Issue #254  11/3/2022
Making Sense of a Photo Market in the Middle of an Economic Whirlwind

By Alex Novak

Evaluating where the photography art market is going in this environment is akin to finding out your direction in whipping winds in the middle of a snow tornado...at night. We've haven't seen inflation rates like these in over 40 years. But what might be bad for the stock market and currencies has always been highly positive for the art and photography markets. They have been traditional bastions against inflation. And the last time we saw outsized increases in value across the board in the photo market was when inflation was also high. Given that photographs aren't particularly overpriced for the most part by an overheated market (in fact the contrary seems to be largely the case over the last two decades), we might indeed see some upward movement to correspond with the inflationary forces we are seeing now.

If it wasn't for the fact that nearly every reputable economist has been predicting some sort of recession in the next year, it should be clear sailing for our markets. And the Fed is making cash king with its push for high interest rates and a tighter credit market. Fortunately many economists this time around are predicting a slightly softer landing than the previous recession.

The worry though is that the Fed may overshoot, or even has already overshot its goal for a soft landing with 2% or less inflation. It may very well be that the Fed will have to temper or even halt its interest rate hikes going forward before it completely conquers inflation (although the Fed Chair doesn't currently seem so inclined). But living with a more modest inflation rate for a lengthier period might not be such a bad thing, especially for the photography market. Inflation encourages decision-making and spurs innovation—within reason. And photography has always been an excellent inflation hedge.

So let's take a quick look at what created this combination of inflationary pressures in the first place.

In 2021, a new--some would say naive--Democratic Administration decided to reverse virtually all of the previous administration's policies in almost knee-jerk fashion. What had been prior to the COVID shutdowns a pretty robust and growing economy that involved all economic levels had been hit hard during the lockdowns. But it was clear that with vaccines developed by the end of 2020, the lockdowns would be over fairly quickly, despite some political pressures to prolong them. And, unlike past dislocations in the employment market, the U.S. government had printed and given massive amounts of money to both employers and employees in order to ward off recession. It was inevitable that a pent-up market would place high demands on an ill-equipped distribution system. This would lead to shortages, dislocations and higher prices. And, of course, the market did exactly that.

If this were the only issue, inflationary pressures would have indeed been temporary (as both the Fed Chairman Jerome Powell and Secretary of the Treasury Janet Yellen kept insisting early on); but, as we saw, there were several other major factors that were less temporary in nature, including all that federal debt that was added, despite the titles of the legislation.

Trying to prove themselves to political and environmental activists, the Biden Administration (much like the German political class) quickly distanced itself from any traditional energy sources, shutting down various pipelines, including the Keystone Pipeline, virtually eliminating licensing of federal lands for oil and gas exploration, and passing new highly restrictive regulations on such old energy producers, while allocating enormous amounts of funding for the development of electric vehicles and charging facilities, as well as for alternative energy sources. Add in California's "progressive" legislation banning new gas- and diesel-powered vehicles by 2035, and the writing was on the wall. Investment sources started divesting funds in "old energy" and moving the money to "alternative" energy sources. This of course hit new oil and gas exploration and refining facilities hard. Several new refining facilities were actually cancelled and exploration was curtailed.

While this alternative energy goal isn't a bad one in itself, the issue is that these alternative sources can't completely replace gas and oil anytime soon—or perhaps ever, if we are to maintain a modern civilization. Those renewables only represent 2% to less than 4% of the total energy supply used here in the U.S., according to most current independent reliable sources, such as the Pew Research Center. And many things beyond energy require oil and gas, such as fertilizer, plastics, etc. And other external forces added to the shortfall in energy.

These precipitous actions taken resulted in immediate price hikes and even shortages in gas, diesel and fertilizer here. That then snowballed into increased transportation, distribution, packaging and production costs that drove the price of basic items, such as food and shelter and virtually everything else, ever higher.

Even the political decision to empty our strategic emergency oil supply just before the November midterm elections here in the U.S. hasn't done much to put a dent in fuel costs. It's fairly clear that energy prices will soar after the elections with heating oil and gas prices seeing historical levels and shortages already, and diesel fuel reportedly in very short supply here. Europe looks to be in worse shape after a standoff on Russian gas supplies and its own lack of planning for a safe conversion to solar and wind, instead of nuclear, gas and oil, which may make for a cold winter there. That's particularly true of Germany, which shut down its nuclear plants prematurely. France looks to be in slightly better shape for taking the opposite tack.

Worse yet, a chip shortage (most are made in China) made it difficult and even more expensive to buy an electric vehicle. And car manufacturers are cutting down the number of electronic keys (from two to one) that new owners will get, because of the chip shortage. In any case, such vehicles aren't the best or fastest way to lower carbon emissions, since they don't beat gas vehicles until well after 100,000 miles generally. Then there is that irksome environmental problem of what to do with the batteries and their heavy metals, let alone obtain these rare components, which again are largely controlled by China.

Could the energy price crisis get any worse from actions by a stumbling Administration? Well, yes, it could. The Biden Administration also managed to upset the Saudis by cancelling an arms deal in their first week in office; tried to reopen the nuclear deal with the hated and feared Iranians, which infuriated both the Saudis and Israelis; and then noisily bashed the Saudi Prince over his involvement with the assassination of a Saudi journalist two years earlier. In an embarrassing turn of events, President Biden had to go hand in hand on a personal call on the Prince, only to find that the Saudis subsequently turned off the OPEC oil and gas spigots and made the shortage even worse for everyone.

Of course one of the other drivers of inflation has been the Russian-Ukraine war. Besides disrupting energy and food supplies, the high costs imposed to supply the Ukrainians—largely falling on the U.S.—has greatly added to the already profligate spending spree by the U.S. government, which key economic advisors of all political stripes have been warning about for well over a year. At roughly 8.5% it is currently the highest such spike in 41 years.

These are all just some of the reasons that I don't think inflation will disappear anytime soon. It will inevitably hit parts of the art and photography markets. The photo market has been facing all the same inflationary winds as other areas. Costs for employees, gallery rental, insurance, shipping, show participation, travel, interest rates, etc. are all going up by double digits in many cases. And while sales certainly took a hit over the COVID years, most dealers that I have talked to lately seem to have had a decent 2022 in that regard, as business sort of returns to a more normal situation. It's only their costs that are killing profits. I have already been seeing a lot of price hike announcements for photographers in my email. I am sorry to say it, but it's inevitable; and the only thing that could temper that would be a major recession the likes of 2008, which is still pretty dubious at this stage, despite the efforts of an aggressive Fed.

As in past economic upheavals, look to the blue chips of photography, 19th and 20th-century vintage photographs to provide the most stability, while expectations for contemporary photography might be harder to predict, but in the short run, at least, will see price increases.

Novak has over 48 years experience in the photography-collecting arena. He is a long-time member and formerly board member of the Daguerreian Society, and, when it was still functioning, he was a member of the American Photographic Historical Society (APHS). He organized the 2016 19th-century Photography Show and Conference for the Daguerreian Society. He is also a long-time member of the Association of International Photography Art Dealers, or AIPAD. Novak has been a member of the board of the nonprofit Photo Review, which publishes both the Photo Review and the Photograph Collector, and is currently on the Photo Review's advisory board. He was a founding member of the Getty Museum Photography Council. He is author of French 19th-Century Master Photographers: Life into Art.

Novak has had photography articles and columns published in several newspapers, the American Photographic Historical Society newsletter, the Photograph Collector and the Daguerreian Society newsletter. He writes and publishes the E-Photo Newsletter, the largest circulation newsletter in the field. Novak is also president and owner of Contemporary Works/Vintage Works, a private photography dealer, which sells by appointment and has sold at exhibit shows, such as AIPAD New York and Miami, Art Chicago, Classic Photography LA, Photo LA, Paris Photo, The 19th-century Photography Show, Art Miami, etc.