Nouriel Roubini

At the World Economic Forum last week in Davos, at an event organised by the Financial Times and the bank Julius Baer, the Economist Nouriel Roubini launched an attack on the art market.  According to Roubini regulation is required in the art market because it suffers from tax evasion, money laundering, price manipulation and trading on inside information.

Roubini said “While art looks as if it is all about beauty, as a business it is full of shady stuff,” he said. “We should correct it or it will be undermined over time…Inside information is considered standard [in the art market]. In other markets, it is thought of as being illegal,” He added that the art market was prone to “fads, passions, manias, booms and busts,” because art works had no clear financial value and the market was opaque.

Roubini is a well-known economist who studied at Boccini University before earning a doctorate at Harvard. He has worked for the Federal Reserve, the IMF, the World Bank and the Bank of Israel. He has advised Bill Clinton, Timothy Geithner and rates Jeffrey Sachs and Larry Summers as his role models.  In 2011 and 2102, Roubini was named by Foreign Policy magazine as one of the Top 100 Global thinkers and he seems well on the way to economic sainthood.

Whilst Roubini is no doubt an accomplished economist I wonder what, if anything, he actually knows about the art market.  Very little, by the sound of it, other than banal generalisations gleaned from simple journalistic observation.  Normally Roubini sticks to what he calls the “drivers of inequality”: labor-saving technological change, globalization, the power of elites and “winner-takes-all effects.”

The art market is tiny compared to any of the financial markets and is doubtful any government would deem it big enough to warrant regulating over and above the basic principles of Common Law.  Melanie Gerlis, the Art Market Editor of the Art Newspaper since 2006, in her book  ‘Art as Investment’ estimates the total amount of tradable art in circulation at any one time at US$400bn as opposed to Apple’s market capitalisation of US$425bn. A small group of rich collectors dominate this market buying and selling, speculating or building up their art collections.  And who exactly is Roubini trying to protect with regulation?  Does he wants to protect this group of rich collectors from each other?

Despite being an easy target the art market is actually little suited to money laundering as is well known by those actually involved in it.  Art market transactions in the 3 largest art markets, London, New York and Geneva fall within the jurisdiction of those countries strict money laundering laws.  Banks will not clear art market transactions unless they are  satisfied as to the source of the funds.  The leading auction houses such as Christie’s and Sotheby’s give all records of their buyers and sellers identity’s to the tax authorities and in England the paying bank account of the buyer has to be in the same name as the registered buyer at the auction.  Businesses that are well suited to money laundering have multiple cash transactions in small amounts.  The art market is the opposite, a small amount of larger transactions with a clear financial trail.

Roubini calls himself a “global nomad” and an “information junkie.” He announced on Twitter that he now practises Transendental Meditation, the discipline founded by His Holiness Maharishi Mahesh Yogi.  The Mayo Clinic advises that, “Transcendental meditation is a simple, natural technique… This form of meditation allows your body to settle into a state of profound rest and relaxation and your mind to achieve a state of inner peace, without needing to use concentration or effort.”

Perhaps Roubini’s art market observations came to him in a karmic flash of inspiration and we shouldn’t be so tough on him after all.

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For anyone interested in further reading on art and law see, “The Virtues of Common Law Theories and Disclosure requirements in the Market for Fine Arts,” Brian D. Tobin, Seton hall Journal of Sports and Entertainment Law, 2011, Vol 21, Issue 2, Article 3. http://scholarship.shu.edu/cgi/viewcontent.cgi?article=1014&context=sports_entertainment