Tuesday, March 2, 2010

Nominal versus Real Movie Grosses

I've been teaching my macro classes about the concept of "real" versus "nominal" numbers recently, so I thought I would share some info I became aware of from the Economix blog at the NY Times.

In nominal terms, "Avatar" is the all time leading earner in the movie business, having raked in over $700B of our dollars in the US. But is it really? Not if you adjust for inflation. In fact, according to this chart at Box Office Mojo, it is only 15th, when adjusted for inflation, or, as economists would state it, in "real" terms. In fact, it trails James Cameron's previous over-rated blockbuster "Titanic".

While this may be a bit of fun trivia when discussing movie box office, it is important when discussing more serious economic issues. To compare "nominal"....and by that, I mean numbers achieved at the time they were achieved"....numbers from one year to another, particularly if those years are far apart, is utter nonsense. Yet, you will hear politicians, pundits and journalist do this.

More meaningful numbers are made "real" via a few methods, depending on the number. One is to just adjust the numbers by the rate of inflation between periods. You can find an adjuster on the Bureau of Labor Statistics web site that will do that for you instantly. For other statistics, say size of deficits or government spending, you can make numbers meaningful by comparing it to the size of the economy in general.....stating it as a percentage of Gross Domestic Product (GDP). If someone is using numbers from different times to make a point, find out if they are "real". If not, they are worthless.

Moral of the story: Beware the nominal number, and mistrust anyone who would use them to make their point.

1 comment:

Budd Bailey said...

It's interesting that movies use box office grosses to determine the champion, while, say, baseball counts fannies in the seats. I wonder if "Gone With the Wind" would be the champion in tickets sold.