Eli Broad And Art Prices
Art Basel in Miami Beach 2015
By: Christopher Ormsby and Daedrian McNaughton
Premier Guide Miami
Economics has long been derided as the “dismal science.” Discussing the optimal allocation of a finite amount of resources across mankind’s endless list of needs is a sure fire way to ensure that you are never invited to a cocktail party ever again. Still, when it comes to Art Basel, a little appreciation of economics can shed some light on the murky world of art price inflation.
One definition of inflation is simply, “too much money chasing too few things.” If five people are admiring a work and each of them has $100 in their hands, the artwork likely will not sell for over $100 (assuming the buyers all act as individuals.) The same artwork viewed by five people with $1,000 in their hands could conceivably sell for over $1,000 simply because the buyers have the money. Voila, the artwork’s value can become artificially inflated.
Art also serves as a store of value. Central banks throughout the world have instituted policies of “cheap money” and low interest rates. All that cash has to find a home and one asset class that benefits is art. Art is typically priced in US dollars or another major currency so it is protected from the vagaries of foreign exchange rates. Artwork of established artists typically at least retains its value while those of rising stars (such as those at Art Basel) can appreciate significantly. In an environment where earning 1% or 2% on a government bond is “high,” it becomes easy to see why a wealthy individual is willing to take a risk in the art market: Like a bond, a work of art represents steady and predictable value and rarely declines precipitously in price.
Los Angeles’s eponymously named Broad Museum opened late this summer and many art market watchers will closely monitor any major moves by the museum at Art Basel. Eli Broad has long made it clear that he wants Los Angeles to become a center of contemporary art. Moreover, being the third richest man in Los Angeles, he, “has the money,” while Art Basel might, “have the things.” If buyers on behalf of the Broad Museum, for example, are aggressive in their purchases, art market participants overall might want to be prepared for a wave of price inflation throughout the market. It is always important in any market, especially a non-transparent one like art, to pay close attention to what the largest participants pay for a particular purchase.
Lastly, like any frothy market, there is always talk of a, “bubble.” If we take the earlier example of the five individuals with $1,000 in their hands, what happens when they have $5.000 or $10,000 to spend? Art values might leap to levels at which some person (usually a person who has been very speculative in their acquisitions) suddenly finds himself owning several dubious pieces and struggles to find buyers willing to take a piece off his hands. There’s an adage on Wall Street: prices go up the escalator but down the elevator. In short, market participants would be well advised to watch the “rapid growth galleries” who are always pushing the up and coming artists. It is in this segment of the art buying market where pain will be felt first.
Nevertheless, art is art and economics is tangential to it. Still, we are lucky here in Miami to witness the intersection of the intriguing mind of the artist with that of quantitative economist—as dismal as that might sound.
Miami Beach, December 3 – 6, 2015
Opening hoursFirst Choice (by invitation only)
Wednesday, December 2, 2015, 11am to 3pm
Preview (by invitation only)
Wednesday, December 2, 2015, 3pm to 8pm
Vernissage (by invitation only)
Thursday, December 3, 2015, 11am to 3pm
Thursday, December 3, 2015, 3pm to 8pm
Friday, December 4, 2015, 12 noon to 8pm
Saturday, December 5, 2015, 12 noon to 8pm
Sunday, December 6, 2015, 12 noon to 6pm
Miami Beach Convention Center
1901 Convention Center Drive
Miami Beach, FL 33139
For more information, please visit https://www.artbasel.com/miami-beach
Photo credits: Art Basel