Art market

'Very, very strange and wildly illiquid': Freakonomics' Stephen Dubner on the 'bizarre' art market

The New York-based author has just released a three-part podcast series on The Hidden Side of the Art Market. Here, he speaks about what he learned—and why art is a bad financial investment, but a good emotional one

Stephen Dubner

Photo: Audrey Bernstein

Stephen Dubner

Photo: Audrey Bernstein

It was when the Freakonomics author and podcast host Stephen Dubner’s wife, the photographer Ellen Binder-Dubner, decided she wanted to start collecting art that he really became interested in the art market.

His wife wanted to buy a painting, but soon discovered it was not as simple as walking into a gallery and handing over a credit card. “She realised that there's this system in the art market that is ingrained but very hard to discern, and that's the system that we ended up really describing in this series,” Dubner says over the phone from New York. He is referring to the recently released three-part Freakonomics Radio podcast series on the contemporary art market,The Hidden Side of the Art Market, in which he interviews artists, gallerists, advisers, museum directors and economists. “I was just really interested in understanding how this market functioned, if indeed it is a ‘market’ at all.”

So, what did he find out? “It struck me as a pretty magnified case of what economists call a tournament model, which is essentially a pyramid,” he says. “At the very top, the rewards are outsized. And then there's a very, very large base of the pyramid, where everybody would like to climb higher—but the rules of climbing are not clear. There's a great deal of information asymmetry, which can be frustrating, and price doesn't function the way it does in most markets. The normal laws of supply and demand don’t apply. And so that was fascinating to me.”

Dubner, who wrote the Freakonomics book in 2005 then launched the hit spin-off podcast in 2009, confesses to being an art world outsider. But that outsider status means he can ask some of the questions that those of us with our noses firmly pressed up against the market cannot for fear of looking stupid.

For instance, he asks the mega-dealer David Zwirner why he wouldn’t just sell a work of art to someone who walked in off the street and why, if he had 12 paintings by one artist and more than 12 people who wanted to buy them, he doesn’t just raise the price (“the way economics normally works”). At another point, he reads out a quote to Zwirner from rival Larry Gagosian, who describes him as a “wolf in sheep’s clothing” referring to Zwirner’s Platform initiative, which sold works from younger galleries via his website (in return for a 20% cut and some client details).

Zwirner’s response? “It takes one to know one”.

Another contributor was Amy Cappellazzo, the co-founder of the advisory Art Intelligence Global and veteran of Sotheby’s and Christie’s. Dubner was impressed by her “unyielding intensity, but I think I frustrated her because I don't think she found my lack of knowledge charming in any way.” It felt, he says, "like running a marathon with an elite athlete without training beforehand."

Dubner was unsure what reaction the series would have from art world types. Feedback has been largely positive, he says, although “the primary strain of upset is from people who are involved in the NFT market [discussed in the third episode], who argued that we didn't identify it as scammy enough…I'm sure we'll revisit that." One big regret is "that we should have talked about Instagram as a global art gallery.”

He found persuading artists and museum directors to be interviewed about the market was almost impossible—a challenge familiar to many art market journalists. “The minute the word ‘market’ entered the conversation, people would walk away…it’s funny, we did a series on creativity a few years ago and there was no problem getting artists to speak for that!”. The artists Tom Sachs and Tschabalala Self did agree to be interviewed, however, as did Glenn Lowry, the director of the Museum of Modern Art in New York, who was surprisingly candid about the industry.

So, having gone deep into the weeds, what does he make of the art market? “I think [the economist and University of Chicago professor] Canice Prendergast probably put it best, in that there are two things that are unusual. First, it is very, very strange and second, it’s wildly illiquid. If you look at it like a quote-driven market, it doesn't really represent many other markets.” There are other strange industries, he says, and draws a parallel with the “bizarre” diamond trade: “Diamonds are plentiful, they're not at all rare. That's another case where supply is purposefully constrained by dealers, and intense and emotional marketing creates a demand that drives the price up well beyond what any normal person would think that piece of not-very-beautiful rock is worth.”

The opacity of the art market also struck him: “There are other markets where there's a lot of money, but there's more transparency, like professional sports. Because of the way the economics and the ownership works in these leagues, I can tell you exactly what every single professional athlete on a team sport in America makes, for the most part. But I could never do that with the art market.”

That, Dubner thinks, is a shame, although there is nothing wrong with people paying millions for, essentially, a luxury good, “if it somehow comes bundled with a perception of value that they think is worth it. That's the history of capitalism and that's the history of economics.” But in terms of why people make or engage with art, “I think the market is letting us down.”

One subject that came up repeatedly was the question of whether artists should receive more of a cut when their work is sold for a vast sum at auction. Dubner points out this is not a scenario unique to the art world: “If I'm an architect and I design a home and I'm paid for it, I don't get a cut every time it's resold. So, this is not a unique circumstance. It's just heightened because of the price and the public nature of auctions.”

In every episode of Freakonomics, Dubner considers who are the winners and losers of an industry. So, who are the winners and losers of the art market? The winners are “a large handful of galleries and artists and museums” at the top, but also “the people who are comfortable enough to get involved in going to museums and galleries, but don't feel compelled to spend a quarter of a million dollars to buy something.” The losers? Civilians (“the numbers for museum attendance, at least in the US is pretty sad to me”) but also those on the lower rungs of the business: “For every good gallery job, there are probably ten people who would want that job, even though most gallery jobs pay very, very poorly. Theoretically, if you were remaking the market from scratch, you might make it a market where more people could earn a living, rather than a handful of people earn an amazing living.”

That inequality is an indelible part of the art world, and it’s tied up with the exclusivity that the market thrives off. “Exclusivity is incredibly attractive to us humans," Dubner concedes. "I don't mean to be judgmental about it…I love humans, and humans are weird—we create strange markets, and this is one of them.”

So, is art a good investment? "In almost all cases, no," Dubner says. "But, in some cases, yes, and the slight chance of 'yes' will always drive a lot of people to make that decision. If you're investing for the sake of growing your money, then art seems like a very tricky bet and quite probably a risky one." But, he counters, "if I had a billion dollars, would I spend £2m on a big beautiful Flora Yukhnovich painting, to live with and gain great pleasure from? Absolutely yes."