Art lovers sometimes write or talk as if economic costs do not matter. They tend to evaluate regimes in terms of the quality of the art that is produced, without considering the opportunity costs of that art. More and better art is equated with a better society. We are never told how many bags of potato chips, or how many antipoverty programs, we should sacrifice to receive another great artistic performance, or how we might hope to find out such an answer. The economic approach reflects the view of the common man that art is not everything, or even the most important thing.

The Federal Writers’ Project of the New Deal supported Saul Bellow, Richard Wright, Ralph Ellison, and Zora Neale Hurston, among other individuals who later became noted writers (see chapter 3). Many literature lovers then conclude that the program was a good one. The economist, in contrast, could point out that the Federal Writers’ Project spent $27 million for about one thousand books and pamphlets, at a cost of $27,000 per publication. Translated into dollars for the year 2000, this amounts to $337,500 per publication, or $337.5 million for the total. While some of the publications were of very high quality, they cost a great deal. It is hard to believe that offering indiscriminate literary advances of $337,500 per work is a worthwhile investment, even if it produces some first-rate books. Frederic Bastiat, writing in the nineteenth century, argued that proponents of arts subsidies typically focus on what is seen and neglect what is not seen, namely the other projects and outputs that would have been funded with the money.

These artworks benefit relatively small numbers of people, including the artist, but the benefits are [substantial] for each recipient. Most of the benefits lie well above the threshold of noticeability, and thus they increase human happiness. The less extreme form of the argument, rather than finding a free lunch, relies on antiegalitarian intuitions. We take small amounts from many individuals to give concentrated benefits to a few, and indeed often to the relatively wealthy. The distribution of goodness in society becomes less equal, but our peaks of aesthetic achievement become more beautiful. Subsidy supporters do not like to publicize this reality, but these antiegalitarian intuitions are central to many of the arguments for subsidies.

According to figures for U.S. symphony orchestras, 33% of their income comes from private donations; endowments and related sources account for another 16%. Concert income generates 42% of revenue, and direct government support provides only 6%. Looking at nonprofit arts institutions more generally, individual, corporate, and foundation donors make up about 45% of the budget. 12% of income comes from foundation grants; this is two and a half times more than the contribution of the NEA and state arts councils combined. While these numbers fluctuate each year, they provide a rough measure of the relevant magnitudes.

That being said, the U.S. government supports the arts far more than these figures would indicate. Let us now turn to indirect subsidies in more detail, starting with the role of the tax system. American policy provides support for artistic nonprofits but lets donors decide which institutions will receive the funds. The government is removed from the role of judging artistic quality, yet creative activity receives a spur nonetheless.

The tax system provides the most [important] arts subsidy in the United States. Rough estimates suggest that Americans donated over $29.4 billion to the category Arts, Culture, and the Humanities in 2003. This amounts to about $100 for each individual in the United States. In contrast, individual private philanthropy to the arts is virtually nonexistent in most European nations. If we look at individual donors, Americans give almost ten times more to nonprofits, per capita, than their French counterparts give.

We do not know, for instance, how much very large changes in tax rates would affect donations and nonprofits. Nonetheless if we take this figure as a workable and available estimate, the U.S. government is making a fiscal sacrifice in the range of $26 billion to $41 billion to support the arts.

The estate tax also boosts arts donations. To avoid paying taxes on bequests, many individuals leave money to nonprofits and arts institutions.

European governments do not offer comparable tax benefits to their arts. France, for instance, limits tax deductions to 1% of taxable income for individuals and 0.1% for corporations. Other countries, such as Germany, have allowed tax deductibility in law but made the deduction unworkable through bureaucratic restrictions. In particular, individual donors had to give through complex intermediary institutions and endure heavy paperwork. In 199927ya Germany took steps to move closer to the American model, but the fundamental nature of German arts policy has yet to make the transition. France is beginning to make similar steps. England allows tax deductions but also makes the requirements more difficult than in the United States. Typically a taxpayer has had to agree to make payments for at least seven years to earn the deduction. Furthermore, the donations have not always been deductible at the top marginal rate, but rather at a lower rate.

For these reasons, some European arts institutions, especially in Great Britain, find their leading private donors in the United States. In the mid-1980s, J. Paul Getty donated $62.5 million to the National Gallery in London, the largest donation the institution has received.

Corporate giving, like private and foundation giving, has been influenced by public policy decisions. Corporations have received tax breaks for supporting the arts since 193690ya. As with individuals, the evidence suggests that corporations give more to the arts when they receive tax benefits for doing so.

Consider the Minneapolis Artspace group, which wanted to renovate a decrepit warehouse and turn it into artists’ apartments and studios. They started by going to the State Housing Finance Agency and applying for low-income tax credits, available for renovation projects. These credits are paid for by the federal government but allocated through state governments. The project had an estimated value of $20 million, which meant that the available tax credit was about $900,000 per year. This sum is paid out yearly for ten years, or $9 million in total. ArtSpace used these tax credits to get a bank loan of $7 million and then set up a corporate partnership, in essence selling the tax credits to the corporate partner for cash. ArtSpace also financed 20% of the $20 million cost from the historic tax credits available through the Department of the Interior, again selling these tax credits for 93¢ on the dollar. Eleven million of the $20 million total was now in hand, and construction could begin. County and state tax programs served to complete the financing, and the remainder was raised from private foundations, again with an implicit tax break for the donations.

In fiscal year 2002, U.S. libraries had budgets of over $8 billion, most of which came from government support, usually at the local level. This is the largest and best-developed public library system in the world.

Since the 1920s, U.S. foreign policy has ensured that foreign markets stay open to Hollywood exports. In 1926100ya the Department of Commerce added a Motion Picture Section. After the Second World War, America used foreign aid and its military muscle to discourage European cultural protectionism, especially in Italy, France, and England. The struggle continued through institutions associated with the General Agreement on Tariffs and Trade and then the World Trade Organization. The State Department also supported the cartelization of Hollywood export efforts through the major studios. Hollywood currently receives export tax subsidies, which of course support the production of films at home. Note that this support has involved an implicit trading of favors. Hollywood might not have received governmental assistance in opening markets had it not strongly supported the American role in World War II.

Some trade subsidies arise through the failure to enforce laws. The U.S. government has helped make America a center of the art world by relatively laissez-faire importation policies. Imported artworks, unlike most other forms of commerce, are exempt from import and export duties in the United States. This policy has stimulated American art collecting and has helped make New York a center of the art world. Note that in 1883143ya American artists lobbied successfully for a heavy tax on the importation of artworks, fearing competition from European creators. The famous Armory Show of 1913113ya introduced modern art to the United States and stimulated an entire generation of painters. The show became possible only when this tax was repealed shortly before its staging.

The U.S. government has subsidized postal mailings since the beginning of the Postal Service in the late eighteenth century. Newspapers, which carried literary installments and informed the public about the arts, received especially favorable treatment. Starting in 1851175ya the Postal Service offered subsidized rates to book mailings. The period 1874152ya to 1885141ya brought further rate changes that gave a huge boost to the mailing of magazines. By the end of this time magazines were cheaper to mail than were advertising circulars. The result was a magazine boom, which gave writers a new way to reach audiences and make a living. Between 1885141ya and 1900126ya, the number of magazines with 100,000 circulation or more rose 21 → 85; by 1905121ya the figure was 159. By 1903123ya Ladies’ Home Journal had garnered more than one million subscribers.

The first artist-in-residence in an American university was American painter John Steuart Curry, who worked at the University of Wisconsin in the 1930s. The pianist Gun- nar Johansen joined him there in 193987ya. Robert Frost received support from the University of Michigan, which in fact offered him a stipend for life. For the most part, however, the artist at the university is a post-World War II development, most of all from the 1960s. [Morrison, Jack. 197353ya. The Rise of the Arts on the American Campus. New York: McGraw-Hill]

Creative writing programs, often at state or state-subsidized universities, train American writers or help them connect with publishing houses. John Barth spent the first twenty years of his career at two state universities, Penn State and SUNY Buffalo. A study of the New York Times Book Review found that 31% of the reviewed authors earned their living from the academic world (although this figure includes nonfiction books as well). Universities support the arts in many ways, not just through full-time faculty hires. In the world of classical music, almost every composer serves as a guest composer at an university for some period of time. Universities also are a venue for classical music performances. They bring performers to audiences, including to smaller towns such as Ann Arbor, Michigan, and Bloomington, Indiana. The recent boom in world music is due, in part, to the concerts held at universities. The University of California at Davis alone spends $7 million a year on the performing arts. Roughly two dozen universities are currently active in commissioning new artworks. The list includes Ohio State University, the University of Iowa, the University of Michigan, and the University of California, all state schools. The University of Iowa is arguably the leader in this regard, having commissioned more than eighty works since 198640ya.

The university poetry anthology - required reading for many introductory survey classes - provides the primary market demand for the writings of poets. Contemporary poets receive royalty income and some measure of fame from these volumes. Universities also subsidize many literary magazines. DePaul University has published Poetry East, and Southern Methodist University has published Southwest Review. University presses publish many works, including fiction, that commercial houses reject.

The College Art Association lists over seven hundred art museums at American colleges and universities. Yale, Chicago, Berkeley, Michigan, Howard University, Bob Jones University, and Williams College are among those with the best-known collections, but many smaller institutions fill important niches. They cover areas - such as ethnography, ceramics, or prints - that get crowded out of many larger, nonuniversity museums. They also show many local artists, or artists in special genres, who otherwise might not receive exhibition space. College radio stations, and the college tour circuit, are critical to the success of independent rock bands and do much to help musical diversity. A commercial radio station, for instance, might play only five hundred or so songs a year. WHRB-FM, at Harvard University, estimates that it plays seventy thousand to ninety thousand songs a year.

Subsidies to higher education remain [substantial]. In 1995, the United States had over 14 million students enrolled in higher education and approximately 915,000 faculty, spread out over 3,706 institutions. Private schools receive large subsidies; federal direct subsidies to higher education cost $11 billion yearly, with another $18 billion allocated to research support, mostly going to private schools. Federal support alone (not including student loans) accounts for about 14% of higher education expenditures. Henry Rosovsky (1990, p. 262) estimates that 20% of Harvard’s budget comes directly from government funds.

If we take the public and private sectors together, National Science Foundation figures from 1995 indicate a total income for research universities at slightly over $87 billion. Sixteen billion of this total comes from state and local government appropriations, and $12 billion comes from federal grants and contracts, for slightly less than a third of the total. Tuition revenue relies heavily on federal and state subsidies. In 2000 federal direct and federally guaranteed loans amounted to about $41 billion, covering more than six million students.

Nonprofit universities are tax-exempt, and their charitable benefactors can deduct donations to universities from their taxes. These various tax deductions are estimated to be worth at least $11 billion to universities each year. Historically universities and colleges benefited greatly from the Land Grant Acts of 1862164ya and 1890136ya. The federal government gave free land to universities with few restrictions. The area of this land was equal to the size of Switzerland, and helped schools such as Cornell, MIT, Yale, and Texas A&M, among others.