I hear that all the time: "The arts flourish in a depression." and "When the economy goes bad, the arts get stronger." and "Creativity doesn't just blossom, it explodes in times of economic turmoil."
The reason most people give is that "When times get tough, people need something to cheer them up, so they turn to the arts." And I think this is true. But only partially true. From a consumer's point of view, this is the explanation.
But what about from an artist's point of view? I've been thinking about this all day.
First, some background on the indie music biz (I don't know the record label biz at all).
The music world (at least the part I interact with) is arranged in a continuum. It looks something like this:
Hobbyists and dreamers--people who dabble in music, love it, and try it but don't belong to any group and aren't performing in public, although they go to concerts ALL the time and buy cds and are great core fans. These are people who are perpetually plotting out/trying to start/auditioning for groups but never actually get them off the ground. These people have no idea that there is a business at all and believe that their only way into music is by the "big break" method--like winning American Idol.
Garage bands and other amateurs--People with little training and some (little or great) skill who actually get out and use what skills they have and actually play shows, but mostly to friends and families, and mostly free. Some of these are trained musicians. Some are really really really good and will move out of this group if they can get the business sense. Some belong in the garage singing to the walls.
Local acts--these are people who get paid to perform in their city or county and who do some work and get paid for it, but only a little bit (dinner-$300/show, generally speaking). Some of these are really good and are building their fan base and will move on to other levels. Some are still playing to friends and family only--they just happen to have a lot of friends and family members in the area.
Regional acts--Groups that rehearse and perform regularly, sell cds, and have a regular following--not only friends and family. They perform in their region (state or group of states), do fairs and festivals and local corporate shows, and are known around town. They usually make $1000-$3000/show, sometimes a little more, occasionally a little less. And they invariably think they are better than they actually are (which is actually pretty good, to be honest, but not polished up great). These are the "semi-pro" groups that are big fish in a small pond, and they made a decent amount playing out around the area, but keep their day jobs (although they dream of being able to quit and often say, "We have something to offer the world" and get frustrated that things aren't taking off). They are usually looking for an agent or have one, but still aren't clear on the difference between a manager and a booking agent, pay (often too much) to produce their cds at the best local place and sell them in local music stores and online. They are real musicians, and working, but only on a regional level and not full time. That's not to say they aren't quite good. My experience with regional groups has been that they are pretty good, pretty big-headed, and got to where they are pretty haphazardly (in other words, they can't tell you how they did it, and they kind of expect the next step to "just happen" in the same way), and pretty hungry to move forward.
Professional/National Acts--These are groups that tour nationwide. They have management. They sell cds and produce more cds (have more than 2 albums out there, usually). They wear costumes when they perform (even if those are "street clothes"). They know how to efficiently do a sound check, often tour with their own sound guy, work the corporate market, as the headliners on cruise ships, as headliners at fairs and festivals and you might have heard of them, but most especially within your favorite genre. These groups can get 5-to-6-digit paychecks per show, with $5,000/show being low end/starting point and $15,000/show being more common. These groups do small runs in Vegas and other resort towns and can name the A-list celebrities they've worked with. They are too busy with music to have "real jobs" and most of them have been doing it for a long time. Also, most of the performers in these professional groups are doing more than one thing in music (they perform in 2 or more groups, teach lessons, do solo gigs on the side, write songs, do studio work, etc). My experience has been that these musicians are hard-working, friendly professionals. They know their jobs and do them well, but aren't divas.
Household names--These are the big guns. These are the people whose songs you hear on the radio and who can't go out in public without paparazzi following them. Their entourages include groupies, roadies, semi-trucks of equipment, elaborate and expensive costumes with staff to care for them, security people. They play only large venues and get paid six or more figures per show. Usually more. These people are backed up by record companies and the media.
Legends--These are the performers the household names want to meet someday. These are the people who created their genres, who everyone knows, who don't even have to perform anymore but if they do go out, they make millions of dollars per show. There are just a handful of these groups/artists, and a good number of them are dead. These are the Elvis, Michael Jackson, Madonna, Beatles-level musicians.
Notice there is a gap in the pay scale between about $300 and about $1200. The local groups really aren't worth that much, and the regional groups can't afford to work for that little. (When you divide the income 5-10 ways, plus pay expenses and taxes out of it, $800 suddenly isn't very much money--especially if you have to pay a sound guy or travel--or both!).
So, what does this all have to do with the arts flourishing in times of economic crisis?
When the economy tanks, like it has, companies and cities find their budgets shrinking, and they take the money out of the "non-essentials"--like entertainment for company parties or city festivals. Venues find there are fewer people with disposable income, and they just aren't selling $50 tickets as much as they used to, to they have to drop their prices and cut back their schedules to get people to come. The end result of all of this is that there are fewer shows available for musicians, and those shows don't pay as much. This is a double-hit for musicians. Normally, you can make your money as a musician by working for high fees or by doing a lot of shows for moderate fees. When the pay drops and there aren't lots of shows available, things start to fall apart.
The legends and household names go on tour or get shows in Vegas (you watch, they do it--it's their way of working again when things get tight). Audiences with limited entertainment budgets still pay a lot to see these guys because they don't come around as often. Consequently, they aren't going to see the lesser-name groups because they spent their money to see their very very favorites.
The professional touring musicians--national market but not household names--suddenly find that nobody can pay their usual fees. This is a serious hit for them because they are the ones who don't have day jobs, relying solely on their income from gigging and other music work to make ends meet. They are willing to gig more to make up for it, but there aren't more gigs and the gigs that are available don't pay enough to keep them alive, forcing them out of the market (at least in part) and into day jobs, which leaves them working for the very-highest-paying shows on the regional level.
Interestingly, the pro groups working the regional markets for pennies on the dollar while they start new day jobs is invariably paired with the regional groups (remember: big-headed, don't know how we got here and deserve to be ahead of where we are) suddenly getting desperate to break into the national market, partially because they are getting pinched in their day jobs (just like everyone else) and music has always brought them a good second income. They've done the math a zillion times, usually, dreaming about quitting their day jobs and "going pro". With the day jobs being less satisfying, and the regional groups inexperienced in the music business, they inevitably figure this is the time to make their leap to the national market (which, they assume because they've never thought about it, is a steady selling place, impervious to economic hardship because arts flourish in a recession, right?). Finding it economically and ideologically difficult to accept lower-paying regional shows, they start to limit themselves to the highest paying shows they've known before, putting them in direct competition with the national acts right when venues and organizers are all, across-the-board, dropping their budgets and pay for musicians.
The result: There ends up being a bunch of shows that pay $300-$1200 that other people aren't taking.
So what happens? The small fry get a break. $300 is more than they've ever earned, so they feel like they're flyin' high. Startups made from experienced musicians who are just looking to get their next project off the ground get a break. They expect to work for free-to-cheap for a while to get their names out there anyway, so it's fertile ground for them. Local groups get a break--their overhead is lower, so they can afford to take the shows from buyers that used to bring in national and regional acts but now can't afford it (since show fees usually are travel and lodging PLUS the cash amount of the fee). Small bands and solo acts get a break because they can work for cheap.
Anyone who can work for cheap finds the door suddenly wide open at the same time as a bunch of established groups are leaving the business or scaling back (out of necessity).
The odd thing is, the quality goes up at the same time. Why? The middling groups--passably good but not top-notch--in the upper half of the continuum suddenly find themselves in competition with each other and with both lower-ranked and higher-ranked groups. The demand is down, so the supply tends to purge itself because the buyers can take their pick, and they tend to pick the best. In the lower end of the continuum, buyers who are used to working with semi-pro and pro talent find themselves unable to afford it, but with the experience to recognize the really talented groups from the other pools--and with pressure from audiences/ customers who are used to seeing the best. With their background and experience, these buyers are capable of combing through the cheap acts and pulling out the really good stuff (which has been there all along, actually, and which would probably have made it out of the slush pile eventually).
Furthermore, people who are in it for easy money or to get rich and famous (an illusion which can be endlessly fed in economic boom times) get disillusioned quickly in bust times because there's too much work for too little pay and no security. This leaves the people looking for work who have music in their souls and who just have to do it to be happy. The true musicians, in other words. The ones who find that the rehearsal and performance is part of the pay, so that money isn't the reason they're in the business. These people will work for cheap even if they can't afford it because they'd do the show for free and for the intangible benefits. These people invariably are more talented and harder working, producing a better product.
So, with fees down and competition up, what you get is the really talented who are willing to work for cheap suddenly find themselves working, especially if they have some understanding of how the business works (ie can run their own sound if necessary, can make themselves sound good on any system using audio hacks, know how to produce good-looking press materials cheap, are willing to and know how to do the booking conferences and other buyer events, and--bottom line--produce a rockin' show!).
The reason the end users (to borrow from computer parlance--the audiences and record buyers) see a flowering of art is they are being suddenly exposed to a lot of stuff they've never seen before because it was buried in an avalanche of available groups. It's not that those things weren't out there before. It's not even that the really good groups wouldn't have made it to the national level anyway. It just would have taken longer.