Two weeks ago, the painting “Portrait of an Artist (Pool with Two Figures)” was sold for 90,3 million USD at Christie’s, a new auction sale record for a living artist. The art market, especially the very high end of it, often serves as a mirror for the economy and society at large.

First, the ups and downs of the art market usually follow the economic and financial market cycle. As a case in point, sales volumes and prices went through the roof in the boom before the 2008 financial crisis and collapsed in 2008-09, with overall sales plunging some 40% by 2009 from the 2007 peak. Yet, just like the economy, art made a V-shaped recovery: By 2011, sales values were almost back to 2007 levels, followed by a broad sideways move in a range, just like the mediocre performance of the economy during much of the current expansion.

Art doesn’t pay interest or dividend

Note that the sharp recovery of art sales in 2010-11 had much to do with fears that zero interest rates and quantitative easing would lead to runaway inflation. Art, like gold, is seen by many as a store of value in inflationary times. Yet, when inflation failed to materialize, some of the initial excitement waned. Also, like gold, art doesn’t pay interest or dividends, so negative real interest rates helped to keep interest in the ‘asset class’ alive. More recently, with real interest rates rising, art auction results have become more choppy, notwithstanding results like the one for Hockney’s portrait.

Second, rising income and wealth inequality between the rich (say, the upper 10%) and the super-rich (say, the upper 1% or 0.1%), as well as rising industry concentration, is also reflected in the art market. Sales in the mid-level, defined as works selling for 50.000 to 1 million USD, have become more sluggish, which has contributed to a much-publicized crisis and many closures of smaller and medium-sized galleries. Meanwhile, the high end of the market has been booming, driven by billionaires around the globe. This has contributed to the rise of a few ‘Super-Galleries’, who cater to those hunting for iconic trophies to be exhibited in their homes or their own private art museums.


Third, Asia’s and particularly China’s economic ascent and rising importance for the world economy has its parallel in the art market as Asian buyers are becoming an ever more important force. According to Christie’s, Asian buying accounted for 30% of its sales last year, and has risen by 325% over the past decade. Sotheby’s, the other big auction house, reports similar numbers. And while Chinese buyers (there are almost 400 billionaires in China according to Forbes) initially focused on domestic pieces of art, they have long started to acquire the brand names among Modern and Contemporary artists. And so I wouldn’t be surprised if the proud new owner of Hockney’s work is from Asia.

Fourth, another trend in the art industry that mirrors developments in the economy at large is financialization: Art-secured lending by specialized and investment in art has taken off. Much of the works that are bought as an investment now end up in free ports and art storage facilities and serve as collateral for loans. Increasingly, less wealthy individuals participate in the market through fractional ownership in a work, together with a sometimes large number of other owners, for investment and trading purposes. This is facilitated by online start-ups that bring together small investors, often using crypto-currencies. I know it is tempting to say this is like using one bubble (Bitcoin) to buy another (art), but I’m not enough on an expert on both to know whether these are bubbles or not.