Art for gas

From the New York Times:

Guy Morin, the mayor of Basel, acknowledged news of the sale of the Gauguin and bemoaned its loss. On Tuesday, The Baer Faxt, an art world insiders’ newsletter, said Qatar was rumored to be the buyer of the Gauguin at $300 million, which would exceed the more than $250 million that Qatar reportedly paid for Paul Cézanne’s “The Card Players” in 2011.

So what do we make of all this?

1.  Economics is about choices, mutually beneficial trades.  The developed countries (I’ll call them “the West,” even though East Asia buys lots of the gas) swap art for gas.  This is probably a good deal for the West from a utilitarian perspective, as the gas is worth far more than the difference in utility from looking at these paintings, as compared to other paintings that will replace them on the wall (and I’m saying this as a huge Cézanne fan.)

2.  Or you can look at the labor involved in producing those 2 paintings, compared to the labor required to mine millions of tons of coal that would be burned, if we didn’t buy natural gas from Qatar.

3.  On the other hand the labor criterion may be misleading.  Suppose 10,000 artists each try to produce great paintings, knowing that each has a 1/10,000 chance of being the next Jeff Koons.  All the failures earn zero, and the one success (Koons) makes $1 billion dollars.  Ex ante, each artist might be willing to devote a lot of time on that lottery ticket to success.  Yes, there is risk aversion to consider, but also the utility to be derived from the romanticism of struggling artistry.

4.  So the huge expenditures on art by contemporary masters have a very large labor cost.  But surely this doesn’t apply to dead artists?  I’m afraid it does.  While they were alive people were buying their art, hoping they’d be the next Van Gogh. Oil paintings are near infinite-lived assets.  Even the purchase of paintings by dead artists is a spur to the contemporary art industry, just as the success of Facebook is a spur to the venture capital market of new social media companies trying to get going.

5.  Does this trade increase inequality in the West?  After all, millions pay gas bills to Qatar, and the money is then sent back to one rich guy in Switzerland.  Yes, the refined taste of Middle Eastern royalty is making income in the West more unequal. In contrast, if Qatar had purchased 10,000 Mercedes with the $550,000,000, to be distributed to Qatari public employees, then lots of the money would have gone to workers in Germany—a more equal distribution.

6.  But wait, those Mercedes have an opportunity cost.  Western consumers don’t get to enjoy them.  Measured consumption would be higher in the West if they swapped the paintings rather than the cars.

7.  On the other hand, argument #6 is refuted by my earlier observation that the spur to the art market caused by this purchase leads young Germans into the art industry, instead of the technical schools training future Mercedes employees. Either way, roughly the same quantity of consumer goods is produced in the long run.  The difference is that income inequality is greater if consumption tastes shift from a constant cost industry (cars) to a winner-take-all industry (art.)

PS.  The Gauguin was on a semi-permanent loan to a Swiss museum, while the Cézanne was sold out of a private collection in Greece.  Does that matter for equality?  It depends what the Swiss seller does with the money.  Do they spend it on something equally charitable to the loan of the painting?

HT:  Lorne Smith

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31 Responses to “Art for gas”

  1. Gravatar of Major.Freedom Major.Freedom
    8. February 2015 at 16:31

    “Economics is about choices, mutually beneficial trades.”

    Now was it really that difficult to admit that AMM has nothing to do with economics, since it requires and depends on a continuance of actions of some people forcefully removing choices from others and are not mutually beneficial?

    “Would the real economists please stand up?” – Eminem.

  2. Gravatar of benjamin cole benjamin cole
    8. February 2015 at 16:45

    This is a fascinating issue. There are times when perceived cultural values clash with the need for money. For example, I think every pleasant place to live in the world will soon be populated by the wealthy and not the original inhabitants.

    You can’t be a beach bum in Redondo Beach or Perth, Australia anymore. Or a native.

    But then, cultures have been getting wiped out for thousands of years. Maybe this is nothing new.

  3. Gravatar of Michael Byrnes Michael Byrnes
    8. February 2015 at 18:41

    Larry Summers says “Only raise US rates when whites of inflation’s eyes are visible”

    “The Fed has rightly made clear that its decisions will be data dependent. The further key point is that it should allow the flow of information on inflation rather than on real economic activity to determine its timing in adjusting interest rates. And it should not raise rates until there is clear evidence that inflation, and inflation expectations, are in danger of exceeding its 2 per cent target.”

  4. Gravatar of Ray Lopez Ray Lopez
    8. February 2015 at 21:00

    Sumner does a post that tries to be ‘Freakonomics’.

    Sumner: “Even the purchase of paintings by dead artists is a spur to the contemporary art industry…”

    Only if the ‘contemporary art industry’ plans on dying young, since it’s well known that artists’ works only go up in value if they die, guaranteeing that their output is limited.

  5. Gravatar of TallDave TallDave
    8. February 2015 at 23:49

    That easily reproduced daubs of paint on canvas can sell for $300M is a wonderfully succinct lesson on utility being in the eye of the beholder.

  6. Gravatar of Nick Nick
    9. February 2015 at 05:40

    This is confusing to me. Isn’t Qatar buying art as an investment? Why all this talk about the utility the art generates as art? Isn’t isn’t this about consumption v investment?
    They don’t even really need to be particularly bullish on art. If you sample wealthy nations of the world I imagine most hold far less Nat Gas assets and more expensive art. Same for the wealthy individuals of the nation. Its just prudent diversification.

    So that seems like the biggest difference between them buying tons of Mercedes for their citizens and buying European art. And according to some economists this more prudent decision to save on the part of Qatar will increase growth in the long run, right? And people in Qatar will end up with more utility ‘in the long run’ than if they traded for more consumption today? And the Swiss should make sure NOT to replace this art and spend the money on shares in international energy companies for their sovereign wealth fund.

  7. Gravatar of Nick Nick
    9. February 2015 at 05:42

    They could put the ownership certificates under glass where the masterpieces used to hang

  8. Gravatar of ssumner ssumner
    9. February 2015 at 06:01

    Nick, I don’t think spending $300 million on a Gauguin can be considered an investment. But it’s possible they think of it that way.

    Ray, You said:

    “since it’s well known that artists’ works only go up in value if they die,”


  9. Gravatar of Nick Nick
    9. February 2015 at 06:18

    The Gauguin is totally an investment! In the year 4,000 natural gas will be worthless. With a systemwide population of 400 trillion humans, space apes, and pseudo-Dolphins, that Gauguin will by you an amount of labor and goods roughly equivalent to being emperor of all earth today.

  10. Gravatar of Derivs Derivs
    9. February 2015 at 06:55

    Maybe it’s an ego issue with their neighbors in the UAE (Guggenheim, Louvre). Both countries really seem to be trying very hard for global recognition. Too bad they are located in the center of crazy.

  11. Gravatar of Anthony McNease Anthony McNease
    9. February 2015 at 07:09


    I don’t know what post this question belongs in, so I’m putting this here by default.

    I thought of something last night: What is the quantity of assets on the Fed’s balance sheet that will mature over the next 12-18 months? I don’t know, and I failed to find anything on the internet. I thought of this amid all the talk over the weekend about a June rate hike or maybe sooner. A rate increase along with $XXX billions of dollars coming out of the base due to the Fed’s assets maturing will be a serious tightening of policy I’d think.

  12. Gravatar of Charlie Jamieson Charlie Jamieson
    9. February 2015 at 07:11

    The painting is a financial asset.
    It is being purchased as a store of value and as an item to flip for a higher value, probably not right away, maybe not even for generations.
    I think it speaks to how the current economy is broken. We have crazy inflation in financial assets of all kinds, and I count stocks and real estate as financial assets in that their price has become divorced from fundamental value.
    It’s a decadent economy in that money creation is flowing into financial assets for the wealthy and not to productive enterprises that benefit the common good.
    Whereas before every dollar created created X growth, now it takes two dollars two create growth, because so much money is siphoned away for purchases like this.

  13. Gravatar of Ray Lopez Ray Lopez
    9. February 2015 at 07:12

    @Sumner: who says: “Ray, You said: “since it’s well known that artists’ works only go up in value if they die,”

    OMG, you did not know that? It’s pretty well known in the art community, professor. What else don’t you know? I guess you can quibble with the word ‘only’, but I was using that loosely. It’s a well known fact any artist that dies has their work rise in value immediately, due to scarcity.

  14. Gravatar of Charlie Jamieson Charlie Jamieson
    9. February 2015 at 07:51

    Other ways to look at this.
    – Art is neither an investment nor consumption. Art is a savings vehicle, much like a diamond would be. It has intangible value.
    – Quatar must have too much money in that it doesn’t need this money for consumption since its citizens must already have everything, and it doesn’t need this money for investment, since it just plans to sell oil and natural gas for generations. So it has decided to store the money in this painting, reasoning that in 50 years (for consumption or investment) then it can swap the painting.
    — Economically this would be a good thing if the seller can put the money to better use than Quatar did. However, the seller is probably likely to buy another savings vehicle — an island, maybe. So this is most likely just an example of wealthy institutions swapping financial assets.

  15. Gravatar of Ray Lopez Ray Lopez
    9. February 2015 at 07:53

    OT–just as I said, an NGDP futures market would be subject to wild fluctuations, says a theoretician who seems very knowledgeable. Imagine the futures price going to zero, and the Fed trying to follow the wild gyrations. Talk about a central bank ‘losing credibility’! – RL
    Tuesday, January 20, 2015 – Blog post

    “However, it would mean that since e.g. an NGDP futures market [cites Sumner’s paper at Mercatus] isn’t solving an allocation problem (the market allocates contracts invented in order for the prediction market to exist, as opposed to e.g. pork belly futures which allocate bacon for people to eat), it would be subject to information-less booms and busts with p → 0 eventually.”

  16. Gravatar of ssumner ssumner
    9. February 2015 at 08:20

    Nick, If there were a futures market for that Gauguin, it would probably be valued at about $300 million in 50 years. The S&P 500 50 year forward futures would be far higher. Plus dividends. No, it’s a horrible investment.

    Anthony, I believe they replace assets as they mature.

    Ray, You said:

    “OMG, you did not know that? It’s pretty well known in the art community, professor.”

    OK, art is something to add to the list of things you know nothing about. It’s getting to be a pretty long list. (Picasso, Warhol, Matisse, Koons and a zillion other examples prove you wrong.)

    And your NGDP futures comment is just moronic, as I am proposing a system where the price of NGDP contracts are pegged. How can the prices be volatile if they don’t change? As I told you earlier Ray, you are in way over your head. Please continue to comment, you’ve made blogging fun again.

  17. Gravatar of Ray Lopez Ray Lopez
    9. February 2015 at 08:32

    @Sumner – please, the pleasure is mine. You are like a clown who ends up with egg all over the face yet begs for more! My kind of guy, blog on!

    NGDP contracts pegged to what? Where does the Fed get their NGDP peg? is this in the Mercatus paper? Of what use is the NGDP futures market then? We don’t need it? How do you avoid blogger physicist J. Smith’s criticisms?

    And now hear this Sir: sticky prices are a fudge, Smith says so!

    This author J Smith, an economics minded physicist, is really sharp. See below, he shows that sticky prices has no microeconomic foundation behind it, it’s just a fudge factor. And we know from micro springs macro… RL

    Sticky prices have no microeconomic story

    Although critical to macroeconomics as practiced by the mainstream, nominal rigidity (i.e. sticky prices) has no microeconomic story behind it. I mentioned this in the previous segment, but I thought I’d emphasize it a bit more. Menu costs and Calvo pricing are models that attempt to get the effect of sticky prices into a micro model, but there really isn’t much stopping an individual from changing the prices at their own store or lowering their own wage. There is however an entropic force preventing all of us from making those changes.

    Adding menu costs or Calvo pricing to the micro models is a bit like adding a ‘diffusion force’ to atoms.

  18. Gravatar of Anthony McNease Anthony McNease
    9. February 2015 at 08:59


    “Anthony, I believe they replace assets as they mature.”

    Really? So the definition of QE then is only an expansion of the balance sheet. If the Fed decided to stop asset purchases then this would accurately be described as quantitative tightening. I don’t recall the shrinking of the ECB’s balance sheet over the last couple of years described this way. Maybe that’s just due to lack of understanding in our financial and economics media.

  19. Gravatar of Nick Nick
    9. February 2015 at 09:03

    Oh come on now, you can’t mark every asset in a sovereign wealth fund against the s+p’s expected performance! What about bonds? Are they not allowed to hold those either in any proportion?

    If Qatar isn’t buying any us stock with this resource wealth than that is really dumb. But a 1% allocation into seasoned fine art is just a matter of taste for an infinitely long lived investor. And when you buy art you can easily justify dumping the money into a few huge purchases since it’s much easier to insure and keep track of.

    I don’t know how much wealth Qatar feels they are sitting on, so maybe these pretty pictures represent an over allocation. But maybe not.

  20. Gravatar of Brian Donohue Brian Donohue
    9. February 2015 at 09:05

    @Scott, Anthony,

    I think Anthony’s right-this explains the drop in ECB balance sheet.

    I also thought that simply returning proceeds to the Treasury would be a natural, non-disruptive way of extinguishing the liquidity.

    This graph shows a flat projection of the Fed balance sheet through 2015:

    I interpret this as comparatively little in the Fed portfolio maturing this year, just enough to offset the natural accretion of portfolio value.

  21. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    9. February 2015 at 09:37

    Let’s hear from a guy who controls hundreds of millions of dollars worth of art;

    ‘ “This economy kills”, said Pope Francis in a video message to the Milan Expo 2015 on Sunday, in which he emphasised that “it is not possible that the death by exposure of homeless elderly man living in the streets does not make the news while a two percent drop in the Stock Exchange does”. “The root of all evils is inequality”, said Pope Francis. In his video message, he quoted his Evangelii Gaudium document to say “no to an economy of exclusion and inequality”, which is the “fruit of the law of competitiveness that means the strongest survive over the weak”.’

    Then he went back to his castle.

  22. Gravatar of TravisV TravisV
    9. February 2015 at 10:25

    Stephen Williamson on Larry Summers:

    Marcus Nunes on Michael Belognia and Peter Ireland:

  23. Gravatar of Derivs Derivs
    9. February 2015 at 11:49

    “Let’s hear from a guy who controls hundreds of millions of dollars worth of art;”

    Cough..cough… millions????

    Throwing shit at a wall here but… If we accept that Michelangelo should trade, at least equivalent bid to Gauguin, this little 120 year old, 8.3 sq ft, painting is 1/700th the size of the ceiling of the Sistine Chapel. Take down that ceiling and you have 212 billion just on that. For 215B maybe they’ll throw in the pieta and your pick of any 2 Berninis.

    What was it he said about inequality?

  24. Gravatar of Anthony McNease Anthony McNease
    9. February 2015 at 12:42


    From Williamson’s stie: “His assumption, again, is that continued ZIRP will make the inflation rate go up. But “as Japan’s experience demonstrates,” 20 years of ZIRP just serves to produce low inflation.”

    I think this is blaming the rain on the wet roads.

  25. Gravatar of TravisV TravisV
    9. February 2015 at 13:18

    Anthony McNease,

    Ha! I wonder if Williamson has said anything about Krugman’s point that increases in the monetary base could get the job done if the market believes the increases are permanent.

  26. Gravatar of TravisV TravisV
    9. February 2015 at 13:27

    Prof. Sumner has a new paper at the Adam Smith Institute:

  27. Gravatar of Anthony McNease Anthony McNease
    9. February 2015 at 14:43


    “Ha! I wonder if Williamson has said anything about Krugman’s point that [B]increases in the monetary base could get the job done if the market believes the increases are permanent.”[/B]

    Does anybody believe that this is false?

  28. Gravatar of Gordon Gordon
    9. February 2015 at 17:02

    Scott, I took a look at the comments on the two different Telegraph articles – the one which referred to your comments and the one which has your byline. (And my thanks to Travis for pointing the initial one out.) Some people confuse the ECB’s QE with government spending and others see it as nothing more than a scheme to enrich banks. I know you see resistance to QE as coming primarily from conservatives. But I think when it comes to the general public both conservatives and liberals oppose any expansion of the money supply. Those on the right see it as simply a scheme to benefit governments and those on the left see it as simply a scheme to benefit financial institutions. For any future articles, it may be helpful to address these misconceptions.

  29. Gravatar of Ray Lopez Ray Lopez
    9. February 2015 at 19:53

    @Gordon–can you divide the circumference of a circle to fit a square? No. So too Sumner’s plan is flawed, for the reasons both the left and right complain about. Mere soothing words from Sumner, who is prone to doublespeak, will not square that circle. Pray–if you have money–that Sumner’s cranky proposals are quietly ignored.

  30. Gravatar of ssumner ssumner
    10. February 2015 at 08:59

    Ray, You said;

    “This author J Smith, an economics minded physicist, is really sharp.”

    If you say so, I’ve never been able to understand his post. But I did respond, the futures price does not change. It’s pegged. So how can it be “volatile?”

    Anthony, I’m not sure what the Fed plans to do with its balance sheet. But I assumed it would be stable once QE ended. Perhaps they will allow shrinkage.

    Nick, I assume that paintings are risky, more like stocks than bonds. And I also assume they grossly overpaid for the Gauguin, which is not worth anywhere near $300 million.

    Brian, Fed assets don’t naturally appreciate—the interest on those bonds goes to the Treasury.

    Travis, Thanks for the links.

    Gordon. Thanks for the tips. They give you a word limit, and it’s really hard to explain subtle counterintuitive ideas to the general public.

  31. Gravatar of Daniel Daniel
    11. February 2015 at 02:23

    Funny thing is even Jason Smith stepped in to distance himself from Inbred_Ray’s stupidity

    Not that Jason Smith’s model makes much sense in the first place.

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