inahandbasket

Remember NFTs?

To explain what NFTs really were, first it's necessary to understand the manipulation of the art market by billionaires. Simplified, it goes something like this:

Billionaire A buys, over the course of years or decades, a bunch of art by some artist whose work is worthwhile but affordable. It doesn't have to be the most worthwhile work out there. Billionaire B buys a bunch of art by some other artist. Maybe it's a hundred pieces at five to ten thousand dollars apiece, or maybe it's somewhat fewer, somewhat more expensive pieces, but for most artists it's going to cost less than a million dollars over that artist's lifetime to become the foremost collector of that artist's work.

Some time later, perhaps after the death of the artists in question, Billionaire A (or his heirs) sells one of the pieces of art to Billionaire B for millions of dollars, and Billionaire B likewise sells a piece to Billionaire A for a similar sum. Billionaires A and B then also each donate one of their pieces of art to a museum.

By selling the pieces, they establish a value for the rest of their collection, and that means they can take the full market value of the donated piece off of their income without having to recognize the capital gains on the donated piece. This offsets the capital gains on the sold piece, net tax liability zero. And the amount of cash they each had to shell out to buy the multi million dollar pieces also nets out to zero. But suddenly they each have a billion dollars worth of art with an established market value that they can use as collateral for a low interest loan so they can buy an island or a jet or a rape victim's silence or whatever else they feel like buying that day.

It's not just that the billionaires have gotten this money tax free. It's that they have mostly made up the money in question. It's not real! But they get to spend it anyway.

This massive distortion of the art market has all kinds of knock-on effects, some of them positive. At the very least, it establishes value to billionaires of supporting living artists in ways that might not be significant to them but are certainly significant to the artists. It puts some of the art in museums where people other than the billionaires get to see it. The massive loss of tax revenue outweighs these benefits, but there was still a benefit.

NFTs were a way to make this market distortion more efficient. But the invented value lost its plausibility and the market collapsed.

AI is like this: mostly a market distortion with some real benefits, outweighed as they may be by the downsides. But the current financial arrangements of the AI companies have gotten too efficient, and lost sight of the value plausibility.

Art survived the NFT implosion. I hope computers survive the AI implosion.