Wednesday, December 25, 2013

Economy: Musings About The Sex Appeal Of Scarcity

(Drivebycuriosity) - What do bitcoins, apartments in London and contemporary art have in common? Their prices are going up into the sky.

In the beginning of the year a bitcoin (financial software) cost just $13.55 (cnbc). Now they pay around $ 700  for of a unit  (bitcoinity). Prices and rents for apartment houses in London have been rising for years sharply (telegraph). And Art Basel Miami Beach, Art Basel and other fairs show that "postwar and contemporary art has been on fire” (bloomberg newyorker).

Bitcoins, London`s apartments and contemporary art have more in common: They are scarce. According to Wikipedia new bitcoins are created at an ever-decreasing rate (wikipedia). The total number of bitcoins is capped at 21 million.
The situation is somewhat similar to London`s apartments. Regulations hinder the city to grow beyond her green belts (wikipedia). London cannot grow much vertically either because there are height limits for skyscrapers (contrary to New York City ). Both regulations are limiting the supply of London`s apartments.
And the supply of contemporary art is restricted by nature, at least created by fashionable artists. Super stars like Francis Bacon, Andy Warhol and Jeff Koons can just produce a limited amount of original work, if they are still alive (and if you ignore forgeries).

Scarcity is attractive. If you own something that is rare, that could make you special. The rarer the thing is, the lower is the risk that your neighbor (or anybody else) has it and the more you can distinguish yourself. As owner of a rare item you could earn a lot of reputation, attention & envy. Therefore the more scarce something is, the more it it desired.

It seems quite natural that people who are rich and powerful like to collect scarce things to demonstrate their superiority. This isn`t confined to things. Traditionally rich & powerful men - hedge fund managers, CEOs, rock stars, politicians, kings - have been equipping themselves with especially beautiful women like top models, movie stars and so. These trophy women are often selected because of their scarce beauty. They are usually rewarded with invitations to 5-stars restaurants, luxury yachts and precious (scarce) gifts like diamonds and maybe even bitcoins, London apartments and contemporary art. It seems scarcity attracts scarcity.

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