THIS article is intended to be pretty light-hearted. It provides an insight into the strengths of the current Australian economy after talking with two aspiring amateur economist taxi drivers.
Taxi driver 1
I was chatting with the taxi driver on the way home from work last week, and he was complaining to me that, despite talk of a “resources boom” and a resilient Australian economy, he felt that the economy is weak because he has been experiencing a significant reduction in business over the last little while.
My taxi driver turned out to be quite an economist and inspired this article and my last one, Economic recession 2008: measuring the strength of the economy.
Australia has been negatively affected by the sub-prime mortgage crisis in a similar way to most other countries. At the same time, however, Australia is benefiting from a resources boom. High commodity prices and strong demand for raw materials from countries like China has seen large amounts of money flow into Australia.
As my taxi driver made me realise, however, it’s all very well to be told about a “resources boom” and a record Federal Government surpluses, if the tell tale signs are painting a different picture. A company might appreciate that the economy is weakening when its inventory levels start to rise above expected levels. The government might appreciate that the economy is weakening when tax revenues start to decline or grow more slowly. But how does the common man, how do you and I, appreciate that the economy is weakening?
Obviously, if your wage isn’t rising and the price of things like food and oil rise, then you will have less money to spend on other things. However, this tells you nothing about the strength of the economy over all.
Here is a list of four tell tale signs, from day to day life, that might indicate the economy is weakening (some of these ideas are borrowed from a discussion on James Valentine’s program on 702 ABC radio last week):
- The length of the cab rank: The theory goes like this. When the economy weakens and people are put under financial strain, they cut spending. Expenditure on necessary things like food and accommodation are the last things that people cut out of their budget. The first thing that people do away with is entertainment. If people are not attending concerts and not staying out late, then they are not using taxis, and consequently there will be an oversupply of taxis. So, when the cab ranks become inexplicably longer than normal, or taxis become easier to catch on a Friday night, it might be a sign that the economy is weakening.
- The length of the queues in Aldi: For those of you who are unaware, Aldi is a discount supermarket chain that is slowly but surely taking the world by storm. In Sydney at least, Aldi stores are not always so conveniently located. Increased queues in Aldi might indicate that people are tightening their budgets due to weaker economic conditions.
- The length of Tuesday petrol queue: In Sydney, the cheapest day for petrol is, for some unexplained reason, Tuesday.
- The number of new Aston Martins on the road: Flashy sports cars are a luxury good, when the economy weakens there is less disposable income available and you would expect to see less new luxury cars on the streets.
Taxi driver 2
I had another encounter last night with an aspiring amateur economist taxi driver on my way home from work (my taxi drivers are such a source of inspiration). Having discussed the economy with the other taxi driver last week, I was intrigued to find out whether this driver also thought that business was slow at the moment, and why he thought that might be.
He informed me that business had been a little slower than normal, but nothing out of the ordinary. Unlike my first taxi driver, he didn’t attribute this to a slowing economy. “The weather has been cloudy and wet lately, and people don’t like to go out in this weather. Winter is coming. This means that it gets dark earlier, it’s colder at night and less people are out in the city. There are also less tourists in the winter. I make more money when it is sunny.”
So, all things considered, perhaps these aspiring economist taxi drivers haven’t really been able to give me any insights on the current strength of the Australian economy. But at least they got me thinking.