One winner from inequality — artists

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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 raise 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.

Is inequality bad?

There is considerable disagreement about this point.

One prominent argument in political philosophy, found in John Rawls’ book A Theory of Justice, holds that inequalities in economic and social status can be justified to the extent that they serve the interests of the least-fortunate class in society but not otherwise. In other words, if society of impoverished subsistence farmers finds that the only way to broadly raise living standards is to industrialize and create a small class of rich factory owners, that’s okay. Or if paying doctors substantially more than the average person’s salary is the way to induce people to master the craft of medicine and cure the sick, that’s okay too. Exactly how much inequality this approach (dubbed “the difference principle” by Rawls) would countenance in practice is difficult to say.

A different criticism of inequality appeals to an idea known as the declining marginal utility of money. In other words the exact same amount of money means different things to the real living standards of different people. A modest financial loss could mean foregone food for a poor person, foregone preventive medical care for someone further up the economic food chain, a foregone vacation for someone more prosperous than that, a somewhat-less-fancy vacation for someone even more prosperous than that, and it would be completely imperceptible to a genuinely rich person. In that view, inequality-reducing redistribution could increase overall human well-being.

Still on both of these views what’s bad about inequality is that it’s a sign of potentially foregone opportunity to raise the absolute living standards of the less-fortunate. There are also various efforts to demonstrate that inequality per se is a cause of problems.

Many of these ideas are summed up in The Spirit Level by Kate Pickett and Richard Wilkinson, which purports to show that inequality as such drives a number of social ills including low life expectancy, obesity, and poor educational outcomes. Another line of research claims to show that inequality is associated with a lack of social mobility. Last, there is a long tradition of argument that massive levels of economic inequality subvert democratic politics by concentrating excessive political influence in the hands of economic elites.

Counterposed to all of this is a long and broadly libertarian line of argumentation that there’s nothing wrong with some people becoming extraordinarily rich if they happen to provide products or services that are broadly in demand.

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