*Art Collecting Today*

by on May 23, 2017 at 2:19 am in Books, Economics, The Arts | Permalink

The author is Doug Woodham, and the subtitle is Market Insights for Everyone Passionate About Art.

I liked everything in this book, note that the author is a Ph.d economist, has been a partner for McKinsey and also held a major position for Christie’s.

That said, I felt it should have done much more to explain how art is used for money laundering, and also tax arbitrage through donations at inflated prices, based on corrupt appraisals.  Those are big reasons why art prices for highly liquid works have boomed so much over the last few decades.  Arguably art markets are some of the most corrupt markets in the Western world today.

Measured by the number of Instagram followers, the three biggest artists in the world today are Banksy, JR, and Shepard Fairey.

For deceased artists, the Twitter hashtags game is won by Warhol, Picasso, Dali, and van Gogh, with da Vinci, Monet, and Michelangelo coming next.

Of the 25 highest priced artists in the world today, as measured by auction sales, 8 of them are Chinese.  How many of them can you say you are familiar with? On that list are Cui Ruzhuo, Fan Zeng, Zhou Chunya, Zhang Xiaogang, He Jiaying, Huang Yongyu, Liu Wei, and Ju Ming.

Here is more by Zhou Chunya.

Oscar Wilde once said: “When bankers get together for dinner, they discuss art.  When artists get together for dinner, they discuss money.”

I can gladly recommend this book, noting it tells only part of the story.

1 Axa May 23, 2017 at 2:33 am

The tax arbitrage angle sounds interesting. Buy it at 1, donate it when it’s worth 10. But who can tell it’s worth 10 or not?

2 Eric Rasmusen May 23, 2017 at 10:09 am

Is that the tax arbitrage? That’s not arbitrage. It’s just avoiding taxation on capital gains, which you can do with stock also, or tax cheating, if you use corrupt appraisal.

There is SO much tax cheating by the rich of this kind. What can be done about it? Actually, there is something easy—- don’t allow deductions for donated artwork, or only allow the price paid by the donator.

3 Anon_senpei May 23, 2017 at 11:13 am

Could you explain please? You have to pay the capital gains eventually when you sell the art, no? Plus, there’s no guarantee that a work will appreciate. Is a corrupt appraisal necessary to make this work?

4 thfmr May 23, 2017 at 3:16 pm

If you were to sell, you would pay capital gains. By donating, you both avoid the capital gains tax and can also deduct the full value against ordinary income. If you find a corrupt appraiser, you have an unlimited write-off.

5 thfmr May 23, 2017 at 2:49 pm

It’s not just avoidance of capital gains, though it is also that, as the donation is deductible against ordinary income.

6 dearieme May 23, 2017 at 3:26 am

“I felt it should have done much more to explain how art is used for money laundering, and also tax arbitrage through donations at inflated prices, based on corrupt appraisals. Those are big reasons why art prices for highly liquid works have boomed so much over the last few decades.”

At last, something posted on this blog that’s interesting. You’ve been in poor form lately, Mr Cowen, but that’s a big cheerer-upper.

7 thfmr May 23, 2017 at 3:49 am
8 Ricardo May 23, 2017 at 7:22 am

Sam Harris’ response was disappointing. The article, after all, was written not by Ezra Klein but by a team of authors that includes Richard Nisbett who, unlike Harris and Murray, has a large record of academic publications on the topic of human intelligence and makes a series of very specific claims about the current state of that research. If Nisbett is wrong about any of those claims, Harris should, as someone who professes interest in civil discourse and open inquiry, offer a rebuttal with citations instead of waving the article away as “beneath response.” And if the article is not wrong, Harris should do the authors the courtesy of saying what, specifically, he found so objectionable. The article is primarily directed at Charles Murray and is rather restrained by the standards of academic discourse.

Harris looks like exactly the sort of liberal he tends to criticize in proclaiming that the article is “shoddy” and “beneath response” without offering any substantive rebuttal of its arguments or the books or research cited in the article.

9 dan1111 May 23, 2017 at 8:31 am

I think the problem with the article is not its claims on the state of the research but its portrayal of Murray’s views. The former seems nuanced and (so far as I know) accurate, but I don’t think their characterisation of Murray’s work and views is accurate.

Also, the article portrays mere agreement with Murray as a moral and intellectual failure on Harris’s part and repeatedly trashes him for the same (e.g. they describe it as “his decision to suspend the skepticism and tough-mindedness”). As if no one could reach Murray’s position through honest inquiry.

I don’t think it is advisable to say the article is “beneath response”, but I can see why Harris would be mad.

10 Eric Rasmusen May 23, 2017 at 10:16 am

The Nisbett article uses the dishonest tactic of “Lie in your title and tone, but retract your lies in the body”. The title is
“Charles Murray is once again peddling junk science about race and IQ
Podcaster and author Sam Harris is the latest to fall for it.” If you read the article carefully, though, you see that the authors basically say Murray is right on all the facts. That way they can write publicly against Murray while defending their respectability as scholars.

11 Ricardo May 23, 2017 at 11:35 am

The “weak” version of Murray’s argument is that IQ differences between groups are intractable. But the article cites three pieces of contrary evidence: the literature on early childhood education, adoption studies, and the reality of the Flynn effect. I would add the weight of the evidence on childhood exposure to lead, breastfeeding, and a study Nisbett cited in an earlier response to Murray about a natural experiment involving the length of schooling and its impact on IQ among blacks in the Jim Crow South.

12 GeoffBr May 23, 2017 at 4:38 pm

Generally, the author doesn’t write the title, the place of publication does. It’s not uncommon for the title to be more clickbait-y as a way of attracting readers (see also, Slate) and while it’s undesirable, it’s not a knock against Nisbett.

13 gregor May 23, 2017 at 5:57 pm

@Ricardo Sure, things like lead exposure, iodine deficiency, and getting hit in the head with a hammer can suppress IQ. But I believe it is highly dubious to imply that this alone settles the question, i.e., assuming that because you can identify certain environmental deficiencies that therefore the entire observed difference must be explained by those deficiencies; or, that if these environmental deficiencies (which in some cases are expected outcomes of low intelligence) were theoretically removed through massive social intervention, we would observe a convergence of measured intelligence, academic and professional attainment, and so forth.

Murray’s stated position is that it is *probably* partly genetic. I don’t find that to be that bold of a statement. It’s a his opinion/best guess based on the preponderance of the evidence. The counterargument appears to be: there are environmental deficiencies; therefore these *potentially* explain the entire difference; therefore we assume that these *do* explain the entire difference, and the onus is on Murray to offer dispositive proof otherwise. Oh, and we don’t want any investigations to be done that might lead to such proof.

I tend to think about this pragmatically: Are we likely to see convergence any time soon under any reasonable range of policy interventions? I think the Vegas odds would have “Yes” as a huge underdog.

14 carlospln May 23, 2017 at 3:32 am

“That said, I felt it should have done much more to explain how art is used for money laundering, and also tax arbitrage”

How ’bout the part about ~ 50% of art pieces sold today are fakes?

https://news.artnet.com/market/over-50-percent-of-art-is-fake-130821

‘George Akerloff on Line 1!’: http://www.econ.yale.edu/~dirkb/teach/pdf/akerlof/themarketforlemons.pdf

15 So Much For Subtlety May 23, 2017 at 4:03 am

That is an astonishingly ugly, poorly executed, painting. Good to see that it is not only our own Arts industry that is over run with self- aggrandizing fools and poseurs.

Globalization is a wonderful thing.

16 Sir Barken Hyena May 23, 2017 at 11:32 am

But it’s so edgy!

17 dearieme May 23, 2017 at 12:06 pm

At least it passed one test. My four year old couldn’t have done it.

18 anon May 23, 2017 at 4:24 am

Not sure if this is in the book but another major angle of corruption is fake auction prices.

Many young artists have fake auction prices set by their galleries colluding with buyers. the buyers are often guarantors, meaning they can negotiate the buyers commission to near zero. one can also negotiate the sellers commission, if one shares with the auction house a percentage of the upside if the price goes above the guarantee price. So there is very little direct cost to selling the work to “yourself”. its of course never actually yourself. either a sell company, or friendly dealers buying for each other, or perhaps one rich collector is in on the game with a dealer. This has created crazy inflated prices for some young artists. After the record setting auction, the dealer can then sell his other stock int he artist at near the new price point. Sometimes the new prices stick and there is a real market at these prices, sometimes it takes repeated fake auctions to keep the charade going. sometimes when the charade stops the prices drop very quickly.

While not necessarily illegal, its officially against the rules of the action house, even if they often know. of course if the art buying public found out, certainly there would be scandal.

19 chuck martel May 23, 2017 at 6:40 am
20 Evans_KY May 23, 2017 at 6:52 am

“From struggle comes art.”

I see two obstacles for American artists. The first is that in poorer school districts, art appreciation classes are no longer taught to children, so they never form an appreciation. Passion requires a spark. Instead they are funneled into cyclical poverty or dead end jobs. For some graffiti is their art.
The second is that our schools teach conformity in most disciplines. To be recognized as an artist requires a certain je ne sais quoi. The ability to push past mimicry to genius is rare.

Art markets worry me much less.

21 Thor May 23, 2017 at 8:57 pm

I once took a course in je ne sais quoi. I failed.

22 rayward May 23, 2017 at 6:54 am

Is Cowen using the term “volatility in markets” with respect to the art market to include prices that go up? His prior blog post in which he added his name to the complacent class suggested that “volatility in markets” only applies to markets that go down. This is confusing. Don’t get me wrong, I’m sympathetic. I’m a lawyer, which means I appreciate that two people (lawyers) can look at the same facts and be advocates for opposite conclusions. I recently mentioned Bart Ehrman (he is a New Testament scholar) and his dichotomy of what we know and what we believe. Another commenter responded that we don’t really know anything, that everything is just a degree of belief. Maybe he is an economist.

23 Alexander Supertramp May 23, 2017 at 4:04 pm

Let’s assume now that the passerby is a black boy, aged thirteen who has just learned about lynchings in the 1960’s and that the KKK was predominant in Long Island until the 1960’s in his eighth grade history class. The boy turns to bench, sees the chains and sees past the chains an image of Basquiat, and the boy’s hair is styled the same way. He then looks up and sees the bookseller, a white man with heavy black framed glasses and the man’s lips turn into a smile and then a chuckle.

What has the boy experienced then but his own lynching? What trauma will set in as a result of the fact he is not even aware he has just been lynched? The boy will become depressed and then angry and when he sees that smile in other passerbys, which he surely will, he will soon become violent.

What has just occurred but an obstruction of justice? Has not the 14th amendment been obstructed? Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsified, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under Title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both

24 carlospln May 23, 2017 at 7:23 am

I’ll seek out the book.

But, the author is a poseur [PhD economist], a partner in the House of Gupta https://en.wikipedia.org/wiki/Rajat_Gupta and also ‘held a major position for Christies”

Christies-one of the largest auctioneers on Earth [you know, where 50% of the SKU’s turned over in the market are fakes-see link upthread]

http://www.smh.com.au/nsw/christies-auction-house-failed-to-reveal-albert-tucker-paintings-might-be-forgeries-20140731-zz0tm.html

UPSHOT: Where I live, people like Doug Woodham are known as ‘colourful characters’ [in the press]; the colloquial term is a ‘spiv’

25 spiv May 23, 2017 at 5:38 pm

spivs r like riffraff winos without the cutlery, side dishes and porcelain tea cups.

26 Captain Benteen May 23, 2017 at 11:34 pm

Please tell me everything’s on the level on Antiques Roadshow.

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