Art Is an Investment to Appreciate


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Tech stocks have taken a deep dive, blue chip stocks are sick, stablecoins are not stable, and they don’t even ask about traditional cryptocurrencies. Art markets, however, are alive and well, and it’s worth asking why.

Recently, an Andy Warhol painting sold at auction for $195 million, the highest price ever achieved for a 20th-century work of art. A ballroom-themed painting by Ernie Barnes sold for $15.3 million, 76 times the original estimate. The Macklowe collection sold at Sotheby’s for $246.1 million, the largest amount ever for a single collection.

Anyone else notice a pattern? The vigor of the art market may seem counterintuitive, but it makes sense in today’s environment.

First, savings remain high due to limited consumption due to the pandemic. And many of the wealthy have been buying additional houses and want to furnish them with art.

Second, the recent rise in inflation rates around the world has intensified the search for hedges. There are few true inflation hedges, and cryptocurrencies have now been removed from that role. But art can serve as a hedge against inflation in almost any setting.

Art gives its owners the pleasure of looking at it on their wall, and no rate of inflation can take it away from them. It is both an investment and a form of consumption, and the latter is fairly protected against any macroeconomic conditions. When all else fails, spending money is a surefire hedge against inflation. Art is also a lasting asset, so the expense is not entirely pointless.

Art is not always about the enjoyment of the buyer. Many art collectors, especially in the upper tiers of the market, keep their art in duty-free storage and use it to make questionable donations to charity, “trade” it for a quick profit, or resell it on the “grey market.” I don’t approve of these methods, but they can also be lucrative in a volatile market where valuations are more subjective.

Many art sellers suggest that works of art generate a high rate of financial return. Do not be fooled. Too often, these calculations are based on “survival bias,” that is, the artworks that continue to appear in auction records are those that are above average. There is less data on the losers. Best estimates suggest that, over the long term, works of art have less price appreciation than stocks.

That’s exactly what you’d expect if some art buyers enjoy owning and looking at it. Net total rates of return, including pleasure, should be equalized across different asset classes.

So don’t buy art to get rich. But if you love the work, it will bring you more pleasure than having many losing investments.

The rapid evolution of technology raises some questions about the future of physical works of art. Why not have a nearly perfect hologram of a Rembrandt on the wall? Why bother buying an original copy of a lesser piece of art?

But no one is sure when those quality holograms will arrive, and if they do, they will likely increase rather than decrease the value of at least some works of art. The originals will become more important and will be known by a greater number of people. The more time we spend staring at computer screens or digital replicas, the greater the value of the best true art objects (or, for that matter, natural wonders).

To better understand reproducibility and its effects, consider the etchings and lithographs of Picasso and Jasper Johns, two particularly accomplished printmakers. Those prints and lithographs are of excellent quality and have been available for many decades and are much cheaper than the original paintings. If anything, however, they have boosted the reputations of Picasso and Johns, and probably increased the value of their works (both artists sell at or near the top of their market segments). Just as some buyers buy a print because they can’t afford a painting, others start with a print and move on to paintings as they earn more.

A word of warning: the art world is riddled with fakes, frauds, and uncertainties. So stay away from those market segments that are especially dubious, like Russian Constructivism. But keep in mind that the disadvantages of the market end up being reflected in the price. Precisely because it’s not easy for everyone to make wise art purchases, a savvy shopper can do it especially well.

So before you conclude that all asset classes are crashing, think again. Beauty should never be too far from your thoughts anyway.

More from Bloomberg’s opinion:

• Bitcoin is a lot like the art market: Allison Schrager

• NFT Art is all about advertising: Leonid Bershidsky

• Rich millennials are investing millions in crypto art: Andrea Felsted

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Tyler Cowen is an opinion columnist for Bloomberg. An economics professor at George Mason University, he hosts the Marginal Revolution blog and co-authored “Talent: How to Identify Energizers, Creatives and Winners Around the World.”

More stories like this are available at bloomberg.com/opinion