When the price of General Motors stock closed at $2.92 on Nov. 11, it was the first time shares had closed below $3 since 1946. What a blow for a company that has been a household name for decades.
But it gets worse.
In 1946, $3 was real money, or at least worth a lot more than it is today. Today, $3 won't quite buy you a kiddie cone at one of our fine Boston ice creameries, for instance.
Well, how much would three 1946 dollars be worth today? It depends on whom you ask.
On the one hand, if you measure by consumer prices, that $3 of 1946 would be equivalent to about $32. On the other hand, if you wanted to match in today's dollars what that $3 represented as a share of the gross domestic product in 1946, you'd have to come up with $185 or so. (I'm indebted for these numbers to the good folks at the website MeasuringWorth.com, who can calculate only up through last year, so I'm fudging just a bit here.)
"The time value of money" is the phrase here. It's not a new idea, but during the current economic crisis, I want to be sure to do my bit for economic literacy.
Here's the rule: Any comparison of prices over time needs to account for inflation somehow. If it doesn't, you end up with incomplete information. Economists speak of prices adjusted for inflation as "real," and the prices actually written on the tag as "nominal."
In the case of GM's stock price, using nominal prices understates how the mighty are fallen. But often the failure to adjust for inflation exaggerates instead.
This use of real to mean "adjusted for inflation" carries over into "real" interest rates, or other usages such as, "In real terms, he's paying less rent than when he was a student."
A "real" term I'm not readily finding, however, in the various glossaries of economic terms that I've consulted is "real economy," meaning the one that actually produces useful stuff, widgets and things, as distinct from the financial system. Main Street, not Wall Street, in other words.
The term has been everywhere lately, generally without an explicit definition. A piece in The Korea Times last week, for instance, reported, "The stock market dipped on concerns that troubles in the financial sector have started shaking the real economy."
Real comes to English from Latin and is rooted in the idea of legal property and things, as contrasted with ideal. Real estate goes back to 1666 and is an example of the "property" sense of the word.
Actual, another word for what's really happening as distinct from the potential or the ideal, could have been conscripted for these economic usages but wasn't, perhaps because of its three syllables. It's rooted in the idea of "acts" but retains a sense of "here and now." In French, actualités are "the news." The emphasis is on currency rather than truth. In a sentence such as, "Where do you live, actually?" actually is often just a bit of verbal filler.
"Excelsior," my mother would have called it. That was her term for the stuffing that makes a parcel travel better through the mail. Where did she get "excelsior"?
Hmm, let's look it up: "Slender, curved wood shavings used especially for packing," says the American Heritage Dictionary. It goes back to 1868. "Originally a trademark."
In 1868 someone felt a need to trademark a fancy name for wood shavings? Who knew?