In 1920 the painter Amedeo Modigliani died at the age of 36, penniless, wracked by meningitis, and suffering from alcoholism. In 2009 his masterpiece, “Nude Sitting on a Divan,” was sold to a Turkish billionaire for $69 million at a Sotheby’s auction. The Modigliani joins a number of paintings sold in the last five years by the likes of Jackson Pollack, Willem de Kooning, and Pablo Picasso that have commanded record-smashing prices. Suffice it to say, the recession has not dampened many of the extreme spending habits of the ultra wealthy.
Can trends in art prices at auction tell us anything about income inequality? According to a 2010 NBER paper by three finance professors, the answer is “yes.”
The authors construct an index using historical British sales records going back from the early 1800s to 2007 of 1,336 art “sales pairs” (an initial sales price for a painting and the resale price at auction). This allows them to provide a stable measure of the market price for high end art during various periods of time. The authors then match their data with British income tax data series of top 0.1 percent of income earners from Atkinson and Picketty. The authors find that the top income share is a good predictor of art sales prices. They also find a strong positive relationship between income inequality and art sales prior to World War II, but the relationship is weaker in the post war period (see the figure above). They conclude with the tongue in cheek observation:
“Taken together, these results demonstrate that it is indeed the money of the wealthy that drives art prices. This implies that we can expect art booms whenever income inequality rises quickly. This seems exactly what we witnessed during the last period of strong art price appreciation, 2002-2007. Indeed, in many countries with large numbers of art buyers, income inequality has risen significantly in those years, mainly due to strong increases in managerial compensation. Andy Warhol, for one, would probably have applauded this evolution: ‘I don’t think everybody should have money. It shouldn’t be for everybody – you wouldn’t know who was important’”
The takeaway message: “more money for the rich, means that the rich will buy more expensive things,” should not be particularly surprising. The more interesting question, to my mind, is whether the public should be alarmed. I’m inclined to say that extravagant acts of private consumption are a private matter – a public matter is whether the rich are being taxed appropriately (I think not). Whether the rich want to spend their money on highbrow art or building extravagantly tacky villas is their own business, provided they have paid their fair share. De gustibus non est disputandum.