Keynes and Picasso: Stimulative Conspicuous Consumption?

by Bruce Webb

Digby points us to the following NYT piece: At $106.5 Million, a Picasso Sets an Auction Record with what is in one sense an understandable bitter comment “Hey, dead artists need work too.” And as a comment on the odd priorities of our plutocracy a reasonable moral judgement, but as an economic evaluation? Maybe not. And perhaps some of the real economists can fill me in here.

Per the story the last time this work changed hands it was for $19,800. Which should mean that someone is exposed to capital gains on pretty much the full amount of the sales price. Even at 15% that is a reasonable chunk of change. Plus the seller has to put the net dollars SOMEWHERE, even if that is just buying more fine art. Now nothing guarantees that the proceeds will get spent/invested in the U.S., but unless the seller spends it all on tons of Bolivian blow it all gets injected somewhere in the world economy. Meanwhile the buyer had to free up capital from somewhere in order to pay for the painting, and while it is possible this was done by selling assets for a loss, or in the course of a tax-free exchange, chances are good that this ended up with another taxable event and/or unlocked previously unproductive capital. Plus the buyer had to come up with a substantial commission, another taxable event (to the dealer) and one likely to inject some spending of its own. Plus someone is going to receive a good sized insurance premium payment, and who knows the proximate result might be some blue collar jobs going to armed guards.

Now not every instance of conspicuous consumption has benign effects, huge money spent on diamonds, or ivory, or furs from endangered species means dollars ending up in the hands of organized crime or to the extent that there is a difference in the hands of kleptocratic dictators, but the transfer of existing pieces of fine art is on balance pretty benign (as opposed to true antiquities).

Obviously circumstances alter cases, there are a bazillion possible variables that might make this deal actually economically pernicious, but on balance aren’t the odds much better than even that this injection of $120 million (including commission and costs) into the economy has a net Keynesian effect? I am not saying that the path to economic nirvana runs along the road of the worlds top 400 billionaires deciding to spend $150,000,000 each on fine art, or collectible stamps or coin, particularly if they are just selling things back and forth within the same pool, but at a minimum some dollars are shaken free in the form of tax, commissions or wages at each transaction. And it is not like they are crowding most of us out of that particular market, I will never be bidding on a Picasso anything.