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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Sunday, September 30, 2007

The "Gift" of Art

Does "art" have value in society? This question came up for me, as a person and as an economist, back in August. Soon after Brooke Astor died on August 13, we paid tribute to her here (see below). We lauded her substantial contribution to, among other institutions, St. Ann's Church in Brooklyn toward the restoration of some of its stained glass windows; we described this as a "marvelous use of her funds". Matt-the-Web-Dude responded. He begged to differ, at least somewhat: nice as this was, he offered, weren't there better uses still for her money: aid to the poor or for disease relief or research? Yes, on the face of it, aid to people would seem a more worthy cause than art restoration. But is that really so, especially for a private donation like Mrs. Astor's?

In her eMo of September 20, "Art Does It First", Mother Crafton talks about the impact of art. The heated controversy in Afghanistan over a scene in the movie of The Kite Runner by Khaled Hosseini and the outright danger brought to one of its actors prompted her comments. "Why must such a beautiful book occasion such ugliness?" she moans. "Why cannot art be allowed to perform its healing miracles in the human spirit, its graceful interpretation of one culture to another? Of course, I know the answer: art names what the defenders of power cannot or will not yet name. Art does it first. The future appears first in the imagination, long before it makes its entrance in politics or manners."

Such power, then, art has. It does its work deep inside us, conveying feelings and impressions, even reshaping them sometimes in ways our rational minds can't approach. Listen to another Barbara Crafton appreciation of art, this time music, ". . . it's probably not possible to sing and be hopeless at the same time. You may still be sad – that's what the blues are for – but expressing sorrow through song does something to it, makes it something the soul can handle." [Meditations on the Psalms, 1996, entry for September 28, page 200].

Thus, the feelings in the art, whether it is music or words or colors and forms, come out of the artist's heart and they reach into ours, yielding up some sense of truth that is more fundamental than our minds can fashion or absorb. What a gift from God, then, for artists to have this kind of outwardly pouring imagination; it is not given to everyone.

In the midst of these ethereal musings, there are also down-to-earth practicalities. Artists must eat and have shelter. Art works and instruments must be maintained. If art speaks to people, they will support it and those who produce it. If, instead, it has no enduring appeal, the support will fall away over time and the works will be lost. Most are.

How does the support of art come about? Some is traded or given forth commercially for profit. Beethoven, Michelangelo and Rembrandt are easy examples. Rembrandt, in fact, owned and operated a studio, employing other artists and assistants. In our time, we might name Salvador Dali, Maria Callas and the Beatles. Indeed, commercial popularity wouldn't disqualify a work from being called "art". What matters is whether the music and the words reach inside us and have a long-lasting effect. The Beatles have lasted for 40 years – so far – and they are still deemed melodic and they still sell well.

Popularity, of course, would hardly be the only or even the most significant factor. Consistent support of artists over time also requires moneyed connoisseurs or collectors who can buy original pieces. Further, maintenance of the pieces is painstaking, labor intensive, expensive work. But that means there's a problem: possibly only the rich can afford many examples of true art. What does that do for the rest of us? Are we to be denied access to the feelings and emotions and other benefits embedded in these things? If so, we would then be all the more impoverished.

Thus, we are the beneficiaries of major gifts like Mrs. Astor's. Museums, funded with tax money and/or private donations, provide more. In European countries, public support of the arts is even more direct, with some contemporary artists employed on the public payroll under the aegis of a Ministry of Culture.

In the US, federal, state and local governments all support arts pursuits. The federal effort is coordinated by the National Endowments for the Arts and for Humanities. We were fascinated to learn, though, that these two provide only a tiny fraction of funding for non-profit arts programs. In 2006, the total federal government budget for arts and museums was $1.67 billion. According to analysis by the Urban Institute, this was only about 9% of all relevant arts spending in the economy. And the NEA and NEH budgets themselves were less than one-sixth of the federal amount. The secret is that NEA and NEH grants carry great leverage. Their system of review of projects by art experts outside of government is widely accepted as a standard of artistic worth and elicits additional private support in multiples of the size of individual federal government grants. This means that a modest amount of our federal tax dollars can be the catalyst for far more charitable support of these endeavors, and we don't wind up having politicians or bureaucrats as the arbiters of artistic taste. The occasional media flap over a specific work can be the exception that proves the rule.

So, indeed, Mrs. Astor's gifts to museums and churches – St. Ann's was not at all the only one – are gifts to us all. She certainly gave to many welfare-oriented causes as well, but art holds a special place that indeed makes it an admirable outlet for her largesse and that of others. We gain from the pleasure of its beauty, but more, from the added meaning it helps us find in our own lives.

Thank you, Matt, for raising the question and helping us learn these valuable lessons!

* * * * *

Also see Seana Anderson's "comment" to our post on Mrs. Astor, where she too highlights the communication of feeling through art and how it can link us together. Further, Barbara's thoughtful words quoted above echo the spirit of some philosophers of art whom I have been reading. Here is a selection, along with other sources on "the art market":

Leo Tolstoy. "What Is Art?" in Aesthetics, edited by Susan Feagin & Patrick Maynard, Oxford University Press, 1997, pp 166-171.

Clive Bell. "The Aesthetic Hypothesis." In Feagin & Maynard, op. cit. pp 15-23.

Mark Sagoff. "On the Aesthetic and Economic Value of Art." In Feagin & Maynard, op. cit. pp 119-128.

William D. Grampp. Pricing the Priceless: Art, Artists and Economics. Basic Books, Inc. 1989.

Tyler Cowen. In Praise of Commercial Culture. Harvard University Press. 1998. Especially Chapter 1, "The Arts in a Market Economy."

National Endowment for the Arts. "How the United States Funds the Arts", Second Edition, January 2007. Sourced from

Tuesday, September 11, 2007

9/11: what was in my head when I woke up

Were you there when they crucified my Lord?
Were you there when they crucified my Lord?
Oh! Sometimes it causes me to tremble, tremble, tremble.
Were you there when they crucified my Lord?

Were you there when they nailed Him to the tree?
Were you there when they nailed Him to the tree?
Oh! Sometimes it causes me to tremble, tremble, tremble.
Were you there when they nailed Him to the tree?

Were you there when they pierced Him in the side?
Were you there when they pierced Him in the side?
Oh! Sometimes it causes me to tremble, tremble, tremble.
Were you there when they pierced Him in the side?

Were you there when they laid Him in the tomb?
Were you there when they laid Him in the tomb?
Oh! Sometimes it causes me to tremble, tremble, tremble.
Were you there when they laid Him in the tomb?

Monday, September 10, 2007

Cost of "Risk" Soars; Economy Threatened

The last few weeks have been eventful ones in financial markets and for economic news. We've started to write to you several times about it and were afraid we were getting bogged down in the technicalities. We'll try again here; some of the "technicalities" are important for everyone, not just financial market specialists.

Investors Suddenly Realize Their Assets Are Risky!
We talked to you in early August about how subprime mortgage lenders got "carried away" with their lending. Other investors were also quite exuberant. The spreads between the interest rates on risky assets, for instance, low-grade ["high yield"] corporate bonds, and US Treasury securities were at all-time lows from 2004 through the middle of this year. Similarly, securities backed by credit-card debt also had narrow spreads to Treasuries until very recently. As the severity of the mortgage crisis came to light, investors dumped their risky holdings and switched to more of the safest asset, the Treasury notes and bonds. This demand drove down Treasury interest rates and pushed up rates on other debt. The suddenness of this move – within just a couple of weeks – caught many investors and bond issuers off guard.

Some issuers of debt occasionally utilize bridge loans while they are preparing a more permanent bond issue. These bridge loans are not usually bank loans, but short-term market instruments called commercial paper. This paper has had shorter and shorter maturities over the years, so now more than half comes due in 4 days or less. During early and mid-August, as markets were in turmoil, some funders of commercial paper withdrew this financing, leaving would-be issuers in the lurch. Their plans were incomplete, but they couldn't proceed without the interim funding. Some "deals" were cancelled, postponed or had their prices reduced.

The Fed Helps Out
The Federal Reserve provided some limited help to prevent these disruptions from spreading through the banking system. It added billions of dollars in short-term funds to the money markets and it reduced the discount rate, the rate it charges for loans it makes to banks. The infusions of cash were the largest since the aftermath of 9/11, when Wall Street shut down briefly. The Fed further encouraged banks to borrow from it, an action banks are loath to take, because they believe it shows they cannot manage their business properly. Not many are borrowing even now, although the quantities they are borrowing are the largest in years. The Fed is anxious not to be seen "rescuing" or "bailing out" bankers and investors who made poor decisions, but the Fed needs to try to protect the underlying health of the financial system.

But Jobs Post a Surprising Decline in August
Until this past Friday, we thought most of the damage from these dislocations was going to be confined to housing markets and to financial institutions. But then the Labor Department reported that the number of jobs in the US decreased in August by 4,000. This is a tiny number when there are 138 million total jobs, but an outright decline has historically been a signal of genuine weakness, at least bordering on recession. Some of the decline was related to varying dates of school openings across the country, which cut government jobs reported in education. This should reverse shortly. But employment in construction fell 22,000, accounted for mainly in residential contractors, and there were small declines in manufacturing of wood products, furniture and electrical machinery and appliances, all products related to home-building. In contrast, a number of service industries, especially retailing and hotels and restaurants, had nearly offsetting gains. But the handwriting is on the wall: the disruption in housing finance is great enough that it could impair the actual performance of the economy. Those laid-off construction workers can't spend as much on themselves, so strength in retailing and restaurants might not last for long . . . .

The Federal Reserve will hold one of its regular policy-setting meetings next Tuesday, September 18. They are likely to do what they had hoped to avoid, cut their key short-term interest rate, the "federal funds rate". This has the effect of lowering costs throughout the financial markets. While some had argued for this move earlier, it may have been seen as the bail-out no one really wanted. To a degree, the markets themselves have already effected some easing through the lower rates they have engineered on Treasury securities. But the Fed's action would affirm their judgment and hopefully relieve some tension and nervousness.

Can Fed Action Limit the Fall-Out Enough?
Notice here that we have not once mentioned the stock market. As we explained in an earlier article on this situation, the rest of the economy has so far held firm and the vast majority of businesses are maintaining their profitability. So while the stock market has been highly volatile in the midst of the uncertainty, it has not broken down. The companies who make it up are not the source of the problem. They and their stocks may suffer, but other sectors of the financial system are where it started. Possibly – possibly – if the financial turmoil can be contained with the corrective actions already being taken, that spillover won't result in a self-reinforcing economic contraction. Stay tuned and hang on: it may not be a roller-coaster, but it's certainly a very rough ride.

* * * * *

Clearly there are lots more features to this story. We will follow soon with further comments about housing and homeownership in particular. Also, our entire explication above centers on "risk". We need to talk about that, why it's important and how people are compensated for bearing it. And who is the amorphous group we keep referring to, "investors"? What do they do and does it matter to me?

Entirely separately, in a preview of a different coming attraction, we got asked a pointed question by Matt the Web-Dude about the propriety of Mrs. Astor using her money to fund art projects. Wasn't there some higher use for the funds, he argued. This will bring us to the value of art. It indeed has value and even economists can talk about it in their own language. Stay tuned, as well, for this divertissement!

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