To counter inflation, he [Liberal Party chairman James Tien] said, the government should continue giving handouts and he urged employers to raise pay. SCMP, July 21 Worsening inflation could mean the return of a recession to Hong Kong more severe than during the Asian financial crisis a decade ago, Executive Councillor Bernard Chan has warned. SCMP, July 21 One reason I have always recommended holding tight to the peg to the US dollar, and thus subjecting our thoughts on inflation to the policies of the US Federal Reserve Board, is that we might otherwise let inflation thinkers like James Tien Pei-chun and Bernard Chan loose on the Hong Kong dollar. Take Mr Tien's idea that government should resort to handouts to counter inflation. From what I can make out of the rather odd world that Mr Tien inhabits, there appears to be in it a fountain of free government goodies, which the appointed fountain-keepers can access from time to time. This is a world in which it is also true, as it is in ours, that inflation is the result of too much money chasing too few goods. But, while in our world the standard prescription for taming inflation is to restrain the supply of money available to buy the goods, in Mr Tien's world the prescription is to increase the amount of goods available for this money to buy. What this world's government does, when circumstances require it, is tell the special fountain-keepers to go to the special fountain and pour handouts from it into a fleet of aircraft that then scatter the largesse across Mr Tien's world. The result is immediate. People have all they want and no longer need to bid up prices to acquire necessities. Inflation instantly falls to acceptable levels. It is an excellent way of taming inflation, and I wholeheartedly recommend it. Mr Tien, however, appears to be under the misapprehension that this is also how the fountain works in Hong Kong. He seems to think that it is a magical one, as it is in his world. In Hong Kong, however, it is not magical, and the fountain-keepers cheat. When called on to use the fountain, they secretly sneak out the night before and first steal the fountain's goodies from the very people to whom they will redistribute these goodies the following day. How sad. I wish we could do it Mr Tien's way. But I think you will agree with me that as long as Mr Tien declines to lead us to the magic fountain of his world and leaves us to use only ours, we may find that his handout prescription to restrain inflation doesn't quite do the trick. Puzzling, I know, but there you have it. He is a kind-hearted man, however, as we all know, given the long-standing efforts of the family company, Manhattan Garments, to raise the pay of any garment and textile worker who produces or sells rags under its quotas. Other employers might chide Mr Tien for rendering Hong Kong uncompetitive by thus pandering to undeserved greed, but he will have none of it. He insists on paying more than competitors pay, even raising pay when they cut it. In a bad year he has even been known to let some of his employees sample the Latour, a bad year for the Latour that is. Why, just listen to him urging employers to raise pay again. Perish the thought that this could have anything to do with his re-election campaign. He is doing it to restrain inflation and once again, I heartily approve. I think it would be wonderful to bring inflation down by raising pay. The only problem I have is that I don't quite see how it would work. Can someone enlighten me, please, or is this once again a peculiarity of cause and effect, a quantum manifestation of the workings of economics, in Mr Tien's special magical world? As to Bernard Chan's world, I have always been under the impression that his is the artist's world (he has done some lovely pieces) and that he happens to find himself in the commercial world only because his family is Bangkok Bank, and in the political world only because it was thought proper to have a representative of the Thai Chinese community on the Executive Council. Fortunately, he himself has now thought the better of all this and will retire from the political world while restraining his commercial interests to the family's reduced insurance business in Hong Kong. What Mr Chan should bear in mind about inflation is that periods of recession here tend to be associated with periods of low inflation or even disinflation. High inflation rates are more commonly associated with boom times. This is not to say that high inflation rates are good for us. They inevitably bring bad times in their wake again. But circumstances at present are not those that led to the Asian financial crisis in 1997 and we are not imminently threatened with a recurrence. Perhaps, given his interests and abilities, Mr Chan would find it easier to gain insights on inflation by painting a balloon.