Strolling into a bank, the lady presented a cheque and asked the teller to cash it. The teller asked the woman if she could identify herself. Pulling a mirror from her handbag the woman looked in it and said, "Yes sir. It's me, all right."

Friends had told me that Hong Kong has less on an international air than it used to. They were right; this place is getting more Chinese. It's been done largely through language rules on official positions. But everyone says the expats are steadily leaving and not being replaced. Meanwhile about 150 people a day immigrate from China. So everything is changing.

But it's a short-sighted policy, I am sure. Hong Kong has made its reputation as a meeting place of different cultures. Singapore by contrast makes its diversity an active statement of policy. Hong Kong will lose the electricity that is generated by different ideas and cultures coming together.

There is little overt regulation of business, but despite this, HK is by no means a free-market paradise. Many sectors of the economy are controlled, it seems, through a few oligopolists, particularly the property sector, which is so important here. (I remember many years ago being told that the Royal Bank of Scotland building in Hong Kong was worth more than the rest of the Bank put together. It's that sort of a place.) But of course development land is only made available in big tranches, so that only a few developers can afford to tackle it.

Likewise, the Jockey Club is huge. It's not the genteel group we have in the UK. It's a huge gambling monopoly. It fundamentally runs its own welfare system, which is one reason why taxes can be kept so low.

Health is particularly non-free-market. The hospital sector is 90% government, but primary care is nominally free. In fact, of course, that's how all the doctors make their money, because it isn't. It's hugely regulated (and many of the ruling folk in Hong Kong are doctors, so you know what that means), and doctors from abroad are not welcome, which reduces competition, and so on.

Nor is the rule of law by any means complete. People say that it's a fairly relaxed place until you annoy someone with power, and then you find your business has no electricity and you're done for.

Still, despite all this, most business sectors are left pretty much alone to get on with the job of making profits. Which is maybe why it looks like a free-market paradise, even though in important ways it isn't. It's remarkable how resilient the market is. As China unleashes more and more market activity, it doesn't know what's going to hit it.

In a recent posting I queried the relative merits of macroeconomic management by Central Banks. I suggested that inflation targets were confounded by targets contractually outside the box like asset prices: And asked if Banks which target, say, stable prices achieve that objective better than those who do not.

As Bill Thomson, formerly VP of Asian Development Bank and now an adviser to Franklin Templeton International, said in a personal response:

“Of course, these discussions avoid the wider discussion of what inflation is and how it should be measured. The measures have changed dramatically over time and vary widely from country to country. The US CPI is especially vulnerable to the charge of being a politically charged figure. Since the CPI has major budgetary implications, in that many expensive government programs (including social security) are indexed to it, the government has a vested interest in holding inflation adjustments down”

Some market observers believe that the CPI may understate the true level of the US by as much as 5 percentage points.

More generally what is the point of this elaborate game in which a Central Bank with some independence is charged with meeting a target which keeps being changed by a Government preoccupied with short term politics? In Britain the Treasury is in constant conflict with the ONS on issues of measurement. Allowances may be made for increasing quality of items in the CPI (such as computers) of little interest those who use them as typewriters.

Anatole Kaletsky highlighted this in the Times:

the Federal Reserve Board strips energy prices out of its calculations of core inflation. Thus there is no risk that US monetary policy might be damagingly tightened by over-zealous central bankers in a panic response to soaring oil prices.

and

Although the European Central Bank suggested last week that it did not see an inflationary threat from temporary shortages of oil, it continues to include energy prices in its main indicators of inflation, leaving its monetary policy hostage to shocks such as Hurricane Katrina.

Is EU macroeconomic policy in a mess or what? Probably, but perhaps no more than the EU is already in.

Something is rustling in the long grasses of Europe. It is called miscanthus, a variety of elephant grass which is being tested as a possible 'green' way of producing energy. One of its features is that it achieves high yields on little fertilizer. BBC science reporter Jonathan Amos reports from the Dublin conference at which it was announced.

Burning biomass is broadly neutral in terms of its emissions of carbon dioxide, the major gas thought responsible for warming the planet. "As the plant grows it is drawing carbon dioxide out of the air," explained Professor Steve Long, from the University of Illinois. "When you burn it, you put that carbon dioxide back, so the net effect on atmospheric CO2 is zero.

The plant itself, at 4m (about 13 ft) high is being tested in varieties yielding 60 tonnes of dry material per hectare, five times today's typical yield. Prof Mike Jones told the British Association's Festival of Science that, grown on 10 percent of Europe’s useful land, it could generate 9 percent of Europe’s electricity.

These are big numbers. They may be above the best which can be realistically expected from wind farms at current progress, and provide yet another example of the ingenuity which is going into developing new energy sources. Currently high oil prices will provide a real boost to this type of research, encouraging us to find alternatives far more readily than any inter-governmental diktats or NGO exhortations.

True, it doesn't make us live more simply: if it works it simply gives us a renewable source of electricity. Europe at present grows many crops which are environmental unfriendly and unpleasant because of the fertilizers and pesticides they need. CAP subsidies and tariffs mean that this activity denies poorer countries the ability to gain wealth by selling us their crops. So roll on miscanthus. It even looks quite pretty, too.

A businessman, on his deathbed, called his friend and said, "Bill, I want you to promise me that when I die, you will have my remains cremated."
"And what," his friend asked, "do you want me to do with your ashes?"
The businessman said, "Just put them in an envelope and mail them to the Internal Revenue Service. Write on the envelope, 'Now, you have everything.'"

Western commentators like ours in the UK find China a puzzle. Even on the official figures, which no doubt under-report, it's growing hugely. Its private sector is growing by 20% a year and accounts of 60% of its fixed capital investment. By 2010 it could overhaul the UK as the world's fourth largest economy. There are vast markets there. But China stocks continue to languish and investors still seem reluctant to get involved.

Part of the problem is that China is a land of regions, some creating wealth, and some holding progress back. Consider: 3% of China's landmass accounts of 75% of its exports. And that landmass is Hong Kong and the Guangdong Province around it.

Hong Kong Economist Michael Enright tells me that this success is due to the happy juxtaposition of management and knowledge talent in Hong Kong and cheap manufacturing just over the border in Guangdong. The 'made in Hong Kong' stickers have been replaced by 'made in China' stickers. But the management, marketing, logistics, product sourcing and other parts of the chain all come from Hong Kong, whose knowledge workers have risen from 21% of the workforce in 1981 to over 50% today on the strength of this.

Hong Kong expertise is now having and important effect on China. They're sending delegations over all the time to see how things should be done. Meanwhile, China's agriculture and urban housing are now reformed, giving people an asset they can borrow against to set up new businesses. About 300-500m people will move from the farms to the towns as the economy matures. Better transport (highways now link all the big cities) will erode inter-regional protectionism, creating the world's biggest free trading bloc.

Sure, they still have to sort out their banking sector - the state banks are full of rotten loans, made to community enterprises as a politically expedient move rather than business sense. And Chinese businesses can fold up and disappear overnight, so they are hard for bankers to deal with. But things are happening on all those scores.

They're being cautious, but if they can do it, the financial expertise of Hong Kong will no doubt be in there like a shot. Then we'll really see some fireworks.

David Walker in today's Guardian seems rather unhappy with the idea of a flat tax and specifically with the ASI for proposing one. This is a touch unfortunate as his unhappiness doesn't seem to be caused by any knowledge of the facts.

This summer's buzz is "flat tax", the proposition that matters fiscal would be dramatically simplified if we all paid a single rate on all the income we earned.

Well, no. No one, and most especially not the ASI, is proposing that all income should be subject to one tax rate.

But the basic case for progressivity remains the one made by that celebrated socialist Adam Smith, who said taxes should be based on equality of sacrifice. The extra income earned by a rich person is simply worth less than the extra pound in a poor household. Which is why a flat tax was, and is now, evidently unfair.

To get round this fundamental objection, flat taxers start talking about allowances. A recent pamphlet from the Adam Smith Institute reserved a flat tax for incomes above £12,000, which would exempt a fifth of all households from paying any tax at all.

Ah, he noticed.

But that would involve a huge loss of government revenue, £50bn or so - two-thirds of the cost of the NHS.

Which rather begs the question, what on earth are they doing with the other 450 billion? What’s being missed here is that having a large personal allowance is actually driven by a belief in egalitarianism of a kind. The poor should not be taxed to provide for the State, the rich should. If we cannot get enough from the rich to pay for all of the things desired from that State, perhaps we should change the things we ask the state to do rather than steal the crusts from the mouths of poor children? The idea that we should be taxing the poor to pay for the desires of the middle classes strikes me as profoundly inegalitarian.

So the flat taxers then deploy the Laffer curve (a back-of-the-envelope job from Arthur Laffer, an economist much lauded in the Reagan White House) and claim that cutting taxes will make us all work harder, earn more and - eventually - boost the Treasury's take. Eventually is a long time in politics and, surprise, in the meantime, public spending would have to be cut.

It was a napkin not an envelope, but to deride the Laffer Curve in this manner is obtuse. We’ve known of the existence of this curve since David Hume. The argument is always about where exactly on the curve we are. Are taxes so high that they cripple incentives and thus reduce total revenues? Or are we to the left of the curve, where taxes can be raised and the damage to incentives so small that revenues do rise? That's an empirical question, not an ideological one (we might also note that lowering top income tax rates from 83% and 98% on unearned income certainly seemed to show that we were to the right of the curve a couple of decades ago).

The Adam Smith Institute proposal is that tax is paid at 22% on income over £12,000. On the basis of a single such £12,000 allowance to each household, affluent households do well, but it could be that not everyone is as better off as the top fifth of households.

This is really quite remarkable. Yes, everyone is better off. But because some will be more better off than others the idea must be rejected? There is one further line that has me gasping with incredulity:

These days, everyone approves of incentives.

Does he mean that, finally, we’ve managed to teach everyone the first of Glenn Whitman's Two Things about Economics?

“You know, the Two Things. For every subject, there are really only two things you really need to know. Everything else is the application of those two things, or just not important.”

“Oh,” I said. “Okay, here are the Two Things about economics. One: Incentives matter. Two: There’s no such thing as a free lunch.”

The education system seems to be in better shape than I'd thought. There is also a much larger point to be made here. Walker is assuming that a flat tax will increase inequality and thus must be opposed on those grounds. As pointed out at the excellent Stumbling and Mumbling this is not necessarily true as this Spanish paper (pdf) shows:

Of course, the Spanish tax system is different to ours, so the results don't translate directly to the UK. But there are lessons in the paper: 1. It describes how we should set about analyzing the issue. 2.It disposes of two common arguments against a flat tax - that it is necessarily inegalitarian and is only applicable to post-communist economies rather than maturer capitalist ones. 3. It shows that there is a potential trade-off between efficiency gains and equality. To maximize efficiency gains, a flat tax should have low marginal tax rates. But that means low allowances, which is more regressive than the current system. A more egalitarian flat tax would have bigger allowances which means higher marginal tax rates. But this reduces the efficiency gains. However, Gonzales and Pijoan-Mas show that the current Spanish tax system is sufficiently bad that it's possible to increase both equality and efficiency, and this trade-off merely applies to how we apportion the gains.

Which rather goes to show the point made up above, that the ASI proposal is in fact driven by (at least in part) a desire for equality as it does precisely what is suggested, provides a high allowance, thus meaning higher marginal tax rates and thus, arguably, being more progressive than the current system.
Walker's real fear is this:

However, flat tax isn't really about tax at all. It's about spending. Look at the idea's provenance: the Hoover and Adam Smith Institutes. Their game is cutting government.

A slightly odd statement given that, within the assumptions of the plan itself, it is revenue neutral.

Back to everyday politics in the Blair third term - how to convince people public services, paid for by progressive taxes, are a necessary, irreplaceable part of their "income".

And that, unfortunately, is his real point. Nothing at all to do with how the money is raised, all to do with how it is spent. Nothing must be allowed to disturb the cosy system whereby we the citizens get what we are given by our enlightened bureaucracy in this most perfect of all possible worlds.

David Walker edits Public, the Guardian's monthly magazine for public-sector executives.

Well, yes, I suppose if I had that job I'd have to try and convince myself of that as well.

(Tim Worstall writes here).

Although some commentators suggest that hurricane Katrina will have a bigger economic impact than 9/11, there are many reasons why it need not. Anatole Kaletsky (Times) sees the US economy as robust enough to withstand the shock without much difficulty, and thinks the main threat will be to the eurozone economies.

the US, a powerful economy with annual output worth over $11 trillion (£6 trillion), growing at 3 to 4 per cent, locked through free trade and deregulated financial markets into a global economy that produces at a $50 trillion annual rate, will hardly miss a beat from the $50 billion losses estimated along the Gulf Coast.

There will be a slowdown caused by the drop in production and consumption in the area, but this will soon be regained by faster growth. There will be a surge in spending on construction and on flood defences, and the US deficit might rise a little. Lost oil production will be offset to some degree by the release of international reserves, and since energy prices are not part of the US core inflation index, they need not change monetary policy.

Why does Kaletsky see danger for Europe? Some of it lies with the central bank. Energy is included in their inflation measure, so higher oil prices will make interest rate cuts less likely. And Kaletsky sees the eurozone as finely balanced between a fall back into recession and a fragile recovery. The impact of higher oil prices and a fall in consumer confidence might tip the balance downwards.

A eurozone recovery depends to some extent on their embrace of more economic flexibility and freer labour markets, prompted by the election of Merkel in Germany, and, later, of Sarkozy in France. Kaletsky suggests that the hurricane and its disorderly aftermath might even influence those elections. What the eurozone seems unable to grasp is that the necessary reforms are most likely to occur in a growing economy with active monetary management, as was true of 1980s Britain. When individual members of the zone lack monetary autonomy, they lack one of the ingredients of successful reform. Katrina, from which the US should recover with scarcely a flicker, could undermine the fragile recovery which some see in the eurozone countries.

A man wrote a letter to the IRS: "I have been unable to sleep knowing that I have cheated on my income tax. I understated my taxable income and have enclosed a check for $200.00. If I still can't sleep, I'll send the rest."

On Sunday I took a stroll through the Central area of Hong Kong. The upmarket shops are of course still open - Prada, Armani, Gucci - but the streets are closed off, and occupied by hundreds - no, thousands – of Philippino women, mostly quite young.

These are Hong Kong's domestic servants. Anyone on a reasonable income can hire them, their minimum wage is 3200 Hong Kong dollars (divide by 13 to get UK pounds): some people, particularly the expatriates, pay more, but a number of people work out ways of paying less. And they have to have certain facilities like a room for themselves.

And they get Sunday off. So they congregate in their thousands in the streets of Central, squatting on the pavement, gossiping, and swapping photos of friends and family back home. The Western Union office does a fantastic trade as they all line up to send money home. The apparently modest income of a Hong Kong helper can support most of a family back home, in fact. So it's regarded as a great deal all round.

In the UK, by contrast, we seem to do our best to stop people hiring domestic help. Hire anyone in the UK and there is a mountain of paperwork to process. Try to bring a worker in from a poor country, especially a female one, and you ask the impossible. Pay less than 10,000 pounds a year and you're put in jail. So a simple way in which British families could improve their lives a bit, getting someone in to look after the kids, go shopping, clean the house, is closed off. And poor families in other countries stay poor. Isn't it time we opened up a bit, and made our aid to poor countries real and personal?

Tourists in the Chicago Museum of Natural History marveled at the dinosaur bones. One asked the guard, "Can you tell me how old the dinosaur bones are?"
The guard told him, "They are 3 million, four years, and six months old."
"That's an awfully exact number," said the tourist. "How do you know their age so precisely?"
The guard answered, "Well, the dinosaur bones were three million years old when I started working here, and that was four and a half years ago."

The China Daily News tells me that the government of the People's Republic is going to remove the regulation on its telecoms charges. At the moment, the PRC has some of the highest mobile phone charges in the world, thanks to detailed price regulation of course.

The new plan is to set maximum charges and then let the market sort it out. It is believed that the maximum - not just on mobiles but on long-distance and other calls - will fall as competition drives prices down.

Other daft arrangements - such as the fact that, under the present order, both sending and receiving parties on a mobile phone get charged for the call - seem likely to go.

Good to see the PRC welcoming competition. Pity our regulators in the UK are not as laid back. The original idea of UK regulation was indeed to set price caps and then let the market sort it out. But our regulators have delved into, and regulated, so much of the mobile phone business that it is hardly a market at all. Folk here say that China will overtake the UK as the world's fourth largest economy by 2010, and if they do more of this free market stuff, they will probably make it.

Lady Thatcher transformed Britain's growth and competitiveness partly by a $90bn drive to sell off state industries, many of which looked sickly and loss-making under state ownership. Now China plans a privatization drive over five times as big, as Richard Orange tells us in The Business.

China's market regulator gave the green light for companies listed on the Shanghai and Shenzen stock markets to convert their government stakes, held in non-tradable "legal person" form, into normal publicly tradable shares. At the same time, regulators instructed listed companies to move ahead with plans to buy out government stakes or put them on the market.

They have one advantage over us. In 1970s and early 80s Britain we did not know if there was enough money around to buy the shares we were selling. The Chinese do, with an estimated $1.6 trillion stashed away in private hands. The question now is whether they can persuade investors that the reform of their banking sector and securities laws will proceed on track to lure savers to make the commitment.

But since hitting its low on 11 July, the Shanghai exchange has rebounded 17%, indicating that the shareholding public are beginning to believe the government will reform the market.

At a time when Brussels bureaucrats and regulators are constantly trying to tighten their grip on European economies, it is refreshing to see the Chinese embark on so bold a step and so large a programme. The odds are very high that the Chinese approach will create more wealth for their country, whereas the Brussels approach will only limit growth and curb the wealth-creating process.

Those who follow the politics of the climate debate will be expecting Hurricane Katrina to be used to confirm catastrophic climate warming.

James K. Glassman says [Canada’s National Post, September 02, 2005 ] that one of the first out of the traps was, "Sir David King, the British government's Chief Scientific Advisor [who] warned that global warming may be responsible for the devastation reaped by Hurricane Katrina." The New York Times, says: "Because hurricanes form over warm ocean water it is easy to assume that the recent rise in their number and ferocity [sic] is because of global warming."

But scientists say the severity of hurricane seasons changes with cycles of temperatures of several decades in the Atlantic Ocean.” The recent onslaught "is very much natural," said William M. Gray, Professor of atmospheric science at Colorado State University.

What about frequency, though? The web site of the National Hurricane Center tells us that:

Giant hurricanes are rare - and they are not increasing. To the contrary. The peak for major hurricanes (categories 3, 4, 5) came in the decades of the 1930s, 1940s and 1950s, when such storms averaged nine per year. In the 1960s, there were six such storms; in the 1970s, four; in the 1980s, five; in the 1990s, five; and in 2001-04, there were three. Category 4 and 5 storms were also more prevalent in the past than they are now. As for Category 5 storms, there have been only three since the 1850s: in the decades of the 1930s, 1960s and 1990s.

The science of sea temperature and level is still evolving, and scientists have long pointed to a disparity that showed the atmosphere's lowest layer, the troposphere, had not warmed as much as the surface - contrary to greenhouse theory and model results. Dr Roy Spencer (U of Alabama) tells us:

This discrepancy between the UAH satellite LT trends and the surface thermometer trends has caused some consternation, since atmospheric physics suggests that sustained warming at the surface should be amplified with height in the troposphere, not reduced.

Hurricane Katrina has been a terrible tragedy, and may teach us to be better prepared for what nature throws our way. But to suggest it is man-made looks only like an attempt by interested parties to use it to their advantage.

"The Nordic Tiger, largely unseen and unnoticed, stalks the world’s companies," writes the ASI's Dr Eamonn Butler in an article about Iceland which appears today in The Business newspaper. Many people have not woken up to the fact that there is a major entrepreneurial player on the EU’s doorstep. What was thought of as an icy home for fishermen has become an economic powerhouse with surging growth rates and booming industries. What happened?

It started when the reformist David Oddsson became prime minister in 1991. Taxes and inflation were high, and two of the three banks were state-owned and sluggish. He pulled the government out of commercial banking, with the result that Iceland now has 3 of the top 15 Nordic banks. He also went for flexible labour markets and lower taxes.

Big falls in company taxation were another key step. Capital gains tax is now 10%. Corporate taxes went from 30% to 18%, and asset taxes were filleted. Suddenly, businesses looked profitable again. Income tax is still high, but the 4% supertax looks to be on the way out, as does inheritance tax. The rate cut in corporate taxes actually resulted in larger revenues.

The privatization and deregulation of Telecoms has seen competition rise and prices fall, but other industries are surging ahead, and even fishing has been transformed by the introduction of tradable quotas to combat stock depletion.

Iceland has such abundant cheap energy in the form of geothermal and hydro-electric power that Alcoa ships ore there to be processed into Aluminium. There are plans to export that cheap power via an undersea pipeline to Europe. The country is a testament to what a determined people can do once governments step aside and give them the space to do it in.

Iceland is booming. This little economic powerhouse boasts a per-capita income higher than the UK, France, Germany, Austria – higher than nearly all European Union (EU) countries.

There are cranes everywhere, with new factories and apartments going up. One has the sense of a country on the move, an old country, but with a young and dynamic population determined to take it into the big league.

A man shouted to the policeman on the opposite bank of the river.
"Ahoy there! How can I get to the other side?"
The policeman helpfully shouted back, "You are already on the other side."

The pyramids of Egypt were one of the seven wonders of the ancient world: the pyramids of state pension schemes are more modern, though no less impressive. Philip Coggan in the FT draws our attention to a new book, Ponzi's Scheme: The True Story of a Financial Legend, by Mitchell Zuckoff. A Ponzi scheme is the American name for a pyramid scheme.

Charles Ponzi invited people to invest in International Reply (postal) Coupons, promising fantastic rates of return. In reality there were no real returns, only money from later investors to redeem the promises made to earlier ones. Such schemes can only be sustained while there are enough willing dupes to provide the rewards promised to previous dupes. It is rather like a chain letter, benefiting only those high up the chain.

Coggan makes a point we have often made, that state pension schemes are modern pyramid schemes. There is no fund, no investments and no returns. Instead there are payouts funded from those currently paying in, and who do so because they are promised their own payouts in turn. These unfunded schemes are called 'pay-as-you-go' schemes because money paid into them today is paid out today to current pensioners.

They are fatally attractive to politicians because of a Public Choice Theory imbalance. The politician who enacts benefit increases earns the gratitude of today's pensioners (and voters), but the payment is made at the expense of future generations (who lack political clout today). In essence people who pay into such schemes today do so in the assurance that there will be more mugs coming along tomorrow to support them in their turn.

This is fine so long as nothing important changes. However, if people start to live longer, or if the birth rate declines, then the balance of young people paying taxes to older people consuming benefits changes adversely. In fact both are happening, bringing the real possibility that tomorrow's contributors will be either unable or unwilling to bear the burden which today's politicians have imposed upon them. Atlas might just shrug and refuse to carry the world; or he might emigrate.

Funded pension schemes provide investment which can raise productivity, making tomorrow's earners quite ready to pay dividends from their enhanced earning power. This is not true of unfunded state schemes. They promise, like Ponzi, more than they can perform. The difference is that the governments which perpetrate these pyramid schemes will probably not end up, like Charles Ponzi, behind bars.

Greg Olsen is set to become the third tourist to visit the International Space Station. The trips, organized by Space Adventures, have previously flown Dennis Tito and Mark Shuttleworth aboard Russian Soyuz craft to spend a week in orbit. The fare, at $20 million, is rather more than that for sub-orbital hops which are also taking bookings. They cost a more modest $100,000. Olsen has spent over a year training for the flight, and will be flying with Russian cosmonaut Valery Tokarev and NASA astronaut William McArthur. CNN tells us about the latest sightseer.

Olsen, who has advanced degrees in physics and materials science, made a small fortune on optic inventions. He is the co-founder of Sensors Unlimited Inc., a business in suburban Trenton that makes infrared imaging cameras and fiber-optic communications components.

It is remarkable how almost commonplace this has become. NASA fought like tigers to keep spaceflight as a monopoly of governments, but has now accepted that giving rides to millionaire fare-payers is a good way to pump much-needed cash into the Russian space programme.

Lost on a rainy night, the nun sought shelter a monastery. She was just in time for dinner and ate the best fish and chips she had ever tasted.
She went into the kitchen to thank the chefs, and was met by two of the Brothers.
"I just wanted to thank you for a wonderful dinner," she told them. "The fish and chips were the best I've ever had. Who cooked them?"
Brother Peter replied, "Well, I'm the fish friar, and Bother Paul here is the chip monk."

I'm in Beijing, on my way to give some speeches to trade and think-tank people in Hong Kong. Everything in sight is being redeveloped in time for the Olympics, with cranes everywhere. The old imperial palace, is going to look sparkling in red and gold once the scaffolding's down, though I don't know what the architectural historians will think.

I can see why the world's production has switched to China; things here are amazingly cheap. From here it seems really daft that Europe should be trying to protect its high-wage garment industry, instead of buying things at about a fiftieth of the price here.

Today the country celebrates its liberation from wartime Japan 60 years ago. The big square is all sealed off to the public, which is a pity, but I guess there are just too many officials and soldiers to let in too many of a 14-million strong city. The sixty-gun salute was fearsomely loud even at a distance. But all I saw was just knots of people straining to catch a glimpse!

Income tax was introduced as a temporary measure during the Napoleonic Wars. By 1997 it took 4,555 pages to explain it. It has taken Gordon Brown just 8 years to practically double that to 9,050 pages, according to Gabriel Rozenberg, who points to the latest edition of Tolley's Yellow Tax Handbook.

A Treasury spokesman said: "Simply counting the pages of a handbook does not represent the Government’s tax reforms. In fact, the Government takes tackling complexity very seriously and has a good record on measures to simplify the tax system."

In fact this is a straight lie. This government has not only made tax fearsomely more arcane and opaque, but has revelled in its labyrinthine complexity. John Whiting of the Chartered Institute of Taxation is quoted saying, "You can’t get away from the fact that the system is more complicated, which is why we have had a constant refrain of the need for simplification."

As George Osborne, Shadow Chancellor, puts it:

The Chancellor's constant meddling and increased complexity mean that UK business has to devote more and more time to tax compliance, time which would be better spent on customers and products.

Even as the Treasury shelters behind the small print of those 9,050 pages, they are growing nervous. Country after country is choosing to simplify its tax burden, many of them through flat taxes, and the competitive pressure is beginning to make itself felt. Watch this space.

The straws in the wind tell us that the government could well introduce a development land tax, which they call a planning gain supplement, in the forthcoming pre-budget report. The odds are that they will do it wrong, levying it on the increased value which land acquires when it receives planning permission. The cash would go to the Treasury, "to fund new schools and hospitals."

This simply acts as a brake inhibiting development by raising its costs. It gives local authorities no incentive to back development for the increase in revenues it might bring them. Instead they will face the costs and political opposition to development. Jenny Davey reports (Times) that the British Property Federation has proposed a more sensible alternative.

The BPF instead wants a planning tariff system that would give a price per square foot for commercial development or a price per unit for homes. Ms Peace said a tariff system would be more transparent and could replace the 106 agreements that currently fund community facilities. The BPF said that a planning gain supplement would be difficult to collect, unlikely to raise a significant sum for infrastructure and would deter development.

No matter, though, because Gordon Brown would prefer to have the money directed for him to spend, rather than kept for local improvement. To him this is just another stealth tax which ordinary people will not notice, and which will only upset a few rich property investors who don’t count for much anyway. That's how policy is made these days, and why it's so often bad.

It seems that good news stories from Africa are rather like the buses of London. You wait thirty years for good African news, and then two lots come along within a week. Last week I linked to this story. And now, also from the New York Times, comes news that Africans have wearied of ever getting proper health insurance from their politicians, and are doing it for themselves.

When they get sick, they receive free consultations at the clinic down the road, cut-rate medicine and peace of mind. The chances are lower now that a bout of illness will bring the family to total ruin.

So who is doing this? Politicians? No:

The bigger push is coming from everyday Africans who are tired of waiting for politicians to address their needs and have begun spinning their own safety nets. Plans in which neighbors come together and create their own makeshift health coverage are the rage in Africa, particularly in the continent's west. Here, the plans now have a significant presence in 11 countries and membership has grown beyond 200,000 people.

So, Africans are creating what as an Englishman I can only call Friendly Societies:

These were self-governing mutual benefit associations founded by manual and skilled workers to provide against hard times – sickness, accident, old age, death and support to widows and orphans. They strongly distinguished their guiding philosophy from philanthropy which lay at the heart of charitable work. The mutual benefit association was not run by one set of people with the intention of helping another separate group, it was an association of individuals pledged to help each other when the occasion arose. Any assistance was not a matter of largesse but of entitlement, earned by the regular contributions paid into the common fund by every member and justified by the obligation to do the same for other members if hardship came their way.

That is how David Green describes the Friendly Societies of Britain, and Africa is now starting to play out the same drama, of organised collective self help.

The New York Times is perhaps not the kind of newspaper that you might expect to see being admiringly linked to from a blog like this one. Yet these two stories suggest, not just that there is good news to be found in Africa if you are prepared to look for it, but that it is good news caused by free people helping themselves and capitalists doing business, rather than by those dreary old panaceas, charitable and state action.

(Brian Micklethwait writes here).

"I feel sorry for people who don't drink. When they wake up in the morning, that's as good as they're going to feel all day."

- Frank Sinatra

A reader suggests that we could use a tax pledge in Britain, similar to that promoted in the US by Americans for Tax Reform. The pledge in America is something which political candidates are invited to sign up to, promising not to vote for any tax increases. In the UK it might be turned into a promise to support the introduction of flat tax and tax simplification.

British MPs are usually reluctant to limit their freedom of action by advance pledges of this nature, if only because the broken ones get thrown back in their faces (think Labour and top-up fees). However, the pledge not to increase the rates of income tax undoubtedly helped Labour to become electable in the first place.

Maybe it could work here. The candidates running to lead the Conservative Party could make a good start.

The economies enjoying strong growth rates can shrug off oil prices rises, it seems. The US, China and, in Europe, Spain, see their output expanding. The more sickly, struggling economies reel as consumer spending is hit by higher energy costs. Graham Searjeant writes in the Times that oil is acting like a foreign tax on consumers, with the euro countries hardest hit.

The extra cash sucked out of the pockets of consumers and the profits of industry is already exerting a depressing influence. Taken as a whole, the eurozone is now taking over from Japan as the weakest link in the world economy.

This could easily affect the forthcoming German elections. The German industry federation has lowered its growth forecast from 1 per cent to 0.75 per cent, well short of the eurozone growth rate average of 1.1 percent. German voters might decide that a new leader and a new team might do better. They need more flexible labour markets, combined with lower business costs and employment costs. In brief, they need to dilute the continental social economic model, and sniff instead the fresh tang that free markets and lower taxes bring upon the wind. That will need a change of government.

A customer entered the computer store. “I’m looking for a mystery adventure game with lots of graphics. Nothing too easy. You know, something really challenging.”
The assistant thought, then replied, “have you tried Windows XP?”

On a fine summer afternoon I took some of the ASI team on a helicopter trip over the Thames. From left: Madsen, Rahulan, Steve, Sam, Luke, Xander.

Steve (l) and Luke (r)

Sam (l) and Rahulan (r)

The familiar sights of London take on a fresh look from on high. This is the famous Tower Bridge.

Among the new sights being added to London is the skyscraper everyone calls the gherkin.

Westminster Abbey just visible at bottom left, then the Houses of Parliament and the London Eye across the Thames. It was an enthralling look at London.

(We flew with Biggin Hill Helicopters)

Did you ever notice that when you put the two words "THE" and "IRS" together, it spells "THEIRS"?

Christopher Fildes has a very funny column in the Telegraph, devoted to the discipline of hedonomics, or the dismal science with its own happy ending, as he calls it. When shares have gone up you can report that they are rising. When they have gone down you can report that they are cheap to buy. All news is good news is the basis of hedonomics, as practiced by our Chancellor, among many others.

This is the newly identified branch of economics which exists to show that every story has a happy ending. As so often happens, practice has been running far ahead of theory. Chancellors work on it, deal-makers live by it, tycoons try their luck with it. In the stock market, hedonomics finds its natural home.

Deal-makers profit from deals, so they talk up their advantages. Tycoons radiate optimism about what they can do for a company (in exchange for a small percentage of it). Buy! Deal! Trade! The news is always good.

Do not imagine that hedonomics is a mere phenomenon of the financial markets. Chancellors of the Exchequer have long relied on it to keep them out of trouble. It has let them describe runaway public spending as the social wage, or runaway inflation as a blip, or the frozen wastes of recession as the green shoots of recovery.

Hedonomics explains why our revised inflation index takes out housing (the biggest cost) and council tax (about to leap through the roof). Inflation as measured is better news than it feels like, and the same for the quality of our public services. As so often, the writer puts pungency into his humour.

____
[footnote:
Christopher Fildes tells us he has been writing his Telegraph columns for 21 years, and that it is time to stop. We will miss them. He combined keen economic insight with real flair. Best of all, he was no respecter of powerful positions, and often treated the holders of them with skepticism and, when they deserved it, with scorn. Yet he leavened his humour with courtesy. Nobody did it better.]