The art market seems to be crashing these days, and I wonder if it’s going to crash like it did in 2008, when I made the documentary The great bubble of contemporary artthat followed the market from its peak in the spring of 2008 until its fall in the fall of that year.
There was a series of bad news. Seasoned New York art consultant Lisa Schiff has closed his business with at least $5 million in debt. Simon Lee’s premier Mayfair gallery went into administration. Christie’s Modern and Contemporary auction in June was down 66% from last year. There are so many stories of works by market favourites, such as Jean-Michel Basquiat and Gerhard Richter, going unsold that they constitute circumstantial evidence. And – no surprise here – the NFT market crashed.
“So a few mid to small players are facing a cash crunch, sales are down and the frothier end of the market is dead? Is that all you got?” I hear you cry. The latest Art Basel/UBS report on the global art market indicated that it was starting to “cool off”. But cooling is very different from crashing. The optimists offer me excuses for the sluggishness of the market today which echo those I heard in 2008. First there are the logics of the art market – the market, or this or that sector or specific artist market, deserves a correction (Damien Hirst then, or NFT), shipments of prime works are lacking and private sales are still very active. Secondly, there are the justifications of the economic context – the UHNWIs (Ultra High Net Worth People/Billionaires) of the world are so wealthy that they are immune to downturns in the economy, and if interest rates rise, they will have even more money.
There is some truth in these counter-arguments. The art market crash of 2008/09 was caused by an economic shock, much like the art market crashes of the 1930s and 1980s. Today we have the economic headwinds of post recovery. -pandemic and Russia’s war against Ukraine, but they are not of a comparable magnitude. Just because works by Basquiat, Willem de Kooning, Matthew Barney and Elizabeth Peyton don’t reach their reserves at auction or go unsold at art fairs doesn’t mean the whole art market is collapsing. I remember how the market bounced and bounced during the subprime mortgage crisis, until there was one last big blowout at Damien Hirst Beautiful in my head forever auction in September 2008, the same day Lehman Brothers went bankrupt. Bids from the big three houses in October and November of that year were down 50% in lots sold and expected totals, then in February down 75%.
There are no such statistics yet. Nevertheless, I feel the moment approaching. My belief is based on a mistake I made in the final commentary of my 2008 documentary. Then I said quite boldly: “The contemporary art bubble was the last bubble to burst but when it did, she had a big boom… The art world still thinks things will be back to normal soon, but I doubt it.”
easy money
But the art market came back a year or two later, bigger and more bubbly than ever. The reasons were easy money from quantitative easing (QE) and low interest rates, lack of regulation, which allows wealth to be hidden as art in offshore entities, and new growing art markets in the Gulf and the relative decline in the value of other assets, all of which more than offset the negative effects of the economy.
Today we still have emerging markets to support demand, in the Gulf, South Korea, India and Africa, but other factors have been greatly weakened by the change in economic policy and better regulation . QE is being phased out in Western economies, while money laundering with art has been made more difficult by European Union and Organization for Economic Co-operation and Development (OECD) regulations, l expanding the mandate of the US Bank Secrecy Act and new activism by US agencies and Congress to investigate the use of art to evade sanctions.
This explains the slow deflation of the market over the past two years. Bad news comes slowly, but I think there will be a tipping point. Booms turn into busts after declines in value lead to a contagious loss of confidence. Still, I could be wrong; I’ve been half wrong before!
