Reactor

What’s Good for the Art Market Is Bad for the Economy

by Mostafa Heddaya on March 14, 2014

IMG_graph

Negative correlation between income inequality and economic growth (as measured by growth rates regressed against Gini coefficient, a measure of inequality) (graph via the International Monetary Fund)

One of the art world’s neatest neoliberal parlor tricks is transforming the real world’s troubles into pleasingly hermetic objects for hobbyists, and in this respect the European Fine Art Foundation (TEFAF)’s ebullient annual economic report is a fine specimen.

Yes, blinkered insouciance is the name of the game, with the report’s stellar results reassuring many that the boom-times are back — the international art economy pulled down a near-record $66 billion last year on the back of unprecedented levels of affluence. In our coverage of the report yesterday, we discussed some of the specific results in greater detail, but what’s most stunning about the report is not so much what it contains, but what it fundamentally misses: its macro-economic bad faith.

In the third chapter, titled “Changing Patterns of Global Wealth,” the report deadpans that “[I]ndividual wealth has been growing faster at the top during the last ten years. In particular, the number of UHNWIs [Ultra-High Net Worth Individuals] and their wealth is growing much faster than general wealth.” That the global economic “recovery” has accrued overwhelmingly to the global elite has even begun to worry the global elite, but the widely-acknowledged macro-economic risks at play are, I guess, too unsavory for TEFAF’s readership to consider. Only a ship of fools, suddenly buoyed, would take a flash-flood for a rising tide.

Which leads us to a far more important study, also out yesterday and issued not from some obscure consultancy but the International Monetary Fund (IMF). The findings there harsh the TEFAF reverie with data on the disastrous relationship between high inequality and long-term growth. This work follows a larger paper published by the IMF last month building on the “tentative consensus” position that

inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required to adjust in the face of shocks, and thus that it tends to reduce the pace and durability of growth.

The paper further finds that beyond this negative relationship, “lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution.” These results are especially significant because they are derived from a recently compiled, unprecedentedly large dataset on income inequality and economic growth.

That the broader economic outlook is made more bleak by the same things that power the art market is anathema to the art market advisors behind the TEFAF study. They would, in fact, very much not like you to consider this, despite the anemic GDP growth chart they place not far from the table showing double-digit growth in millionaires among the same key national markets observed. (Or, worse, individual wealth accruing in the face of national failures: “Despite poor economic conditions, the number of millionaires in countries such as Spain and Italy grew, although they represented a tiny fraction of their populations.”) The report then suggests that high-risk luxury assets like art are actually a good idea in times of financial instability, which flies in the face of observed reality in securities markets. Here’s that nugget of nonsense:

Allocations to art have varied over time and trends indicate that in times of financial crisis and uncertainty, people tend to lean towards art, which is seen as a more familiar, tangible asset with considerable longevity in terms of value maintenance and appreciation. At the height of the financial crisis in 2008/09, allocations to art increased to 25%, as art was seen as an asset that would have the most lasting value, and was also a means of diversifying out of other poorly performing asset classes. Many HNWIs are increasingly approaching luxury goods as investments, and looking for those sectors that have the most long-term value, notably art and antiques.

In conclusion: don’t listen to your art market advisor, who probably knows nothing of either art or markets, and buy a panic room. Yayoi Kusama makes nice ones.

  • Subscribe to the Hyperallergic newsletter!

Hyperallergic welcomes comments and a lively discussion, but comments are moderated after being posted. For more details please read our comment policy.
  • http://www.CitizensOversight.org Ray Lutz

    I am surprised that anyone would actually print this bogus analysis. Just look at the distribution of data points. In the first plot, the slope almost zero — no correlation. In the second plot, there the points are all over the map, and they struggle to come up with a linear regression — again, no evidence of any correlation. You CANNOT come to the conclusion that “what is good for the art market is bad for the economy” — just because you can use computers to analyze data and come up with a linear regression DOES NOT mean that the data is in any way modeled by that line. Instead, the author struggles to make sense of a correlation that is not there at all. Read the text and you would guess that they had data that supports it, but look at the plots and you realize it is all just “garbage in, garbage out”.

    • Mostafa Heddaya

      I too am surprised you would print this — what a waste of paper! — but I assure you it is not bogus analysis. The regressions demonstrated in the IMF graphs reproduced are in fact strong negative relationships. Though your “points all over the map” and “computers” arguments are persuasive, I will have to defer to the statistical judgment of professional economists (and the vestiges of my academic experience in the subject) on this one.

Previous post:

Next post: