A painting of what looks like a seated zombie or werewolf posing in mid-transformation at the rising of the moon may strike you as grotesque. Paying $142 million for it? Silly, if not obscene.
That amount of money, the recent world record-setting winning bid for Francis Bacon’s “Three Studies of Lucian Freud” at Christie’s of London, could buy the annual services of 2,088 HR managers at the $68,000 average salary they have commanded in 2013.
[The image shown above is my 20-minute creation. Title: "Worthless Triptych". The links above will take you to the mega-priced Frances Bacon—also not to be confused with the other long-dead and famous namesake this deal may have exploited.]
So much for the myth of optimal allocation of resources through the free market, unless “optimal” means “optimal only for the seller, the re-seller or in the imagination of the buyer”.
Other, Better Uses for $142 Million
If you don’t have a soft spot in your heart for HR managers or one in your brain for paintings, you might approve productively using that $142,000,000 to
— Provide food, safe water, education, shelter, medicine, clothing for a full year and a verified shot at a decent life for 472,000 impoverished, malnourished, and/or sick orphans around the world [at less than $30/month per child].
If charity is not your thing, or you believe you’ve done your philanthropic bit, consider investment in revenue-generating infrastructure, such as water-purification or power plants.
Surely, there must exist at least one alternative investment that will provide an equally large ROI [return on investment], but with the bonus of immense social, moral or environmental benefits.
Clearly, the same free-market ideology that legitimizes a $142 million price tag for splotches of paint also prescribes due diligence in examination of all the alternatives, as opportunity costs.
It also warrants making allowance for “externalities” such as moral optimality or societal utilities as a bonus on top of maximized economic gain, when only one of two deals with identical financial ROIs creates such a moral or social bonus.
—Pay the salaries of every one of the 535 members of the U.S. Congress for a year and a half at $174,000 per senator and representative—if you believe that and they will accomplish anything
—Hire 250 POTUSs [Presidents of the United States] for a full year at $569,000 per, all inclusive—the authorized total for presidential salary, travel, expense and entertainment compensations. Given the present immobilizing tangle of thorny issues to deal with, the help might be welcome as well as needed.
—Allow the world’s highest-paid athlete, Tiger Woods, whose total annual take is $78 million, to take 1.8 years off from playing golf and to recover from the fatigue of posing for or otherwise recording endorsements. For tennis knock-out Maria Sharapova, with one-year earnings of $29 million, the $142 million buys almost 5 years—and world-class physiotherapy for any tennis injuries that may be sustained prior to that.
If moral or financial embarrassment for blowing $142 million on a painting—even a 3-fer like the Frances Bacon “Freud” triptych—were not bad enough, there is also what, upon reflection, has got to be ideological awkwardness in doing that.
Here’s the problem: Presumably, the “Freud” purchase at that price is legitimized by minds that believe the free market allocates resources rationally, fairly, optimally and stably—at least eventually, in the long run, or maybe, in fact, just on average or sometimes.
The idea is that ideally the forces of supply and demand exerted by free men and women will implement the will of the people—somehow reduced to the “will of the market”—the art market, or the total macro-economic market?—which, as the sale of the “Freud”, the colossal derivatives market and a soaring stock market suggest, is generally really the will of the minority with the “can”—the cash can.
The problem with this rationalization is that it is obviously only as credible as is the notion of a rational, fair, optimal and steady “invisible hand” of “the market”.
Actually “the problem” is a misnomer; it should be “the problems”, as will be argued in detail below.
Neither Rational nor Optimal?
There seems to be a lot wrong with the idea that $142 million is a fair, rational or optimal price for any painting [or basket of naked credit default swaps that are bets on business failures]. This can be argued, even ignoring or disallowing what others regard as obviously important opportunity costs, such as help for 472,000 orphans.
Strictly speaking, the “orphan opportunity cost” economic argument would hold only if the $142 million were “spare change”, with virtually no marginal utility for the purchaser.
In that case, any cost-based distinction between investment and charity would be obliterated since the value of that money to its owner would be, in either case, virtually zero.
To be fair to the unnamed “Freud” purchaser, what should count as purely economic opportunity costs are whatever foregone opportunities there are that carry substantial dollar-denominated ROI, irrespective of any external moral or social benefit.
However, if non-dollar denominated returns are allowed, e.g., the satisfaction of helping orphans and seeing their smiles, then the “orphan opportunity cost” argument kicks in as germane and warranting a close look at spending the millions that way–or, setting charity aside, investing with such “external” benefits as a bonus on top of an excellent dollar-denominated ROI-defined bottom line.
Next: in Part II, the rest of a multi-pronged, detailed critique of free-market mega-art pricing, deals and ideology.