One winner from inequality — artists

Does wealth inequality have its upsides? In the course of a long review of Thomas Piketty's Capital in the 21st Century, George Mason University economist Tyler Cowen suggested that it does, citing "scores of artists who relied on bequests or family support to further their careers included painters such as Corot, Delacroix, Courbet, Manet, Degas, Cézanne, Monet, and Toulouse-Lautrec and writers such as Baudelaire, Flaubert, Verlaine, and Proust, among others."

Others have raised doubts about this highly impressionistic approach.

But as is often the case, there is some relevant economics literature, and it suggests that when the rich get richer paintings and other fine art objects become more valuable. Specifically that "both same-year and lagged equity market returns have a significant impact on the price level in the art market" can be demonstrated with a very high-quality long-term dataset. Income inequality data doesn't go as far back, but the available evidence from the shorter term also suggests that high levels of income inequality lead to high prices for art. A lot of this reflects higher prices for old paintings by dead artists, but the art market exhibits sufficient efficiency that higher prices also benefit new works by living artists.

The mechanism, basically, is that art-buying is mostly done by very rich people so when very rich people get richer, the price of art gets bid up. When buying power shifts to the middle class they tend to buy more banal things like bigger houses or nicer cars.

Whether these price trends are good for the arts is going to depend on a bunch of other questions that the paper doesn't address. Do higher prices for art works induce artists to become more productive? Does greater output come at the expense of quality? Do people shift into painting from more mass market artistic pursuits (music, movies) or from careers outside the arts? Do higher prices make art less accessible to non-rich art lovers? One can imagine a whole range of different outcomes here. But the evidence that inequality boosts the financial returns to the fine arts — largely by diverting financial resources away from middle class consumption of normal stuff — seems compelling.

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