Power & Market

Last week, Miami art gallery Art Basel sold, for $120,000, a piece of art composed of a banana duct taped to a wall. At least one other identical piece sold for a similar amount. A third piece was priced at $150,000. The banana used in the display is a real banana, and on Saturday, a performance artist named David Datuna ate some of it.

Datuna's stunt merely illustrated what everyone should have already known: the value of the artwork had almost nothing to do with the banana itself. Its value came not from the amount of labor that went into it or from the cost of the physical materials involved. A spokeswoman for the museum summed up the real source of the item's value, noting, “He [Datuna] did not destroy the artwork. The banana is the idea.”

In other words, the people who purchased the art weren't actually purchasing a banana and tape. The person who purchased the art was buying the opportunity to communicate to peers that he or she was rich enough to throw around $120,000 on a work of art that would soon cease to exist. This was a transaction that involved purchasing status in exchange for money. The banana was only a tiny part of the exchange.

Moreover, the transaction offered the opportunity for the gallery, the art seller, and the art buyer to all further increase their status by being the topic of discussion in countless news articles and discussions in social media. As was surely anticipated by the artists and everyone else in the banana sale, the media could be counted on to act as if this art was something new, outrageous, or exciting. "Art world gone mad," the New York Post announced on its front page. Hundreds of thousands of commentators in various social media forums chimed in to comment on the matter.

One wonders, however, how many times this shtick can be repeated over and over until people lose interest. Apparently: many times. After all, this sort of art is not a new thing. For decades, avant-garde artists have been using garbage and other found objects to create art. And people with a lot of disposable income have been willing to pay a lot of money for it. It's all basically an inside joke among rich people. And regular people have the same reaction over and over again.

But there's absolutely nothing at all that's shocking, confusing, or incomprehensible from the point of view of sound economics. Transactions like these should only surprise us if we're still in the thrall of faulty theories of value, such as the idea that goods and services are valued based on how much labor and materials went into them. That's not true of any good or service. And it's certainly not true of art.

Is It Garbage or Is It Art?

In fact, two identical items can be valued in two completely different ways simply if the context and description of the objects changes.

According to the Daily Mail, a 2016 study suggests that people value ordinary objects differently depending on what they are told about the objects: "According to the new research, being told that something is art automatically changes our response to it, both on a neural and a behavioural level."

In this case, researchers in Rotterdam, the Netherlands, told subjects to rate how they valued objects in photographs. When told that those objects were "art" people valued them differently. 

In other words, the perceived value of objects could change without any additional labor being added to them, and without any physical changes at all. 

The value, it seems, is determined by the viewer, and we're reminded of Carl Menger's trailblazing observations about value: 

Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.

One moment the viewer may think he's looking at garbage, which he has likely learned is of little value. When told that said junk is really "art," the entire situation changes. (Of course, we would need to see their preferences put into real action via economic exchange to know their preferences for sure.)

The change, as both Menger and Mises understood it, is brought about not by changes to the object itself, but by changes in context and in the subjective valuation of the viewer. 

A glass of water's value in a parched desert is different from that of a glass next to a clean river. Indeed, a glass of water displayed in a museum as art — as in the case of Michael Craig-Martin's "An Oak Tree" — is different from water found in both deserts and along rivers. Similarly, the value of a urinal displayed in a museum as art — as with Marcel Duchamp's "Fountain" — is different from a physically identical urinal in a restroom. 

The Daily Mail article attempts to tie the researchers' observations to the theories of Immanuel Kant on aesthetics. But, one need know nothing about aesthetics at all to see how this study simply shows us something about economic value: it is, to paraphrase Menger, found in the "consciousness of men." 

And it is largely due to this fact that centrally planning an economy is so impossible. How can a central planner account for enormous changes in perceived value based on little more than being told something is art? 

Is a glass of water best utilized on a shelf in a museum, or is it best used for drinking? Maybe water is best used for hydroelectric power? Exactly how much should be used for each purpose? 

When discussing the problems of economic calculation in socialism, Mises observed that without the price system, there simply is no way to say that a specific amount of water is best used for drinking instead of being used for modern-art displays. Nor is the fact that people need water for drinking the key to determining the value of water. (See the diamond-water paradox.)

In a functioning market, consumers will engage in exchanges involving water in a way that reflects how much they prefer each use of water to other uses. At some moments, some consumers may prefer to drink it. At other moments, they may prefer to water plants with it. At still other moments, they may want to contemplate an art display composed of little more than a glass of water. The price of water at each time and place will reflect these activities. 

Without these price signals, attempting to create a central plan for how each ounce of water should be used is an impossible task.

Do we need to know why people change their views of object when told they are art? We do not. Indeed, were he here, Mises would perhaps be among the first to remind us that economics need not tell us the mental processes that lead to people preferring different uses for different objects, although we can certainly hazard a guess. It's unlikely that the buyer of the taped banana bought it because he or she planned to eat it.

But even if we are wrong about the buyer's motivation, the fact remains that the buyer valued the banana at $120,000 for some reason — and the value was subjective to the buyer.

Similarly, we can't know for sure why each individual values water for drinking over "art water" or vice versa. And a government planner or regulator — it should be noted — can't know this either.

Today the Washington Post published a bombshell report titled “The Afghanistan Papers,” highlighting the degree to which the American government lied to the public about the ongoing status of the war in Afghanistan. Within the thousands of pages, consisting of internal documents, interviews, and other never-before-released intel, is a vivid depiction of a Pentagon painfully aware of the need to keep from the public the true state of the conflict and the doubts, confusion, and desperation of decision-makers spanning almost 20 years of battle.

As the report states:

The interviews, through an extensive array of voices, bring into sharp relief the core failings of the war that war is inseparable from propaganda, lies, hatred, impoverishment, cultural degradation, and moral corruption. It is the most horrific outcome of the moral and political legitimacy people are taught to grant the state. persist to this day. They underscore how three presidents — George W. Bush, Barack Obama and Donald Trump — and their military commanders have been unable to deliver on their promises to prevail in Afghanistan.

With most speaking on the assumption that their remarks would not become public, U.S. officials acknowledged that their warfighting strategies were fatally flawed and that Washington wasted enormous sums of money trying to remake Afghanistan into a modern nation....

The documents also contradict a long chorus of public statements from U.S. presidents, military commanders and diplomats who assured Americans year after year that they were making progress in Afghanistan and the war was worth fighting.

None of these conclusions surprise anyone that has been following America’s fool's errand in Afghanistan. 

What makes this release noteworthy is the degree to which it shows the lengths to which Washington to knowingly deceive the public about the state of the conflict. This deception extends even to the federal government’s accounting practices. Notes the report, the “U.S. government has not carried out a comprehensive accounting of how much it has spent on the war in Afghanistan.”

As the war has dragged on, the struggle to justify America’s military presence. As the report notes:

A person identified only as a senior National Security Council official said there was constant pressure from the Obama White House and Pentagon to produce figures to show the troop surge of 2009 to 2011 was working, despite hard evidence to the contrary.

“It was impossible to create good metrics. We tried using troop numbers trained, violence levels, control of territory and none of it painted an accurate picture,” the senior NSC official told government interviewers in 2016. “The metrics were always manipulated for the duration of the war.

Making Washington’s failure in Afghanistan all the more horrific is how easily predictable it was for those who desired to see the warfare state for what it is.

In the words of Lew Rockwell, in reflecting on the anti-war legacy of Murray Rothbard:

War is inseparable from propaganda, lies, hatred, impoverishment, cultural degradation, and moral corruption. It is the most horrific outcome of the moral and political legitimacy people are taught to grant the state. 

On this note, it is important to note that the significance of the Washington Post’s report should not distract from another major story that has largely been ignored by mainstream news outlets.

Recently, multiple inspectors with the Organisation for the Prohibition of Chemical Weapons have come forward claiming that relevant evidence related to their analysis of the reported 2017 chemical gas attack in Syria. As Counterpunch.org has reported:

Assessing the damage to the cylinder casings and to the roofs, the inspectors considered the hypothesis that the cylinders had been dropped from Syrian government helicopters, as the rebels claimed. All but one member of the team concurred with Henderson in concluding that there was a higher probability that the cylinders had been placed manually. Henderson did not go so far as to suggest that opposition activists on the ground had staged the incident, but this inference could be drawn. Nevertheless Henderson’s findings were not mentioned in the published OPCW report.

The staging scenario has long been promoted by the Syrian government and its Russian protectors, though without producing evidence. By contrast Henderson and the new whistleblower appear to be completely non-political scientists who worked for the OPCW for many years and would not have been sent to Douma if they had strong political views. They feel dismayed that professional conclusions have been set aside so as to favour the agenda of certain states.

At the time, those who dared question the official narrative about the attack - including Rep. Tulsi Gabbard, Rep. Thomas Massie, and Fox News’s Tucker Carlson - were derided for being conspiracy theorists by many of the same Serious People who not only bought the Pentagon’s lies about Afghanistan but also the justifications for the Iraq War.  
 
Once again we are reminded of the wise words of George Orwell, “truth is treason in an empire of lies."

These attacks promoted as justification for America to escalate its military engagement in the country, with the beltway consensus lobbying President Trump to reverse his administration's policy of pivoting away from the Obama-era mission of toppling the Assad regime. While Trump did respond with a limited missile attack, the administration rejected the more militant proposals promoted by some of its more hawkish voices, such as then-UN Ambassador Nikki Haley. 

In a better timeline, the ability of someone like Rep. Gabbard to see through what increasingly looks like another attempt to lie America into war would warrant increased support in her ongoing presidential campaign.

Instead, we are likely to continue to see those that advocate peace attacked by the bipartisan consensus that provides cover for continued, reckless military action abroad.

We are repeatedly told that basic human rituals are falling by the wayside. Why don't we all sit down to dinner as a family anymore? Why don't we spend time with each other anymore? Why are we all sleep deprived?

Sometimes these problems are blamed on people spending too much time devoted to kids' intramural activities or other types of school- and recreation-based activities. Some analysts note people can't tear themselves away from their smart phones in order to go to bed at a decent hour.

But very often, we're told, this lack of time comes down to too much work. The articles covering these topics are full of anecdotal evidence of people with multiple jobs, long commutes, and crushing work responsibilities.

These problems no doubt afflict many people. They're certainly an issue for people at that state of life where couples have school-age children, and have a host of bills from many responsibilities that comes with raising a family.

But, the anecdotal evidence is contradicted by years of data showing people aren't nearly as hard pressed for a few free moments as is supposed.

Specifically, consider the 2019 Q1 data provided on media consumption by the Neilsen Company. According to their extensive sampling of TV, smart phone, and video game console users, American adults spend an average of four-and-a-half hours per day watching television. The spend an additional 54 minutes using TV-connected devices such as DVD players and video game consoles.

People over fifty watch the most television and generally consume the most screen-based media. People in the 50-64 age bracket watched nearly six hours of television, and spend an additional two hours and forty-seven minutes on smart phones. People in the over-65 category watched even more television than that.

Not surprisingly, people in the 18-34 age group consumed the least media overall, and also used televisions the least. Those people have younger children — which makes TV viewing harder — and may be spending more time outside the house with friends. In this group, people watched on average one hour and fifty-four minutes of television, but were on phone apps for three-and-a-half hours.

Across age groups, media consumption ranged from nine hours to nearly thirteen hours. Per day.

But to err on the conservative side, let's remove radio time — which could just be part of the daily commute — and "internet on a computer," which could be chores and work time. Even if we do this, we find Americans are on average watching videos, playing video games, and consuming media seven or eight hours per day.

And yet, media outlets and pundits are often telling us that ordinary people absolutely don't have time to prepare a meal or maintain friendships. Given the data here, I'm skeptical of these assertions.

Now, these are averages, so it may be that people are very squeezed for time during the week, but then consume enormous amounts of media on the weekends. Certainly, there are people out there who consume live sports programming virtually all day on Sunday during football seasons. But then that would imply these people at least have time to spend with friends and family on weekends.

But if people have more than seven hours per day on average to watch re-runs of Friends, watch in-depth analysis of NBA games, and fire up the Playstation, why can't they manage to get eight hours of sleep?

If this data is correct, then the anecdotal evidence just doesn't add up, and it's simply not the case that people don't have time to do anything other than work, eat some fast food, and then do it all over again.

This isn't to say that poverty doesn't exist or that everyone is more or less average. We've all encountered people who at least sometimes work multiple jobs or are pushed to their limits by family obligations, work, and medical problems.

But the statistical data on media consumption suggests this isn't the typical experience.

 A few months ago, just after Boris Johnson had become Prime Minister, I wrote an article addressing the ongoing selection process for the next Governor of the Bank of England, in which I gave my prediction of who the top 5 most likely candidates might be.

Much has changed in the British political landscape since then, including the decision to hold a general election on 12th December. As a result, Chancellor of the Exchequer Sajid Javid has announced that he will not be making his selection for the next BoE Governor until after the election, to avoid compromising the Bank’s independence by announcing during a “politically sensitive” time.

However, an official shortlist has been delivered to the Treasury, and the 5 names “thought to be” on the shortlist, as reported by the Grauniad, are Andrew Bailey, Minouche Shafik, and Ben Broadbent (who were on my predicted shortlist) as well as Shriti Vadera and Jon Cunliffe (who were not).

I included Vadera as an “honourable mention” in my article, but am admittedly surprised she made it onto the official shortlist, given her reputed “fiery” management style and strong partisan links to the Labour Party. However, bearing in mind the government’s stated intention to make this a diverse hiring process, and their use of the headhunting firm Sapphire Partners which “specialises in diversity and placing women in top roles”, it makes sense that they would have wanted to include her, at least to avoid the shortlist being 80% pale, male, and frail.

Everyone seems to be surprised that former Reserve Bank of India Governor and central banking superstar Raghuram Rajan was not included on the list, having previously been second only to Andrew Bailey in the bookies’ estimations. It’s perfectly true, as has been pointed out, that his failure to be included on the shortlist (or even interviewed) doesn’t necessarily mean he’s out of the race; current Governor Mark Carney was not included in the shortlist to replace Mervyn King in 2013. However, I have long had my doubts about the likelihood of Rajan getting the job, mainly due to the simple fact that (through no fault of his own, mind you) he isn’t British. I imagine this wouldn’t be such an issue in normal circumstances, but current Governor Mark Carney is the first of the Bank’s 120 Governors to have been foreign, and his tenure has been marked by repeated accusations of insufficient familiarity with the British economy. So it’s easy to imagine the pressure that must exist to not give the job to a second full-blown foreigner in a row.

I say “full-blown” foreigner to distinguish Rajan from the person who I personally believe is most likely to get the job, Egyptian-born Nemat “Minouche” Shafik. As I mentioned in my original article, Shafik’s status as a woman of colour would tick all the diversity boxes the government could reasonably hope for, yet she has sufficient “insider status”, both within the British economy and the Bank of England itself, to shield her from the sort of criticism to which Rajan might be subjected, and to be a considerable advantage in its own right. Educated at Oxford and the London School of Economics (two damn fine institutions, in my own entirely unbiased opinion), Shafik is the current Director of the latter institution, and was formerly a Deputy Governor at the Bank of England, having sat on its rate-setting Monetary Policy Committee from mid-2014 to early-2017. During her tenure, Shafik typically voted with the rest of the MPC, making it difficult to isolate her personal views on monetary policy. The only factor I can imagine holding her back would be her reportedly difficult working relationship with current Governor Mark Carney. However, if I were a betting man the research for my original article would have led me to bet on Shafik, and that remains true now that the official shortlist is out.

The only character on the list who I didn’t mention in my original article is Sir Jon Cunliffe, who is currently the Bank’s Deputy Governor for Financial Stability. Cunliffe has held a wide variety of senior civil service positions since 1990, and is currently on the Bank’s Financial Policy and Monetary Policy committees. He was educated at the University of Manchester, with his highest degree being a Master’s in English Literature, which, more than anything else, illustrates Britain’s unique status as a country where you can work in the financial sector with a degree in almost any subject. Cunliffe recently made headlines when he gave a speech arguing that low long-term interest rates put pressure on financial stability, and risk more severe downturns; a potentially welcome sentiment for Austrian ears.

When Mark Carney’s term as Governor comes to an end in late-January, the situation in British politics could potentially be very different: either the Conservatives will win the election and pass Johnson’s EU withdrawal bill, in which case Britain will be out of the EU by February, or Jeremy Corbyn will be Prime Minister, Brexit will be delayed (potentially indefinitely), and this shortlist of candidates might be re-thought or thrown out entirely. For the time being however, this shortlist provides an interesting insight into the priorities and policy goals of Britain’s government and central but doesn’t provide much hope for Austrians.