Paul Krugman, the American economist and commentator, is known for his predictions—which have not yet born fruit—of the collapse of the American economy. Does the art world need its own Paul Krugman? Killjoys such as myself look forward to each big fixture on the art calendar in the hope that it will be the watershed. We imagine sales showing a dip, then a downward slide, and finally a crash, bringing with it the impoverishment of a thousand talentless artists and greedy dealers. The return of the Frieze art fair to London in October gives us a chance to utter another malevolent prayer.
But can we really expect the bubble to burst? The contemporary art boom is built on two factors. The first and most important is the vast global increase in wealth. There are more rich people buying art, not only in Europe but also in India, Russia and east Asia, and demand has exploded. The second feature of the boom is the lack of transparency in the art market. As one analyst told me, the art market "is all insider trading." Following the tightening up of the regulatory environment of the stock market after the dotcom bubble, art became a very attractive investment because of the lack of regulation. All those state subsidies and gentleman's agreements that were in place to protect struggling young artists and that used to deter collectors from selling works of art have now become supports for a rigged commercial market, subsidised by taxes in the form of "grants" to museums.
A certain kind of corruption is endemic. Following an investigation by the Art Newspaper, the charity commission has censured the Tate gallery for buying works of art from the painter Chris Ofili for £600,000 while Ofili was a member of the Tate's board of trustees. They further found that since 1960, the Tate had purchased 20 works of art from serving trustees, among them Anthony Caro, Gillian Wearing and Howard Hodgkin. Another murky affair concerns Gateshead's Baltic gallery and the sculptor Antony Gormley, and offers rare proof of how public institutions subsidise multimillionaire artists. The Baltic paid Gormley £175,000 for an installation. They supposedly had a verbal agreement that Gormley would repay the Baltic if he sold the piece within three years. But since this work has not yet been sold, any such agreement has lapsed and a future purchaser will be receiving a £175,000 subsidy as well as the kudos of work that was first exhibited in a public space.
Collectors, artists and gallerists whom I talk to about the art market always criticise me for banging on about money. They say it's boring and unimportant. They make the art and the market decides the price. They have a point. We should surely be welcoming the raft of emerging new artists, many of them from developing countries, who will be appearing at Frieze this year, rather than complaining that they are too numerous and too unskilled. One reason for the increase in the supply of art, as well as the price, is that economists have new ways of calculating its value. The Museum of Modern Art in New York—according to a report commissioned by the museum itself—is generating £360m of income a year for the city. It is figures like this that persuaded Abu Dhabi's sheikhs to invite the Guggenheim to open a branch in the emirate. The sultans are now talking to the Louvre. The Guggenheim—with outposts in Venice, Bilbao and Berlin—is the McDonald's of contemporary art. Expect the Tate to follow suit, and to start looking further afield than Liverpool. The globalisation of art is only just beginning.
The contemporary art boom may be youthful and virile, but whether it is sustainable or not depends on the future of the rich. Those who see no overheating in the market like to point out that the last art boom in the 1980s was built on credit and property speculation. The new boom, they say, is built on "real money"—private individuals with newly acquired wealth. Yet the economic upswing of the last ten years has also been driven by credit. The millionaire art collectors might have been spending their own real money—but they got it from us, and we borrowed heavily to give it to them. The art market will go into meltdown if credit dries up.
I could base my prophecy on internal logic rather than economic hypothesis. The contemporary art boom has its own built-in ending: it is contemporary. If people are spending money on "contemporary" rather than "modern" artists, it means that in a few years all the artists they are collecting today will no longer be collected, because they won't be contemporary any more. Thus their value will go down. Thus collecting contemporary art will be shown to be a poor investment, and rich people will stop shelling out so much for it. What's more, if the work is no longer valuable, it means that the collector has no taste. Collecting art has a unique double benefit if prices go up—it's tasteful and profitable. But in the reverse situation there's a catastrophic double negative—you lose money and look like a philistine.
