Blake Gopnik: Pop Goes the Art Bubble

Julie Mehretu's untitled 2001 painting at John Berggruen
The Bubble: Julie Mehretu squiggles, barely a decade old priced at $2.6 million Emiliano Granado for Newsweek

What sound does a bubble make just before it bursts? We heard it last week at the Art Basel fair in Miami, where the rich flock to stock up on art each December. A Richard Prince "nurse," hung amid Picassos and Miros, selling for $6.5 million; a Damien Hirst "medicine cabinet" priced at $4 million; Julie Mehretu squiggles, barely a decade old, for $2.6 million—all for sale at Art Basel, and all with prices so high they are bound to crash-land.

But there were surer, subtler signs of the bubble than those: paintings by Raymond Parker—that were nowhere in sight; carvings by Mary Frank, also not for sale anywhere; bronzes by David Slivka, unrepresented in any dealer's booth. Fifty years ago, in the pages of Art News magazine, these were billed as figures "of unusual promise and achievement." Today a huge Parker canvas sets his auction record at $60,000 (compared to $34 million for Jeff Koons), while works by Frank barely break $10,000, and a lone Slivka sculpture on the market goes for a 10th of that.

"Ernie Trova was the most famous artist in the world," says New York dealer Marc Glimcher, "and Ernie Trova was us"—"us" being the influential Pace Gallery founded by his parents, and Trova being an utterly forgotten 1960s sculptor whose sales were once so brisk they paid for Glimcher's education. "Those bubbles burst—they're bursting now," says the dealer. He points out that there's not a soul who'd say we're at a high point in artistic creation, even as the market for art does better than ever.

Maybe we should expect obscene price tags when it comes to the proven icons of art history: who can say if The Scream by Munch was overpriced or not when it sold for $120 million last May, or whether it made sense when The Card Players by Cézanne sold for twice that in 2011? But when prices go nuts for artists whose reputations are still in play, trouble is sure to be looming.

The reason I'm certain that today's contemporary market is due to deflate is because people like me will make it happen. We won't do it on purpose, tempting as that might be. We'll make the bubble pop in the normal course of things, as all of us—critics, curators, and art lovers of all kinds—decide that today's market darlings are tomorrow's 
also-rans. We'll prick the market's bubble by deciding that a Richard Prince nurse is about as central to our culture as Ernie Trova's sculptures turned out to be. And when we burst reputations, we deflate prices, too. History proves that most judgments about art will be shown to be wrong, as the roster of noteworthy talents gets whittled down. (I'm utterly sure of the importance of the living artists I admire—including Koons and Hirst, as it happens. I'm equally sure that I'll turn out to be mistaken about many of them.)

The scholar Michael Moses, now retired from the NYU business school, has spent years building an index that tracks the prices of artworks sold at major auctions—of the art, that is, already on top of the heap. (Auction houses won't even accept lesser works, which include most art that gets made.) And Moses points out that, over the long run and on average, even this high-end art tends be a worse investment than equities, however well some of it has done over the past year or two. His index tracks single works that have come up for auction a second time, and of those "sale pairs," about one third actually represent a drop. In the long run, Moses says, the fancy, flashy treasures whose sales the auctioneers trumpet most loudly don't yield the best returns. 
Moses points out that to match a normal 10-year stock-market return, today's $80 million Rothko would have to soar to an unlikely $160 million.

In New York this November, the auctions of deluxe modern and contemporary art set tons of artists' records, with about $800 million in total sales. (Older works, meanwhile, didn't do very well, and the market was soft for mid-range contemporary pieces.) But the success of those auctions doesn't mean we were witnessing smart investors at work, or anyone's great nose for future art history. The high prices were probably a sign of overheating and "trophy purchasing," says Moses—
they were about people spending tons of money, because they wanted to.

The investor Vikram Mansharamani recently wrote a book called Boombustology, and he's now teaching a Yale course on bubbles and crashes. He says that what Moses has spotted is hardly a sign of any market's health. When people are attracted to high prices, rather than put off by them, that's one indicator of a swelling bubble. "My antennae go up," Mansharamani says, at such news. The art market's concentration on a few, overpriced trophies may be a symptom that hubris has taken over from sense, across the board.

Munch’s The Scream sold at auction for $120 million last May. Mario Tama / Getty Images

Thanks to what psychologists call an "anchoring bias," once a dollar figure— any figure—gets linked to an object, that's seen as its natural price. Collectors and dealers regularly bid up one work by an artist they hold in depth, so they can get more when it comes time to sell the artist's other works, use them as collateral or give them to charity for a tax deduction.

Mansharamani says another common marker of a boom that's bust-ready is when there are "new people coming to the party"—when all the insiders have already bought, so the market has to look to foreigners or amateurs to fuel its epidemic-like growth. This is what happened in 17th-century Holland with tulipomania, that most iconic of all market follies. In today's art world, money is pouring in from countries that never used to field buyers, and we're seeing ventures such as the new Liquid Rarity Exchange, which says it aims "to get the public involved in ownership of rarities." Mansharamani is reminded of 1998, when prime-time TV was full of ads selling tech stocks to average Joes.

The Yale bubbleologist gets especially spooked when he hears people claiming that a market's fundamental structure has changed, so it will let uncontrolled growth go unpunished—as in June 2008 when the auctioneer Tobias Meyer said that "for the first time since 1914, we are in a noncyclical market," and then witnessed a huge drop in art prices less than a year later. (That particular boom-and-bust cycle was nicely dissected in The Great Contemporary Art Bubble, a film by the British documentarian Ben Lewis. What he didn't predict is that the art ­prices would soon take off again.)

As one New York art adviser warns, "The market has to come down—because it has to. They don't call it a market because it only goes up. You call that 'magic.'"

Or maybe art really does follow its own market rules. Dealer after dealer told me that, despite significant doubts, they were still plenty optimistic. A British dealer named Andrew Renton recently launched a new London division for the blue-chip Marlborough Gallery, and it is dedicated only to contemporary art. He cites the 5 million visitors who crowded into Tate Modern last year as a sign of the room that his client base still has to grow. "There are so many more people who speak the language of contemporary art—
and by definition so many more people who will want to become collectors."

Like many of his colleagues, he also believes that the softness of the rest of the economy positions contemporary art as "the most exciting investment you can make at this time." (Although one very recent survey of millionaires, conducted by Barclays bank, showed that they still only hold about 10 percent of their assets in "treasure"—and mostly in jewels—and that only around one in 20 of them buy art as an investment.) Weirdly, art is seen as especially attractive since it's a market that is built on "real" art-historical values that are not subject to the purely economic forces that have messed things up elsewhere—never mind all the Ernie Trovas out there.

"Art history is the weapon of choice—it is the means of justifying the object in question," Renton says. And yet, with contemporary art, the market most often gets its art history wrong. "You couldn't get a better Warhol," says our New York art adviser, than the master's 1962 picture of Troy Donahue—which was withdrawn from one of last month's auctions for lack of interest. "The market wouldn't pay for a painting of a closeted gay icon" is the adviser's conclusion. That market prefers to sell its product to collectors using bromides about "beauty" and "self-expression" instead of the contrarian ideas that really seem to explain today's best art. The hundreds of polka-dotted paintings turned out by Damien Hirst's assistants are likely to be important, in the long run, because they undermine the clichéd values of uniqueness and "authenticity" that the market feeds on. The less Hirst's spots turn out to be worth on the market—and they seem to be dropping like stones—the more they may matter as art.

"The best art is the most expensive because the market is so smart," a top man at Sotheby's said, but in fact its bubble gets blown up with the wrong works, bought according to the wrong measures. Or even that may be too generous a view. The newfound popularity of art fairs, which are more like souks than salons, may signal that the boom is being fueled by the pleasure found in buying art rather than in contemplating it. That's the kind of faddish pleasure that could pass as quickly as the hula hoop.

Hirst's "New York" medicine cabinet
Damien Hirst's “medicine cabinet” was priced at $4 million. Emiliano Granado for Newsweek

Yet the veteran New York dealer Mary Boone still doesn't think the current bubble is set to burst—because she doesn't think it exists at all. She suffered through the art crash of the early 1990s, when a soaring market suddenly lost 30 percent of its value, and doesn't see quite the same setup now. Prices are only soaring at the very top of the market, she says, while the vast rest of it is in a "holding pattern," at best. She's sanguine that the market will continue to support her, but she also lists all sorts of novel problems in it: speculators who buy just to sell; collectors who stop buying once their walls are full; people who only buy because their friends do; the "spectator sport" that art buying has now become; all the shallow, "sellable" art being churned out; the exclusive search for the new and the hot—so that an unproven artist such as Wade Guyton, now showing at the Whitney Museum in New York, can fetch more than a legend of pop art like Richard Artschwager, on view downstairs from Guyton's work.

Sean Kelly, a colleague of Boone's who's recently moved into the major leagues, acknowledges that some people are making foolish art buys, especially where things are overheated. "You can buy 10 or 20 Marcel Duchamps for the price of one Jeff Koons ... But has Jeff Koons changed the way we think, the way Marcel Duchamp did? I rather doubt it." But he doesn't think that telltale signs of a bubble ever tell us what will come next. "Every time you thought the world was ending," he says, "this market has confounded that prediction." After 9/11, Kelly asked himself, "Who's ever going to buy art again?" only to discover that his clients were more eager than ever to nest at home with precious things.

A crash of the market's biggest players might still bring everyone down, but Kelly feels that today's art world has probably—probably—become such a broad river, as he puts it, that a whirlpool in one place might not disturb currents elsewhere. (Every gallerist I spoke to insisted that the market for their particular, singularly talented artists was bound to be stable, even if their colleagues were clearly at risk—precisely the kind of bulletproof thinking that's typical of boom times.) This fall, Kelly almost quadrupled the size of his gallery; our interview ended so he could vet yet another applicant to his growing staff.

There's one final factor that weighs against a coming bust: the fact that the ultrarich now buying art won't bother selling if the market starts to soften. That Barclays survey showed that once millionaires own a precious object, they will only sell it at a vast profit. (Market psychologists call this the "endowment effect.") Just because you think the value of your collection is falling, "you're not going to take your paintings off the wall," says Adam Lindemann, a financier, collector, and gallery owner in New York.

Of course, the fact that collectors choose not to sell now, or in 2013, or even in a decade doesn't change the underlying drop in worth of any bad art they own. If a work doesn't end up mattering in the culture at large, someone, someday, will be left holding the bag. Most of the stock being sold in Miami this year may not even be fit to auction in 50. Some bubbles may not burst with a bang, but instead lose their loft with a quiet hiss.