity of attention exist; you can’t get close to the Mona Lisa without a private admission to the Louvre in off-hours. But not from people paying that kind of price. And there’s no chance it will be employed that way. In a museum, a Picasso will have one person attending to it most of the time, and the time is eight hours a day, so the painting has to be worth $1600/hr. to a viewer to justify such a price. Wow; people only pay about $5/hr for museum services, often less, even leaving out time at the café.

If it’s going in a private collection, the numbers go way up; no-one can look at a single painting all the time even if it’s in her office opposite the desk; a painting in a home is ‘used’ only a very few hours a week. Shall we say, 10 hours per week, and one person? That’s more than $9000/hr. Maybe a few people would pay this kind of money for an hour with a painting once or twice, but forever?

I conjecture that paintings at these prices are affording the most valuable (measured in money) per capita artistic experiences in history, at least since private performances of ensemble works like operas and concerts for royalty went out of style, and anyway, even King Ludwig’s musicians didn’t get Pavarotti salaries. And with no disrespect to Señor Picasso, I find it completely mystifying. Am I missing something?

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

11 thoughts on “Bubble”

  1. The painting was done in 1941. Assume it sold for $100,000 then. And $95 million today. In 65 years, it has appreciated at an average annual rate of 10.6% per year, or, adjusted for inflation, around 6% per year in real terms. Even accounting for maintenance, security and insurance, that's not too shabby.
    So maybe it's just a really, really good investment.

  2. I imagine the value in self- and social-esteem from the known fact that you own the actual object outweighs the value of direct visual looking time. Like a classic car: the number of hours spent driving it is irrelevant to (perhaps even degrades) its value. Merely having and protecting the thing is a valuable honor.

  3. Ah, see, if you were more familiar with those MMORPG things, you'd recognize this for what it almost certainly is: an e-peen.
    In MMORPG, there exists a class of gamer for whom the *real* point of the game is to have the hardest-to-acquire, most-powerful, or most-sought-after object in the game — regardless of whether he really needs it — just so he can show it off. (E-peen here referring to, basically, an electronic penis).
    It's a form of bragging. A way to say "I'm so much BETTER than you". A way to, metaphorically, whip them out, compare, and then exult that yours is far FAR longer.
    So while it's possible this painting was an investment (I'd think you'd have better luck investing in up-and-coming artists, myself, but I don't know the art market too well), I consider it far more likely that this painting was purchased so the owner could have the privalege of bragging he had it, thus making him more studly and desireable in his social circles.
    After all, one wins "Keeping up with the Joneses" by acquiring things your neighbors can't — and it's still basically strutting around for social standing.
    So, in essence, an art-peen.

  4. Morat….brings new meaning to the term "ball-peen hammer" eh?
    95 million dollars wouldn't just support individual artists, but entire movements. I don't understand what possible rationale there could be for spending eight or nine figures on one piece of artwork by an artist (who is deceased and isn't making the money anyway). To each their own I guess.
    I am utterly baffled at what people who have that kind of money spend it on sometimes, but then again I suppose (say) a desperate Ethiopian would be baffled that I just spent twelve bucks on the new Tool album….

  5. there are people rich enough that they have nothing else to spend their money on. another condo or yacht wouldn't even been noticed, whereas everyone who comes to your coctail party will be jealous of your picasso.

  6. Don't forget that owning an object like this requires the construction of what is in effect a large bank vault in order to store it and the deployment of a small police force in order to guard it. The purchase price is merely the first payment of ongoing expenditures in the millions of dollars.
    There is no possibility that the cost can bear any relationship with the aesthetic experience of viewing the painting. So what is the buyer buying other than the aesthetic experience?
    According to Forbes magazine, there are 793 billionaires in the world, 44 of whom are worth more than $10 billion. If you are a billionaire, your real money does not have anything to do with satisfying your aesthetic or material wants- those things satisfied out of your pocket change. Private planes, trophy wives, vacation homes, personal assistants, schools for the kiddies – you don't notice the costs of this stuff.
    What your real money is good for is power. Power is exercised through control over people. It can be hard power- people you buy and sell, your employees and other servants – or it can be soft power- people you influence, people who are in awe of you, people who will permit themselves to be manipulated.
    There are various ways to increase your soft power. A good way in the US is to own a sports team. I wouldn't think that owning a work of art would be of much use here. But in some parts of the world it may just be that a good way is to own a Picasso or a Van Gogh. India, perhaps, or Russia, would be my guess.

  7. I'm sure there are circles in the US where ownership of a Picasso trumps ownership of a baseball team, JR. While it isn't exactly the way *I'd* spend that kind of money, I'm glad to see the money spent buying Art rather than Senators.

  8. As noted previously, it's the pimp factor. Social ranking is strictly one dimensional. As you reach the extremes of this linear scale, the cost of advancement increases spectacularly.
    Doubling your salary from 50k to 100k moves you from the 60th percentile rank to the 90th. To move from the 97th to the 98th requires FAR more than 50k a year. It would be on the scale of millions. To go from Soros to Gates would require many billions.
    Of course if you consider asset value to be to gauche of a measure, and instead wish to couch it in terms of patronage of the arts, then an absurd pricing regime of the high end of the market makes complete sense.
    It's about assuaging the ego of someone who had millions to burn. They want the social rank without the basal trappings of filthy lucre.

  9. "In order to avoid stultification he must also cultivate his tastes, for it now becomes incumbent on him to discriminate with some nicety between the noble and the ignoble in consumable goods. He becomes a connoisseur in … seemly apparel and architecture… Conspicuous consumption of valuable goods is a means of reputability to the gentleman of leisure. …. Except for this intrinsic beauty which they possess, these objects would scarcely have been coveted as they are, or have become monopolized objects of pride to their possessors and users. But the utility of these things to the possessor is commonly due less to their intrinsic beauty than to the honor which their possession and consumption confers, or to the obloquy which it wards off." – Thorstein Veblen, Theory of the Leisure Class

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