“A Fascinating, Sexy, Intellectually Compelling, Unregulated Global Market.” | Episode 484

The art market is so opaque and illiquid that it barely functions like a market at all. A handful of big names get all the headlines (and most of the dollars). Beneath the surface is a tangled web of dealers, curators, auction houses, speculators — and, of course, artists. In the first episode of a three-part series, we meet the key players and learn how an obscure, long-dead American painter suddenly became a superstar. (Part 1 of “The Hidden Side of the Art Market.”) This episode was originally published December 1, 2021. For a full transcript, resources, and more, visit: https://freak.ws/3Qse4Bl Photo credit: Audrey Bernstein FOLLOW FREAKONOMICS RADIO: YouTube: https://freak.ws/3yIl6dl Apple Podcasts: https://freak.ws/3yAvQh0 Spotify: https://freak.ws/3TsdCmV ABOUT FREAKONOMICS RADIO: Discover the hidden side of everything with host Stephen J. Dubner, co-author of the Freakonomics books. Each week, Dubner speaks with Nobel laureates and provocateurs, intellectuals and entrepreneurs, and various other underachievers to uncover things you always thought you knew (but didn’t) and things you never thought you wanted to know (but do) — from the economics of sleep to the future of education, from markets for marriage to the surprising utility of wolves. ABOUT THE FREAKONOMICS RADIO NETWORK: Freakonomics began as a book, which led to a blog, a documentary film, more books, a pair of pants, and in 2010, a podcast called Freakonomics Radio. Hosted by Stephen J. Dubner, it’s one of the most popular podcasts in the world, with a reputation for storytelling that is both rigorous and entertaining. Its archive of more than 500 episodes is available, for free, on any podcast app, and the show airs weekly on NPR stations. Freakonomics Radio is now the flagship show of the Freakonomics Radio Network, which includes the podcasts No Stupid Questions, People I (Mostly) Admire, and The Economics of Everyday Things. FREAKONOMICS RADIO NETWORK PODCASTS: Freakonomics Radio: https://freakonomics.com/series/freakonomics-radio/ No Stupid Questions: https://freakonomics.com/series/nsq/ People I (Mostly) Admire: https://freakonomics.com/series/people-i-mostly-admire/ The Economics of Everyday Things: https://freakonomics.com/series/everyday-things/ Special series: https://freakonomics.com/topics/ CONNECT WITH US: [email protected] https://twitter.com/freakonomics https://www.instagram.com/freakonomics/ https://www.facebook.com/freakonomics/ https://www.tiktok.com/@freakonomicsradio https://www.linkedin.com/company/freakonomics-media Subscribe to our newsletter: http://eepurl.com/bKm0cf

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:03Speaker 00

  Good evening, ladies and gentlemen, and a very warm welcome to our 20th Century Evening Sale at Christie's.

• 0:08Stephen J. Dubner?

  Earlier this year, in the course of just one evening, Christie's Auction House in New York sold nearly half a billion dollars' worth of artworks by Matisse, Picasso, Warhol, and Alice Neale.

• 0:21Speaker 00

  Lot number 6, the Alice Neale, Dr. Finger's Waiting Room, the artist of which is having a retrospective at the Metropolitan Museum as we speak. And for this early work, we shall start here at 450,000, 500,000, at 500,000, 550,000.

• 0:37Stephen J. Dubner?

  There is a good chance you have not heard of Alice Neale.

• 0:40Speaker 00

  600,000. At 600,000, at 650,000, with an absentee bid.

• 0:44Stephen J. Dubner?

  Neale was known for an intense and direct style of portraiture, but most of the people she painted weren't famous or rich. Also, Neale didn't like to call her paintings portraits. She called them pictures of people that are also history.

• 0:58Speaker 00

  At 850,000, 900,000.

• 1:02Stephen J. Dubner?

  Here's Neale from an interview on Fresh Air in 1981, describing what she was going for in a painting.

• 1:08Speaker 02

  What I want to get is the person, the zeitgeist, and a feeling of spontaneity. I don't like things to look dull and worked over.

• 1:19Speaker 00

  At 950, would you like a million?

• 1:22Stephen J. Dubner?

  The Neale painting for sale tonight, Dr. Finger's Waiting Room, is a picture of, well, it's a doctor's waiting room. The Christie's auction catalog describes it as "a higgledy-piggledy arrangement of items including a well-worn upholstered chair and a low table covered with colorful flowers." It measures 50 inches by 36 inches, oil on canvas.

• 1:46Speaker 00

  1,400,000, 1,400,000, 1,500,000.

• 1:51Stephen J. Dubner?

  What's not pictured in Dr. Finger's Waiting Room is Dr. Finger, which makes this an Alice Neale painting that is absent Neale's signature style of portraiture. And yet, the demand is strong.

• 2:03Speaker 00

  1,600,000.

• 2:07Speaker 00

  One million seven hundred thousand.

• 2:09Stephen J. Dubner?

  Dr. Finger was Alice Neale's own doctor. She made this painting in 1966, and it has apparently been in the possession of the Finger family ever since. Did Dr. Finger suggest that Neale paint his waiting room? Or was that Neale's idea? Why wasn't Dr. Finger in the painting? Did he get the painting in exchange for treating Neale? Or did he pay her for it? If he paid, how much? We don't know the answer to any of these questions. But tonight, that doesn't seem to matter.

• 2:39Speaker 00

  One million eight hundred thousand. One million nine hundred thousand.

• 2:43Stephen J. Dubner?

  What we do know is that during her lifetime, Alice Neale never made much money from painting. She spent a good deal of her life on welfare, and she died in 1984. And the proceeds from the sale of Dr. Finger's waiting room are going not to Alice Neale's family, but to the Finger family.

• 2:59Speaker 00

  Two million. Two million one hundred thousand.

• 3:03Stephen J. Dubner?

  As the auctioneer noted at the opening of the bid, Alice Neale is having a moment. The Metropolitan Museum of Art in New York had recently opened a full-blown retrospective of her work.

• 3:14Speaker 00

  Two million two hundred thousand. Two million three hundred thousand.

• 3:19Stephen J. Dubner?

  By the time the gavel went down at Christie's, Dr. Finger's waiting room had easily set a new sales record for an Alice Neale painting.

• 3:27Speaker 00

  Two million five hundred thousand.

• 3:29Stephen J. Dubner?

  The buyer was anonymous, bidding by telephone.

• 3:32Speaker 00

  And selling to Alex's telephone for two million five. Sold two five to Pelle 1886.

• 3:40Stephen J. Dubner?

  How did this happen? How did a painting by an artist who struggled most of her life sell for $2.5 million nearly four decades after her death? That is a complicated question.

• 3:53Speaker 03

  For most of her life, she painted in complete obscurity.

• 3:58Stephen J. Dubner?

  That's Phoebe Hoban, who wrote a biography of Alice Neale. It's called "The Art of Not Sitting Pretty."

• 4:04Speaker 03

  She was devoted to portraiture. She was a humanist. She coined a term for herself, that she was an anarchic humanist.

• 4:12Stephen J. Dubner?

  Neal was born in 1900, just outside of Philadelphia, and attended art school at the Philadelphia School of Design for Women. During a summer program, she met a man she would marry. His name was Carlos Enriquez de Gomez, and he was from one of the richest families in Cuba.

• 4:28Speaker 04

  They briefly lived in Havana, and actually, her first solo and group exhibitions occurred in Cuba.

• 4:35Stephen J. Dubner?

  And that's Kelly Baum, a curator at the Metropolitan Museum. She's one of the curators who recently mounted the Alice Neal retrospective.

• 4:42Speaker 04

  That moment was formative for the artist. She and Carlos would leave the compound in which they lived with his family to paint ordinary folks, people of color, on the streets of Havana. She was also introduced to left-wing politics and philosophy.

• 4:58Stephen J. Dubner?

  Alice and Carlos had a baby daughter and moved back to the US, settling in New York, but their daughter died from diphtheria. They had another daughter. Carlos took her to Cuba with vague plans to meet up with Alice later in Paris. That never happened. Alice had a nervous breakdown and twice attempted suicide. She spent some time hospitalized back in Pennsylvania. Eventually, she returned to New York, Phoebe Hoban again.

• 5:26Speaker 03

  In the early 30s, she participated in the first outdoor Washington Square Fair. And she already was causing scandals. She did this painting called Degenerate Madonna, and the Catholic Church made her remove it from her little stand outside the park. So she did have some notoriety in the 30s, and even in the 40s.

• 5:49Stephen J. Dubner?

  Neal was a devout practitioner of a style of painting called social realism. She was adept at capturing everyday people caught up in everyday struggles. But social realism was being sidelined by a new movement, abstract expressionism. Painters like Jackson Pollock, Willem de Kooning, Mark Rothko, whose work was considered more cerebral.

• 6:11Speaker 03

  And that's what pushed Alice Neal into obscurity.

• 6:15Speaker 04

  I would say the 40s and 50s, those were the decades when Neal was ignored perhaps the most, when she really suffered some neglect.

• 6:23Stephen J. Dubner?

  Kelly Baum again from the Metropolitan Museum.

• 6:26Speaker 04

  It was also the Cold War and abstraction was being instrumentalized by curators, museums, and even the United States government.

• 6:34Stephen J. Dubner?

  Instrumentalized, meaning weaponized, really.

• 6:37Speaker 04

  Abstract paintings were being exported to Europe and displayed as symbols of democracy and capitalism.

• 6:44Stephen J. Dubner?

  The US State Department and the CIA promoted the exhibition of abstract expressionist paintings around the world. The idea was to show that American artists, even the most avant-garde ones, enjoyed a freedom that you couldn't even dream about in a communist regime.

• 7:01Speaker 04

  And Neal was a communist and had been a communist since 1935.

• 7:06Stephen J. Dubner?

  How much did the political environment and the rise of abstract expressionism contribute to the stall of Alice Neal's career? It's hard to say. Whatever the case, she stuck with her style of anarchic humanism, figurative painting, not abstract, even as her style grew increasingly outdated.

• 7:27Speaker 03

  Ultimately, there's not any artist who doesn't want to be part of history and to be part of what is called the canon. That had always eluded Alice Neal.

• 7:37Stephen J. Dubner?

  Neal did get some recognition in the last 20 years of her life, but her work still didn't sell for much. It wasn't until 1989, five years after she died, that one of her paintings even went up for auction. It featured a man of no known consequence named Robert Gilbert. It was made just a couple of years after Dr. Finger's Waiting Room. Christie's Auction House estimated the Gilbert painting to sell for $7,000 to $10,000, but it didn't sell even for that. It was what auction houses call "bought in," which is art speak for saying that no one wanted it. But now, here we are in 2021. The estimated price that Christie's put on Dr.

• 8:18Stephen J. Dubner?

  Finger's Waiting Room was $600,000 to $800,000. And you remember what happened.

• 8:25Speaker 00

  And selling to Alex's telephone for $2,005, sold to Five to Pelle 1886.

• 8:33Speaker 04

  It would be almost impossible for her to imagine, even in 1982 or 83, that paintings of hers would sell for those kinds of prices.

• 8:44Speaker 05

  So we've been working with Alice Neel's estate for more than 10 years. It's been almost a textbook journey in a weird way, how these things can play out.

• 8:56Stephen J. Dubner?

  And that is David Zwirner. He is one of the most successful art dealers in the world.

• 9:01Speaker 05

  You can't argue that a show at the Met does not impact the standing of Alice Neel. Now, this show was a triumph, right? Incredible reviews, incredible reception. That will move prices.

• 9:14Stephen J. Dubner?

  The Alice Neel story may be extraordinary, but it's also what can happen in the art market.

• 9:20Speaker 06

  It's one of the strangest markets that I have ever seen.

• 9:25Stephen J. Dubner?

  That's Canice Prendergast, an economist who studies the art market.

• 9:29Speaker 07

  There's very few people that can index the market top to bottom.

• 9:32Stephen J. Dubner?

  And that's Amy Capelazzo, who used to run contemporary art departments at both Christie's and Sotheby's.

• 9:39Speaker 07

  So that's why I'm on this show, is because I'm one of the people that can index the market.

• 9:43Stephen J. Dubner?

  Can you define index the market in this case?

• 9:46Speaker 07

  Sure. This Picasso is 100 million. This one is 60 to 65 million. This one is 50. This one's 22 on a good day.

• 9:53Stephen J. Dubner?

  Capelazzo, Prendergast, and Zwirner are just a few of the smart people who will be our tour guides as we embark today on a three-part series, The Hidden Side of the Art Market. Now, why do we need three episodes? Because, as you'll hear, nearly everything in the art market is hidden.

• 10:14Speaker 08

  There's this phrase that was coined by a friend of mine called LPM, lies per minute.

• 10:22Stephen J. Dubner?

  We'll hear from the ultimate tastemakers in the art world.

• 10:25Speaker 09

  I'm Glenn Lowry, and I'm the director of the Museum of Modern Art.

• 10:29Stephen J. Dubner?

  We'll ask artists how they feel about the art market.

• 10:32Speaker 08

  How does it make me feel? It feels a little bit like a grift.

• 10:36Speaker 10

  I think the whole thing is vulgar.

• 10:39Stephen J. Dubner?

  And, of course, the economists. Art is a bad investment. We'll also try to see where things are heading next. I made a comment that everyone and their grandmother is going to be selling NFTs now. And then I ended up making an NFT of my grandmother and sold her. In this first episode, we will look at what the art market is and isn't, who the players are and where in this market, unlike any other, the elbows are sharpest.

• 11:06Speaker 07

  It's hard to offend me, but I'm just pointing out obvious bias you have.

• 11:23Speaker 11

  This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.

• 11:39Stephen J. Dubner?

  It seems like every few months, there is a new record set for a sale of contemporary art.

• 11:44Speaker 12

  Auction records shattered at Sotheby's Thursday with the $110.5 million sale of this painting by Jean-Michel Basquiat.

• 11:53Stephen J. Dubner?

  And not just paintings, digital works too, including NFTs or non-fungible tokens. The Christie's auction for digital artist Beeple, the final bid, $69 million.

• 12:05Speaker 12

  Oh, my gosh.

• 12:06Stephen J. Dubner?

  So is that what we're talking about when we talk about the art market? Not really. Here again is Candace Prendergast. He's an economist at the University of Chicago.

• 12:16Speaker 13

  It's the tippity tippity tip in a globalized world where very, very wealthy people like to collect contemporary art. Many people think the entire market is the tippity tippity, but they're the 0.1% people that we're talking about.

• 12:32Stephen J. Dubner?

  OK, that's good to know. Still, if the tippity tippity top of the market gets into eight and nine figure prices, the overall art market must be massive, right?

• 12:43Speaker 13

  The short answer is the art market is incredibly small.

• 12:47Stephen J. Dubner?

  That's Magnus Resch, another economist who studies the art market.

• 12:51Speaker 13

  All the players combined, all the galleries around the world, then all the auction houses, their revenue combined is around $60 billion. Let's put this into perspective. FedEx makes more than $60 billion. And there is FedEx, UPS, and so many other companies. So we are really talking about an industry where a lot of people are involved. Nobody's really making money.

• 13:15Stephen J. Dubner?

  I've read there are 100,000 art advisors in the world. What's an art advisor and what value do they add?

• 13:23Speaker 13

  So art advisor is almost everyone who studied art history and doesn't know what to do. The role of an art advisor is to have a client and navigate the client through the jungle of galleries and artists and point at artists that the client should buy. There are probably even more than 100,000 art advisors because everyone can call themselves an advisor. I probably know 2,000 art advisors and of those, maybe three are actually selling works.

• 13:56Stephen J. Dubner?

  Resch has been studying and writing about the art market for years. His latest book is called How to Become a Successful Artist. He has also taught art entrepreneurship at universities, including Yale.

• 14:08Speaker 13

  My students are mostly business students. I always ask them, what do you want to learn? And they say, how can I make money in the market?

• 14:15Stephen J. Dubner?

  Okay, what's the short answer to that?

• 14:16Speaker 13

  You can't.

• 14:18Stephen J. Dubner?

  Because why?

• 14:20Speaker 13

  Art is a bad investment. There are only a few artists that are really worth investing in. 99.9% of the artists that you see at galleries and exhibitions, their value will never increase. The art market has too much supply, meaning there are way too many artists meeting very little demand.

• 14:38Stephen J. Dubner?

  And yet, if all one does is read the headlines, one would think the art market is the best it's ever been because we hear about record sales at the auction houses. Christie's, Sotheby's, even Phillips just had a massive record.

• 14:52Speaker 13

  What we're seeing are two art worlds. One is at the very top. 20 artists are making 40% of the value of the auction art world while everyone else is struggling. Same on the gallery side. You have a few galleries that are dominating the art market while all the other galleries are failing.

• 15:10Stephen J. Dubner?

  So Magnus, what is your mission?

• 15:13Speaker 13

  I like to make the art market more transparent so more people buy art. The biggest problem in the art world today is that not enough people are buying art. 200 years ago, it was very common to have 20 to 30 artworks per household. Now, look around you. How many artworks do you have at home? We somehow lost our love for art. We enjoy viewing it in museums, but we don't enjoy buying it.

• 15:39Stephen J. Dubner?

  And your argument is that we've lost our love in part because most of us have been priced out?

• 15:44Speaker 13

  We lost it because galleries made it incredibly difficult to buy art. They established this aura of exclusivity. They established the story that art will go up in value quite dramatically. So everyone is on the hunt for the next Basquiat and Picasso, but they can't find it. So they get lost. Why don't we buy art because we love it and we are supporting a community? We need to change that, and I think we can bring that change by making the art market more transparent. The primary market where most of the artworks are sold is a complete black box.

• 16:21Stephen J. Dubner?

  When Resch says the primary market, he means galleries and dealers who tend to project not just exclusivity, but secrecy.

• 16:28Speaker 13

  So in a perfect scenario, I not only see past prices of an artwork, but I also see past ownership and so on. Similar to when I go and look at an apartment in New York, I see past rental prices, I see comparable prices and so on. This is what I want to create for the art world.

• 16:47Stephen J. Dubner?

  So Magnus Resch created an app, which he named Magnus. It's meant to be a Shazam for contemporary art. You point your phone's camera at a work of art in a gallery and the app gives you information on price, ownership, et cetera.

• 17:01Speaker 13

  We gathered over 1.5 million price points from galleries through crowdsourcing. It worked perfectly well, but then Apple shut us down because all the galleries complained. Galleries were unhappy because suddenly a buyer knew not only what the current price is, but he also could see previous prices and see that that particular artwork that the gallery is now asking 15K for didn't sell last year at an art fair for 10K.

• 17:25Stephen J. Dubner?

  So on a scale of zero to 10, with zero being inscrutable and 10 being totally transparent, how would you rate the art market now?

• 17:35Speaker 13

  Three. I hope by the end of my lifetime, we will be at a seven.

• 17:42Stephen J. Dubner?

  One of the lopsided figures that Resch cited has become even more lopsided lately. The top 20 artists now make up nearly 50% of the auction market for post-war and contemporary art. If you look at galleries and dealers, fewer than 5% of them are responsible for more than 50% of the sales value. To be fair, a lot of industries have this sort of top-heavy imbalance. But as we were told by just about everyone we spoke with for this series, the art market isn't like any other market. Why? There are a lot of reasons. Let's start with the question of whether it's actually a market at all. The Economist Canice Prendergast again.

• 18:24Speaker 06

  It is a market in the sense that there is a mechanism to allocate goods that depend upon willingness to pay. But it's a very different market to most in the following sense. Most markets are anonymous. If I have the money to buy a Mercedes, I get the Mercedes. But that is not true for many, many artists. It's a good that gets assigned to those in the know. Much of the information is held in very narrow social networks. Work is priced in ways that just feel so strange relative to any other market. It's also not like a regular market in that for most of us, if we buy something and we

• 19:08Speaker 06

  decide we don't like it, there's recourse for this. If I buy a car and I don't like it, I can sell it. If I buy a house and I don't like it, I can sell it. Unfortunately, that's very much not true for most art. It's the most illiquid market that I've ever seen. And I think it has a very unfortunate side effect that only those people who can, you know, spend $25,000, and if it doesn't work, it doesn't work. I think the market structure itself helps to lead to what's a very elitist good.

• 19:41Speaker 07

  The art market is a fascinating, sexy, intellectually compelling, unindexable, unregulated global market.

• 19:50Stephen J. Dubner?

  And that, again, is Amy Capelazzo, formerly of Sotheby's and Christie's Auction Houses. She recently co-founded a new firm called Art Intelligence Global, focusing on Asian markets. It's interesting to hear Capelazzo call the market unindexable because she, you'll remember, told us she is one of the few people who can index it.

• 20:10Speaker 07

  This Picasso is 100 million, this one's 22 on a good day.

• 20:14Stephen J. Dubner?

  So what determines the value of a given work of art?

• 20:18Speaker 07

  A work of art is worth whatever someone will pay for it until it resells, and then you know what it's really worth. If you go to Santa Fe and you're shopping in some gallery and they say, "This wonderful artist from Santa Fe, this work is $50,000", and you're like, "Well, gee, that's a lot", they'll say, "Okay, I'll sell it to you for 45", "Great, you buy it for $45,000", then you go to an auction house and you say, "Hey, I need to ensure this object, what do you think the value is", and we say, "Well, it's worth $8,000", "It's really just has decorative value and it's kind of big and colorful, so we'll give you eight", it's like, "Whoa, what happened?"

• 20:50Speaker 06

  There's a pricing model that seems to be used by galleries where unless you price high, collectors will think this is not a great artist. And what happens is you walk into a gallery, a painting is $100,000, it's somebody you've never heard of before, it'll probably not sell, but in the view of the art world, "This is the only thing that I can do, or else the collector won't take it credibly", and this is the reason why the secondary market essentially discounts a lot of work so much.

• 21:21Stephen J. Dubner?

  When Canis Prendergrass talks about the secondary art market, he means auction houses versus the primary market of galleries and dealers.

• 21:28Speaker 06

  The secondary market, to a first approximation, doesn't function, even though it's a durable good in the way that cars are durable, houses are durable, even sneakers these days are durable. So there are all sorts of components of the market that stop it from working, and at the end of the day... Mean that maybe 90% of the art that's sold sits in a warehouse rather than actually being seen by somebody?

• 21:54Speaker 07

  The art market is in massive disruption.

• 21:58Stephen J. Dubner?

  When you say disruption, you mean an inflow of money?

• 22:01Speaker 07

  Massive amount, well, it can be outflow also, but a huge influx of capitals come into the art market. A massive amount of private wealth accumulated over the last, call it 15 years, because after your fourth house and third boat, this is where you're going to turn to.

• 22:17Stephen J. Dubner?

  So the story that Capellazzo and Prendergast tell is, again, a story of two markets. A handful of contemporary artists like Gerhard Richter and Jean-Michel Basquiat, Yoyoi Kusama and Jeff Koons, they sell for tens or even hundreds of millions of dollars to wealthy collectors who will put the work in one of their many homes or maybe in a warehouse. Other buyers and would-be buyers, along with most artists, constitute the lesser art market, whose prices are distorted by the massive dollars flowing toward the upper market. And where does that leave museums? In the old days, wealthy benefactors loved to build museums to give the public a look

• 23:02Stephen J. Dubner?

  at their art collections. A modern billionaire is much more likely to keep their collection private. Here is Met curator Kelly Baum.

• 23:10Speaker 04

  Well, even the Met has been priced out of the market when it comes to certain artists.

• 23:16Stephen J. Dubner?

  Could you name a few?

• 23:17Speaker 04

  I'd rather not.

• 23:19Stephen J. Dubner?

  We could probably guess them if we had to.

• 23:21Speaker 04

  Sure.

• 23:27Stephen J. Dubner?

  There's one more thing that makes the art market so unusual. This has to do with the nature of the objects being bought and sold. Amy Capellazzo again.

• 23:35Speaker 07

  They're not really a pure commodity market, like they're rare, special, unique things.

• 23:40Stephen J. Dubner?

  But can you talk about the value of, I guess you'd call it desire? I mean, it is literally some paint on a canvas. If you came down from Mars, you'd say, wait a minute, that cannot be worth $85 million. There's just no way.

• 23:52Speaker 07

  Well, first I'd pull back and just say, modern capitalism is predicated on the idea that you would take one Raw material and transform it into another more valuable material and commodify and sell it. So we'll take some timber and turn it into furniture and sell it for many multiples the price. Similarly, you would take paint, canvas, graphite, paper, whatever it is, make something and turn it into something more valuable. So we're kind of well past the stage of analyzing why that hunk of cloth with paint on it is worth so much.

• 24:22Stephen J. Dubner?

  Right, but the multiple of a Picasso versus the multiple of most furniture at least is pretty apples to oranges, yes?

• 24:29Speaker 07

  Well, but works of art are unique largely. Furniture is something usually made in addition or put in production. So while it can be rarified and special and even customized in a certain way, it's not quite the same thing. And it arguably doesn't have the same specific cultural resonance that a certain kind of $85 million painting could have.

• 24:50Speaker 05

  It's primarily a one-off object that we're trading.

• 24:54Stephen J. Dubner?

  That, again, is the gallerist David Zwirner.

• 24:57Speaker 05

  High-end artworks are ultimately very limited. So you're really dealing with very, very specific objects that have particular histories where have to have been shown who owned them. What's the development of this artist's career? It's really a unique set of circumstances that drives what we do.

• 25:15Stephen J. Dubner?

  Coming up after the break, what were the circumstances that brought the late Alice Neill out of obscurity and into the Metropolitan Museum of Art? What's the financial relationship between a museum, a gallery, and an artist? And what tricks do dealers use to get their artist's work into museums?

• 25:34Speaker 09

  It's understandable why gallerists want to do that, but it's not, in my opinion, the best way to bring an artist into a collection.

• 25:44Stephen J. Dubner?

  The Hidden Side of the Art Market, Part One, continues right after this.

• 25:56Stephen J. Dubner?

  Earlier, we met the University of Chicago economist Canice Prendergast.

• 26:00Speaker 06

  Canis, yeah, weird Irish name.

• 26:02Stephen J. Dubner?

  He mostly studies labor markets, but he's also written quite a bit on the art market.

• 26:07Speaker 06

  I come from a family where I grew up with art and got interested at a young age.

• 26:12Stephen J. Dubner?

  Because of this interest, Prendergast has a secondary duty on campus. He is essentially the chief curator of the Contemporary Art Collection at the University of Chicago's Booth School of Business. Now, you might wonder, why does a business school have its own art collection?

• 26:30Speaker 06

  The central feature of higher education is the use of different types of languages to transmit information. What we do in the classroom uses statistics, it uses graphs, it uses mathematics. And I see these as nothing more than languages that sometimes are better than the written word to get an idea across. And I think what we're trying to do with the art collection is think of art as simply a language that tells us something about the world.

• 26:59Stephen J. Dubner?

  And who are you competing against as a buyer?

• 27:02Speaker 06

  It's both museums and high-level collectors. And there's a very notable thing. The art world has a very clear hierarchy where it chooses who it would like the works to end up with. If you're a gallerist who has an artist who you feel is promising, the way in which you typically will try to cause that artist's career to develop is by placing it in what's seen as the best collections.

• 27:29Stephen J. Dubner?

  Give me the hierarchy.

• 27:30Speaker 06

  Well, MoMA is at the top. The Museum of Modern Art in New York is at the very top of that list.

• 27:39Stephen J. Dubner?

  Could you just say your name and what you do, please?

• 27:41Speaker 09

  I'm Glenn Lowry, and I'm the director of the Museum of Modern Art.

• 27:44Stephen J. Dubner?

  So we are doing these episodes on the art market. What do you think when you hear that phrase? And to what degree is a museum like MoMA a part of the art market?

• 27:55Speaker 09

  If you're in the museum world, the art market runs parallel and sometimes intersects with what we do. But we're not as focused on the art market as many might think. We're aware of it. Of course, we participate in it because we often acquire works of art, or people close to our institutions acquire works of art that ultimately come to us as gifts. But the way in which the art market operates and the way in which we operate are different.

• 28:27Stephen J. Dubner?

  What is the relationship between you, a museum director at MoMA, and big gallerists, like a David Zwirner, let's say?

• 28:34Speaker 09

  I try to go around to the galleries on a very regular basis, generally once a week. I like to know who's selling art. I like to hear from gallerists why they've brought on an artist, or what it is about an exhibition that they think is particularly important. So they are colleagues in the larger enterprise, if you want to look at it that way, of the art world.

• 28:57Stephen J. Dubner?

  In what ways are your incentives aligned with theirs? And in what ways are they perhaps at cross purposes?

• 29:04Speaker 09

  They become aligned, for instance, when we want to do an exhibition of an artist that they represent. They can become tangled when we're after a work of art and another entity is equally after that work of art. The responsibility of the gallerist is clearly to do the best he or she can for the artist he or she represents, first financially, but also in terms of reputation. And we become perhaps important in that equation when it comes to reputation. We do not create financial value.

• 29:43Speaker 09

  We may incidentally create financial value by making a larger public aware of an artist's importance. But the value we create is art historical importance. It's the ability to explain why an artist merits intense interest and why that interest is rewarded over time.

• 30:09Stephen J. Dubner?

  Let's pull back here for a moment. Glenn Lowry is so well-regarded that the Museum of Modern Art Board rescinded their policy requiring retirement at age 65 in order to keep Lowry in charge through 2025. He is known not just for his leadership and taste and his art scholarship, but also, as you can tell when he speaks, for his diplomacy. When Lowry says that MoMA is perhaps important when it comes to the reputation of an artist, that's a bit like saying that the Pope is perhaps important when it comes to steering the Catholic Church. When he says that MoMA may incidentally create financial value when it acquires an artist, well, yes, you'd better believe they do.

• 30:53Stephen J. Dubner?

  And when Lowry says the art market runs parallel to his museum and sometimes intersects, let's take a look at that intersection and how it affects not just the reputation of an artist, but their long-term financial value. Here again is the gallerist David Zwirner.

• 31:10Speaker 05

  We are selling art, of course, in the primary and secondary market, but you also have to think of us as talent agents.

• 31:17Stephen J. Dubner?

  Zwirner represents many of the best-known contemporary artists in the world, and he has galleries in New York, London, Paris, and Hong Kong.

• 31:25Speaker 05

  We are very often the exclusive managers behind careers of artists that are maybe very, very shy, really just want to be in the studio, make work. So we have to get that work out into the world. We have to place it in museums, get them shows across the globe, grow their audience, tell their story in many different ways.

• 31:45Stephen J. Dubner?

  I've read that last year you brought in around $800 million across the board. A few years ago, 2017, above $500 million. First of all, are those numbers in the ballpark? Are they pretty accurate?

• 31:58Speaker 05

  They're in the ballpark.

• 31:59Stephen J. Dubner?

  For 2017, that works out to an average price of about $350,000 per piece. So I'm guessing that if we were to do an x-ray of the people who buy at galleries like yours, we're talking not just the 1%, but the 1% of the 1%. Is that pretty much the case?

• 32:16Speaker 05

  That's absolutely correct.

• 32:18Stephen J. Dubner?

  So let's say that a random person walks into one of your galleries, David. Let's say I'm that rando, and I see a painting on the wall, and I say, wow, I love that. I'd like to have that in my house. How much does it cost, sir? And let's pretend it's, you know, that average price of $350,000. And then I say, okay, Mr. Zwirner, I have my checkbook. I'd like to buy it. What happens now?

• 32:46Speaker 05

  That's a good question because that happens so rarely that I have to step back for a second. I would want to know who you are. So the transaction would not be instantaneous. It would be, let's get to know each other and we would find common ground. People that we know are that you collected that I would know. And we would become friends and become a client.

• 33:10Stephen J. Dubner?

  As Kenneth Prendergast told us earlier, one thing that sets the art market apart from most other markets is that most markets are essentially anonymous. If I have the money to buy a Mercedes, I get the Mercedes. But if you or I walk into a major art gallery, well, first of all, there are likely no prices to be seen.

• 33:31Speaker 07

  Galleries are supposed to keep a price list available for anyone to peruse.

• 33:35Stephen J. Dubner?

  Amy Capelazzo again.

• 33:37Speaker 07

  I suppose in some drawer to avoid being snaked out, someone keeps a price list in a drawer, but that's just really not how art is marketed nor sold.

• 33:46Stephen J. Dubner?

  And when David Zwirner says that we should get to know each other, to find out the people that we both know and what art I already own. Well, let's go back to that Mercedes dealership. Let's say you pick out the model you want, you take a test drive, perhaps you've even settled on the price. And now the dealer says, let's get to know each other a bit. Where do you live? What's your neighborhood like? What sort of cars do your neighbors drive? What other cars do you own or have you owned? What sort of cars do your parents own? What do you plan to do with this car after you're done with it? Do you plan to sell it or perhaps donate it to an institution? And if so, what sort of institution?

• 34:27Stephen J. Dubner?

  Do you happen to be friendly with or related to anyone on the board of that institution? That kind of getting to know you doesn't happen for cars. For contemporary art, it sometimes does. It is true that dealers want to fetch an appropriate price for their artist's work, and dealers typically receive a 50% commission. They've got a strong incentive there. At the same time, they're trying to protect against speculators, people who buy artwork in the hopes of reselling it later for a profit. If I buy a $350,000 painting from David Zwirner, there is a chance, if the artist is hot enough,

• 35:09Stephen J. Dubner?

  that in short time, this painting will be worth $3.5 million. Someday, maybe even $35 million. And if I sell it at auction, that money goes to me, not the gallerist, and certainly not the artist. So that's one concern a gallerist has when deciding who to sell to. But as David Zwirner told us, there's another concern, the artist's long-term reputation. If Zwirner sells a coveted piece to some random billionaire, that piece may never be seen by the public. One of the best ways to burnish the reputation of an artist is to get their work shown in museums.

• 35:52Speaker 05

  When we open a new show, we always give priority to museums. That's just a given.

• 35:59Stephen J. Dubner?

  The problem is that museum budgets are often no competition for a billionaire's budget.

• 36:05Speaker 05

  So what you do then, you talk to the museum, and there is the so-called museum discount, right? So the museum will get special terms.

• 36:12Stephen J. Dubner?

  So what kind of discount does a museum get? Let's say it's MoMA.

• 36:16Speaker 05

  You know, that's a tough question to answer in public because every negotiation is different, right?

• 36:21Stephen J. Dubner?

  Amy Capelazzo again.

• 36:23Speaker 07

  Often, a living artist will want a preference that their work go to a museum because they're trying to build their legacy and reputation. Like, I really want this to go to... Brooklyn Museum, and I'll take 50% less just to know that it's there.

• 36:34Speaker 10

  I'm usually relieved with artwork to go into a museum collection.

• 36:38Stephen J. Dubner?

  And that is Shabalala Self, a young and successful painter who makes large-scale collages.

• 36:44Speaker 10

  It's now part of this community of other works that are meant to reflect a certain kind of history. If the work goes into a museum, it's there. And it's not an issue of me wondering, will this artwork be resold? Will this artwork be moved to some other part of the world? Will I never see it again? It can be in some storage unit in the basement of a museum, but at least you know where it is.

• 37:11Stephen J. Dubner?

  And David Zwirner again.

• 37:13Speaker 05

  If one of my sales folks or curator calls me and we have an engagement with a museum, that will be the first thing we try to figure out. Because that is really what makes a difference for the artist. Being in the Museum of Modern Art or not makes a huge difference.

• 37:30Stephen J. Dubner?

  So I recently heard of a gallery for an up-and-coming artist in New York who's already changed galleries once in the last few months because she went from warm to very hot very fast. And the new gallery said they would sell a piece by this artist if the buyer were to first agree to buy another piece by that artist and get it placed in a good museum as a donation.

• 37:53Speaker 05

  You know, that's done a lot. I personally don't like it and we don't do it. It's our job as galleries to get artworks of our artists into institutions. And that's always difficult. Institutions very often don't have the funds, so you need private money to help to purchase the work, right? And a quicker way to do it is if you have a long waiting list and you have a high-demand artist to say to somebody really wants one, essentially you have to buy two. One is yours and the other one you gift. I always am a little wary of that because it creates a strange dynamic around the work you sold free and clear to the collector. It's not something that we like to do.

• 38:30Speaker 09

  I don't know how widespread it is, but it's certainly out there.

• 38:34Stephen J. Dubner?

  Glenn Lowry again from MoMA.

• 38:36Speaker 09

  And even though we are... Occasionally, and the "we" here is not just the Museum of Modern Art. Museums are occasionally the beneficiary. I think most of us are not that comfortable with it. It's understandable why gallerists want to do that. But it's not, in my opinion, the best way to bring an artist into a collection in a way that assures that that artist's work will live vibrantly within the collection.

• 39:06Stephen J. Dubner?

  You could argue that both Glenn Lowry and David Zwirner, Lowry from the museum side, Zwirner from the gallery side, they both have the luxury of staking out the high moral ground. They both enjoy a sterling reputation and have plenty of resources to back it up. Elsewhere in the art world, there is much talk of shady behaviors. Self-dealing and double dealing, broken promises and faked invoices, a slippery stream of hype and hyperbole in service of inflating a given artist's valuations. For a gallerist like Zwirner, however, any short-term loss from discounting the sale of artwork to a museum

• 39:50Stephen J. Dubner?

  is likely more than recaptured in the long run.

• 39:54Speaker 05

  Luc Toymans being a great example.

• 39:56Stephen J. Dubner?

  Luc Toymans is a Belgian painter in his 60s. His work often explores the human relationship with history.

• 40:02Speaker 05

  When we started working with him, his prices were $8,000. Now paintings sell in the primary market over $2 million. So this has been a very nice, steady development over many years. And it's been also very logical. You know, he's got a lot of major shows. He has the institutional support that warrants price development.

• 40:25Stephen J. Dubner?

  Can you tell me, David, how you first form a relationship with an artist like Toymans? And how that relationship evolves over time?

• 40:33Speaker 05

  So before I opened my gallery, there was a very important exhibition in Europe in 1992. Documentary, a big group show that happens in Kassel, Germany every five years. And it used to be an amazing way to serve a talent. So I knew I was going to open a gallery and I was really excited to go to Kassel. And I was confronted with a group of small, really enigmatic paintings. These paintings really struck me. And as I walked a little further, I was in a room which works by Garrett Richter, the great German master. And I thought, my God, these paintings are great, but the paintings I just saw were really great, too. And I'd never heard of Luc Torrance.

• 41:13Speaker 05

  So I made my way to Antwerp, where Luc lives and works then and now. And ultimately, I had to get down on my knees to beg him to join my gallery, because he was already somewhat of an art star at that point. And I didn't even have a gallery. So it took three subsequent visits. But what happened is really what should happen. You should see the work first, fall in love with the work, then meet the artist, and know that there is a chemistry.

• 41:41Stephen J. Dubner?

  Now, to this day, I understand you don't have a contract with Luc or any artist. Is that true?

• 41:46Speaker 05

  That is true. All our artist representations are based on handshakes, believe it or not. Once you start working with an artist, you really have to look out for what this artist needs and wants at every given time. Not just in the beginning, when it's easy. The first few shows are usually the ones where a larger audience finds an artist. But even more so when you hit the middle of the career, when things maybe are not as exciting, and when it takes more hard work to find new audience and tell an artist's story. We really are in it for the long haul when we work with an artist or an artist estate.

• 42:24Stephen J. Dubner?

  Another example of Zwerner being in it for the long haul, the American painter Alice Neel.

• 42:32Speaker 05

  I knew about Alice Neel, of course, but I heard about her increasingly from other artists. Artists are really a point of reference. You really have to listen to what they have to say. Then we searched out the estate and we realized that there's this incredible voice in American painting that's been essentially overlooked. And she's been overlooked because she was a woman in a century where women artists really had a hard time. But more importantly, she was a figurative artist in a century where it was all about American male abstraction ultimately.

• 43:06Stephen J. Dubner?

  Alice Neill, as we noted earlier, painted in relative obscurity for most of her life. It wasn't until she was in her early 60s that she finally had formal gallery representation from the well-regarded Graham Gallery. Over the last couple decades of Neill's life, Graham put on eight shows of her work and got it included in several museum shows. She gained some minor celebrity, including a couple appearances on The Tonight Show with Johnny Carson.

• 43:31Speaker 14

  But you paint quite a few of your subjects in the nude. Now, is that the therapy quest?

• 43:37Speaker 02

  Oh, I wondered if you wouldn't like to pose nude.

• 43:41Stephen J. Dubner?

  Alice Neill very much enjoyed the attention she got toward the end of her career. But when she died in 1984, her work still wasn't in demand. She'd be thrilled if she got even a few hundred dollars for a painting. So what happened? How did a dead and largely unknown artist turn into such a hot commodity that a painting of her doctor's waiting room sold this year for $2.5 million? Here again is the economist Magnus Resch.

• 44:12Speaker 13

  Estates that have been long forgotten are getting picked up by galleries who have the financial power and tell the estate owners, hey, are we gonna help and increase the value of the artist and give the artist the final recognition that she really deserves? So they use their contacts to museums, to curators, to writers, and to buyers as well, and start by giving a solo show to that artist. Often the first solo show in many years, big rediscovery of the works and so on.

• 44:46Stephen J. Dubner?

  The gallerist in this case was David Zwirner. By the time he took on Neill's estate in 2009, the value of her paintings had already been rising on the auction market. Now Zwirner began to heavily promote Neill's work. A few small exhibitions at first, and then a major show in 2017.

• 45:05Speaker 05

  It all changed when Hilton Als did this incredible show in our gallery called Uptown.

• 45:11Stephen J. Dubner?

  Hilton Als is a Pulitzer Prize-winning critic and curator. With the Alice Neill show he curated at the Zwirner Gallery...

• 45:18Speaker 05

  He really took...

• 45:21Speaker 05

  Her and placed her in Harlem amongst her friends, fellow intellectuals, fellow artists.

• 45:27Stephen J. Dubner?

  Hilton Als is black. His curating a show at the Zwirner Gallery about a white artist who had lived in Harlem began to change the Alice Neel calculus.

• 45:37Speaker 05

  What nobody realized is that she really painted the world that we live in. She was truly inclusive in her thinking. She would, very early on, paint a gay couple. She would paint a transgender person. She painted her friends and neighbors, folks of color.

• 45:57Speaker 04

  Hilton Als curated a revelatory show, really changed our understanding of that artist.

• 46:03Stephen J. Dubner?

  And that's Kelly Baum. Remember her? She is one of the curators at the Metropolitan Museum who would go on to mount the Alice Neel retrospective there. I asked Baum what it was about Neel's work and the moment in history that led the Met to put on this show.

• 46:19Speaker 04

  There are so many, so many things. First of all, Alice Neel had been on the tips of so many living artists' tongues for quite a while, and it was becoming difficult to read or hear an interview and not have the name Alice Neel appear as a source of inspiration or influence. We've been seeing enough Alice Neel to suggest that she was relevant, important, but we hadn't seen too much, which suggested that there was room to curate a really interesting show. Additionally, diversity, equity, accessibility, inclusion, justice writ large, were issues that we were all thinking about. And there had been a rise in contemporary art of projects

• 47:04Speaker 04

  that addressed social justice directly. And that was absolutely true of Alice Neel. She was an advocate for social justice her entire life. And finally, there had not been a large Alice Neel retrospective in the city of New York for almost two decades.

• 47:20Stephen J. Dubner?

  And the Alice Neel retrospective at the Met was very large.

• 47:25Speaker 03

  When a major museum devotes five galleries and primo galleries to a single artist, that's a statement. And that's the statement they made about Alice Neel.

• 47:37Stephen J. Dubner?

  That's Phoebe Hoban, who wrote the biography of Alice Neel. That book's publisher, by the way, was David Zwirner Books.

• 47:44Speaker 03

  The Met is considered America's Louvre, a world famous iconic museum. A solo show like that stamps an artist as somebody who will go down for the ages, somebody whose work will never be forgotten.

• 47:57Speaker 05

  And, you know, as we are now handily in the 21st century and looking at each other and trying to understand each other better, there's this artist that's helping us, right?

• 48:08Stephen J. Dubner?

  David Zwirner again.

• 48:10Speaker 05

  It's such a humanist approach to society and to who we are, and it's fascinating. And she's now rightfully one of the great, great voices and great portraitists, but also great kind of, you know, historian.

• 48:24Stephen J. Dubner?

  So was the Alice Neel show at the Met, to some degree, a Zwirner production or creation?

• 48:30Speaker 05

  Not at all. That's 100% the Met doing that show. I mean, that's the great call you wait for. When you do what I do, you wait for a call from the Met. We are interested in doing an Alice Neel show.

• 48:40Stephen J. Dubner?

  So to go back to the money part for a minute and away from the art part, the Met having a huge show of an artist whose estate you happen to represent is fantastic news long term for David Zwirner, yes?

• 48:51Speaker 05

  Of course. You look at objective criterias that impact the standing of an artist, right? I think we had her auction record just a couple of weeks ago.

• 49:02Stephen J. Dubner?

  So what would you say a median Alice Neel painting would have sold for, let's say, three years ago and maybe three years from now?

• 49:09Speaker 05

  I'm going to take a rain check on that question. That's too speculative for me.

• 49:13Stephen J. Dubner?

  You want to give me a rough percentage?

• 49:15Speaker 05

  I can tell you where we're coming from. I don't want to tell you where we're going. Paintings by Neal were sold, you know, between $500,000 and $1 million a few years ago. And now we're selling pictures between $2 and $3 million. So there's been a clear upward trend, but again, a very logical trend, very defendable trend.

• 49:38Stephen J. Dubner?

  And yet, no matter how logical and defendable it is, there's no guarantee that that trend continues, right? I mean, 10 years from now, Alice Neel could be worth 200,000 or 20 million. There's no way of knowing, is there?

• 49:50Speaker 05

  I think that's actually where the gallery is important.

• 49:55Stephen J. Dubner?

  What can you do, though, as the gallerist, to nurture a reputation that's already at that height?

• 50:02Speaker 05

  We want to now reach out to museums and collectors and other parts of the world. Alice Neel, I would love to present her work in our Hong Kong gallery. She's not really been presented in Asia. And there are major shows on the horizon in Europe. You're really looking at a career globally. And you see what you can do to spread the good word.

• 50:26Stephen J. Dubner?

  Think about all the things that had to go right for a relatively obscure, long-dead painter named Alice Neel to become one of the biggest rising stars in contemporary art. Now, think about all the artists, living and dead, for whom those things don't happen. Coming up next time on the show, what it's like for a living artist to navigate the strange waters of the art market.

• 50:53Speaker 10

  The trajectory of an artist is such a bizarre track, and it doesn't follow any logic.

• 51:00Stephen J. Dubner?

  And how does it feel to see your work sold at auction for 100 times what you sold it for originally?

• 51:06Speaker 07

  Artists used to sometimes call me and say, "I can't believe you're selling my work. I just sold that for $50,000." I was like, "Listen, I can put you on the phone with some other artists who sold their work for $50,000, and today it's worth $2,000."

• 51:18Stephen J. Dubner?

  That's the second episode in our three-part series, "The Hidden Side of the Art Market," next week. Until then, take care of yourself, and, if you can, someone else, too. Freakonomics Radio is produced by Stitcher and Renbud Radio. We can be reached at [email protected], and our entire archive is available free on any podcast app. This episode was produced by Morgan Levy. We had research help from Lyric Bowditch and Alina Coleman, and additional help from Jeremy Johnston. Our staff also includes Alison Kreglo, Greg Rippon, Zach Lipinski, Mary Duke, Ryan Kelly, Emma Terrell, Jasmine Klinger, Eleanor Osborne, and Jacob Clemente. Our theme song is "Mr. Fortune" by The Hitchhikers. All the other music was composed by Luis Guerra.

• 52:03Stephen J. Dubner?

  If you like this show or any other show in the Freakonomics Radio network, please recommend it to your friends and family. That is the best way to support your favorite podcasts. As always, thanks for listening.

• 52:21Speaker 07

  A shark? What does that mean? Well, I mean that in a good way.

• 52:29Speaker 11

  The Freakonomics Radio Network. The Hidden Side of Everything.

• 52:37Speaker 03

  Stitcher.