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The Women of Algiers - Pcasso's painting being auctioned at Christie's in New York
Last updated May 2015

The Mystery of Picasso

Dominic Fox discusses the connection between multi-million dollar paintings and income inequality. Are the real victims the top 10%?

Shortly before she died, my mother casually mentioned to me that she and my father had met Pablo Picasso in the south of France. Oh yes dear, she assured me, he stopped his bicycle and exchanged pleasantries before shooting off downhill to the fleshpots of the Riviera.

With the U.K. election over and the Conservative Party installed in Parliament with a surprise majority, you may feel a bit deflated. Well don't worry, we all are! Deflation has hit the UK. Experts were quick to point out that technically it is negative inflation but who's counting?

The lack of inflation is apparently a boon for us consumers, acting as a welcome surrogate for wage growth. The 'Misery Index', which combines inflation and unemployment data, is currently at an all-time low. Whether prices go up or down may be of concern to us hard working little people, but not so important to rich folk who are also in the news.

The recently published Sunday Times Rich List provided some interesting figures. With a combined wealth of £547 billion, their wealth increased by £28 billion in the last year alone, or £77 million per day, despite the world economy being gripped by a punishing recession over much of the last decade. The minimum wage for this group is set high. Plain old millionaires increasingly struggle to count themselves among the mega-rich, with a fortune of £100 million now required to make it into the top 1,000.

In the UK, the richest 10 per cent of households earn 26 per cent of all income, and the top one per cent of income earners pays around 30 per cent of income taxes. Among this group are the country's most generous philanthropists who gave a combined £2.58bn to charity, up 7.8% from £2.4bn in 2014. This year's list includes 105 individuals who gave away more than 1% of their total worth, including 4 giving away more than 25%.

A recent report from Institute for Economic Affairs claims that income inequality has fallen in the UK since 1990. That may surprise many. The biggest gainers over that time were indeed the top one per cent: however, they gained not at the expense of everyone else but largely at the expense of the rest of the top 10 per cent. As the report said, the "have lots" have lost out to the "have yachts".

Nowhere is this more evident than in the world of high-end art auctioneering. Last month for the first time, an auction house sold more than $1 billion of art. "It's a spectacle of excess at the highest level," said Abigail Asher, partner at art consultants Guggenheim Asher Associates. "A new class of buyer has entered the market and they're prepared to pay staggering sums for trophy pictures. There's something slightly boastful in wanting to own these things, and there's a prevalent sense that this is also about asset gathering, not just collecting." 

This view is endorsed Laurence D. Fink, chairman of BlackRock, the world's biggest asset-management company, who pronounced that contemporary art, as well as real estate in New York and London, had usurped gold as a store of wealth. "Some people use art, especially expensive art, as a form of money laundering. There is a lot of behaviour that is shady at best," commented economist Nouriel Roubini. "An individual can purchase an expensive piece of art worth $1 million or more, pay in cash and not even have to register it. There are virtually no ties to the financial system".

We may never know who shelled out $179.4 million for a Picasso in a recent auction but I would like to think it was Bond villain Goldfinger. Sadly it was more likely to be a Middle Eastern despot, international drug dealer or worse, a hedge fund manager.

According to Neil Irwin, senior economics correspondent for The New York Times, you don't need to study the work of the French economist Thomas Piketty, recently installed at the London School of Economics, to work out answers to these questions. Just study the market for the work of a certain Spanish painter.

The buyer of Picasso's 1955 "Les Femmes d'Alger (Version O)" would need to have a fair bit of cash at hand. One speculator thought there might be 50 plausible buyers of the painting worldwide but on reflection reduced that to only a dozen families. The painting last appeared at auction in 1997 and sold for $31.9 million, which means a 462 percent increase in value in the past 18 years. The previous owners bought the entire 15 painting set in 1956 directly from Picasso's dealer for a relative pittance, paying $212,500.

It is undoubtedly a work of considerable importance. It was produced during his "old master" period when he devoted much of his creative energy making variations of iconic masterpieces, in this case "Women of Algiers" by Delacroix (1834). The series was particularly relevant as it coincided with the start of the long and bloody struggle for Algerian independence.

A number of people got themselves in a huff about the whole affair, suggesting Picasso still retains the power to provoke strong reaction. The Guardian art critic Jonathan Jones cried that splurging £102.6m on Picasso's Women of Algiers was "simply insane", suggested the work represents "a footnote to his achievement" and that "art collectors are fools who can be manipulated to spend fortunes".

In a move that can only be described as literally surreal, a TV station censored parts of the painting on screen, prompting bemusement and ridicule from art critics and audiences. Reporting on the auction, New York's Fox 5 blurred the breasts of three women in the painting, despite the stylized portrayal of the figures through blocky shapes.

The Bank of England is warning that "inflation should pick up notably" towards the end of 2015 so goodness knows what that will do to art prices. The chances of meeting Picasso are nil and the supply of Picasso paintings is limited. I suggest you buy now.

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