(Spoiler alert: no)
I read a lot about all sorts of everything (Not politics. I loathe politics). What’s getting my attention now is talk of a bubble in the art market. The concern seems valid, with super-cute balloon animals and duct-taped bananas demanding outsized prices, getting a lot of social media scorn, and even some thoughtful discussion by credible academics. More relevant, in my opinion, are the wealthy celebrities paying generously for artworks by Old Masters and Young Lions alike. That’s only a small percentage of the buying going on at the top of the art market, but celebrities get celebrity attention whereas insurance executives, financiers, tech entrepreneurs, not tech entrepreneurs, quiet heiresses, et al, get far less attention. Not famous people paying rational prices for good to excellent art made by talented, hardworking, thoughtful, well-practiced professional artists are not newsworthy. It is not uncommon that art sells at auction for prices that disappoint when measured against prices paid for similar works by the same artists in recent private transactions. So, the bubble is mostly in the reporting; not in the actual asset values.
By definition, a bubble in the global art market is an impossibility. The proper definition of an asset bubble as well as the nature markets doesn’t allow for such a thing. An asset bubble occurs when supply/demand factors overwhelm intrinsic values in pricing. Both are required for a market to function, but the two values should balance each other.
Intrinsic value means, simply, “What does it do and what’s that worth to me?” Supply vs demand is more about, “How bad do I want it?” When buyers/investors want a thing because other buyers/investors want it and have bid up the price of the thing so that FOMO kicks in causing more bidding and buying at ever-higher prices, all with no regard to the question of, “What does that even do, and is that something I need?”, that’s a bubble. When the realization inevitably dawns that, “I have no use for this tulip bulb/dicey trading company stock/do-nothing internet start-up/frightfully overpriced, crappy little house/digital currency, and neither does anyone else at the price I’ve paid”, that’s when the bubble bursts and the greedy accumulators caught holding the hot potatoes get burned.
That can not happen in the global art market. One reason it can’t is that there is no singular Global Art Market. I don’t have to pay ridiculous prices for art by a particular artist just because someone else did, and I can still buy art that I want. The private art market allows a willing seller and a willing buyer (and likely a broker) with a mutual desire to deal fairly and discretely, to get a deal done. Recent auction prices and published transactions may or may not play a part in setting the price. Those recent transactions by no means set the price in stone though. Not so with stocks, bonds, real estate, currencies.
So, while the art market can’t bubble, is it possible still that individual artists’ works may experience something like a bubble? Yes, and no.
If a really good artist catches the eye of the Joyner-Giuffreda's, or if a cool, flashy young practitioner gets Mr and Mrs Dean's attention, or if a couple of artists are chosen to do the Presidential and First Lady’s portraits, those are things that can change an artist’s life and career trajectory. Those types of happenings will also move the needle on demand and price for those artist's work…a lot. Times and tastes change though and those moments might be fleeting. Ten years on, collectors and markets may feel very different. In 2014, one of “Art world Darling”, Lucien Smith's “Rain Paintings” sold for around $353,000 while he was doing TEDtalks and being interviewed what seemed like daily. Just a year ago, a similar piece by the artist could barely muster $30,000 at auction. Even if that is the case, it isn’t necessarily a bubble. A big part of the bubble scenario is the eminent pop and subsequent crash. When inflated investment asset values crash the effects are felt throughout the market place. Less so with art. If collectors buy art they like because they like it, they won’t be impacted by disappointing auction results years on. The domino effect of more and more desperate selling at steadily diminishing prices that happens with other kinds of assets, just can’t happen with art. There will be some dealers or galleries left holding the sadly depleted bag if sentiment turns on an artist's work, but collectors need only sit still and love their art. No bubbles. No pops. No crashes.
Buy art that brings you joy. Collect artists whose stories and perspectives resonate with you. Pay what it costs to get what you want (within your budget). Yes, you should think of art as an investment in the sense that your love for and attachment to the things you acquire should grow over time. As for the crazy prices and global art market bubbles, they are just fun to read, watch, and talk about. Nothing with which to concern yourself though.
William S Jiggetts