December 14, 2008 12:00am
AUSTRALIANS should be the luckiest people on Earth. Taxes have been slashed year after year, interest rates have dropped and petrol prices are tumbling.
It all means a lot more money in our pockets, yet the world financial crisis is still casting shadows of gloom – now there is even talk of recession.
Fortunately the Government has responded quickly to the threat, but the abrupt change in direction has left many people confused. A year ago we were being urged to cut our spending and save – now we are being urged to spend. What's it all about?
The key factor here is what economists call the multiplier effect, and the story of the young architect who had just won a big contract explains it beautifully.
He took himself off to his favourite restaurant to celebrate, but, as he sat down, saw a newspaper on the next table – the headline was "Depression predicted".
He got such a shock that he cancelled his meal. When the proprietor asked the reason for the sudden change of heart he replied: "Look at the headline – there is a depression coming. I had better save my money".
The restaurant owner was so surprised that he rang his wife immediately and said, "There's a depression coming. Cancel that new dress you have ordered".
The wife promptly telephoned the dress shop owner and told her that she had to cancel the order because there was a depression on the way.
Naturally this worried the shop owner and, after a quick discussion with her husband, she decided to cancel the building contract for the planned extensions to the dress shop.
She rang the builder to pass on the bad news and the builder immediately decided to cancel all the jobs he had planned for the next year.
His first call was to the young architect, who had started all this off, to tell him his services were no longer required because "a depression is coming".
Bitterly disappointed, the young man slunk back to the restaurant to drown his sorrows. This time he was in no hurry and picked up the paper that was still lying there.
To his amazement he discovered it was an old paper dated 20 years ago and had been left there by a previous customer who had found it when he was cleaning out old boxes. The "depression" had all been in the young man's mind, but its effects were as real as if the paper had been printed yesterday.