Manish / 27 Apr 2008

Art prices continue to rise while the rest of the economy stumbles. Many speculate that the art market is in a bubble that will crash like the housing market. The art market’s boom, with record prices at auction and at galleries, might conjure images of artists cashing in, but that is just not the case. Only a select few celebrity artists like Damien Hirst, Jeff Koons, Richard Prince and Jasper Johns have truly cashed in. The art market cannot bust if it has not really peaked.

Same goes for many Americans. They have never seen the wealth from billion dollar hedge funds. The average American never benefited from the stock market booms, but they sure have felt the busts.

The vast majority of artists have not benefited from record art prices because most artists were left out. Only a small number of superstars have seen the profits. Similarly, the massive financial wealth created in the US over the past few years was limited to a small percentage of Americans working at hedge funds and investment banks. In NYC, financial types who have lost their jobs experienced 6 years of record year-end bonuses while most of the rest of America saw their non-housing related wealth remain stagnant.

The US market hit a low on March 10, 2008, down 10.5% for the year. In April, media headlines declared that US consumer confidence hit the lowest point since 1980 yet the market is up nearly 8.5% since the March low. Gallup polls show that over 80% of Americans believe the economy is worsening. They just might be right. The financial backbone of America is hurting from trade to Wall Street. Bear Stearns is no longer. Banks like Citigroup and Deutsche Bank announce layoffs every week. There is a near universal hiring freeze across the board and portfolio managers seem relieved with flat performance. But it has not stopped Wall Street hedge fund managers, some of the most prolific collectors, from buying art. Despite all the bad sentiment and real problems, most people on Wall Street are not exactly waiting on bread lines. Most still have jobs and executives who made millions in the past few years are not losing their homes. Be it the shops in Soho, the bars in the village or the seats at sports stadiums, consumers are still spending and New Yorkers would be hard pressed to distinguish spring in NYC in 2008 from 2007. At the end of March, NYC hosted ten international art fairs on the same weekend and at every fair, crowds were overflowing and purchases were made. There are long lines at the Guggenheim and the Metropolitan Museum on the weekends and large crowds are still guzzling wine on Thursday night gallery openings in Chelsea. Tourists and New York residents alike are still consuming art.

Negative sentiment is not limited to the financial markets. Every week there is another panel of experts or another critic talking about the potential for a collapse in art prices. Basic logic would lead a rational person to conclude that less wealth creation and a challenging economy would lead discretionary spending to drop off precipitously.

The art market boom reported with flashy headlines by the press seems to be defying the odds. Hedge funds are not making money right now, investment bankers are doing little business, but at every auction and every art fair, work is purchased and new records are broken. But like Wall Street, in the art world it’s the middleman making the big money. Despite art selling for millions of dollars, the wealth isn’t trickling down to the artists themselves.

These artists like most Americans have never seen a boom and continue to face the challenges of rising costs and stagnant income. Websites like artlog.com, the company I co-founded, use the web to broaden audiences, create affordable professional tools and connect artists directly to collectors.

A self-made Wall Street legend often advised me to never predict the market and never predict the economy. Unfortunately the US economy and markets worsening could impact many people worldwide. However, if art prices decline does it really matter?