What is the “Real Economy”?

Wall Street; AP photo

Question/Comment: I’m confused by the term “real economy.” Lots of people are using it, but no one has explained it that I can find. It’s something different than what Wikipedia defines as not the “virtual economy.” What’s going on?

Paul Solman: Different people mean different things by the term. In economics, “real” is contrasted with “nominal,” meaning “real” is adjusted for inflation, as in “real wages” or “real GDP.”

So if the “real economy” grew by one percent that would be one percent after adjusting nominal GDP growth for inflation.

But I’ve also seen the term used casually to distinguish the supposedly “real” economy of production and mining from that of financial services. The Economist did this as recently as October.

And here, from a blog by Joel Achenbach on washingtonpost.com: “How much will all this undermine what people call “the real economy”? Because although many of us have a rooting interest in Wall Street (via investments), our primary financial concerns involve jobs, housing, the day to day commerce of modern life. So that’s the next area to poke around: What’s happening on the streets?”

The phrase is, in a word, supple.