Archive for the ‘News Appearance’ Category

What’s worse, Democrats who deliberately seek to make government bigger because of their ideological belief in statism, or Republicans who sort of realize that big government is bad yet make government bigger because of incompetence?

I’m not sure, though this is a perfect example of why I often joke that Washington is divided between the Evil Party and the Stupid Party.

And the fight over spending caps is a perfect example.

President Obama and the Democrats despise this small bit of fiscal discipline, which was created as part of the 2011 Budget Control Act (BCA). They’re aggressively seeking to eviscerate the law, particularly the sequester enforcement mechanism. And since they believe in bigger government, their actions make sense.

Republicans, by contrast, claim to believe in smaller government and fiscal responsibility. So they should be in the driver’s seat on this fight. After all, the BCA is the law of the land and the spending caps – assuming they are not changed – will automatically limit overspending in Washington. In other words, the BCA fight is like the fight over reauthorizing the corrupt Export-Import Bank. Republicans can win simply by doing nothing.

Seems like a slam dunk win for taxpayers, right?

Not exactly. With apologies for mixing my sports metaphors, the Republicans are poised to fumble the ball at the one-yard line.

Which would be a very depressing development. In this interview, I explain that preserving the spending caps should be the most important goal for advocates of limited government.

And you’ll see that I also explained that fighting for good policy today is necessary if we want to avoid huge fiscal problems in the future.

But that doesn’t seem to matter very much for a lot of Republicans.

Let’s look at what other fiscal policy experts are saying about this issue.

Writing for Reason, Veronique de Rugy of the Mercatus Center explains that the key to good fiscal policy (including tax cuts) is to have effective and enforceable long-run spending restraint.

If lawmakers want big tax cuts, there will need to be commensurately greater levels of spending restraint. The difficulty, of course, is to persuade politicians to implement such spending constraints and actually stick to them in the long run.


That’s basically the same message I shared yesterday.

President Obama, however, has threatened to veto the budget and shut down the government if Congress doesn’t agree to bust the current spending caps.

And plenty of Republicans, either because they also want to buy votes with other people’s money or because they’re scared of a shutdown fight, are willing to throw in the towel.

The battle isn’t lost, at least not yet, but it’s very discouraging that this fight even exists. Controlling discretionary spending should be the easy part.

After all, if politicians balk at the modest requirements of the BCA, what hope is there that they’ll properly address entitlements? As Veronique notes, those are the programs that are driving America’s long-run fiscal crisis.

…the only realistic way to limit spending growth to 2 or 3 percent per year is to reform the fastest-growing programs in our budget, or the so-called entitlements.

What makes this issue especially frustrating is that we know sustained spending restraint is possible.

Nations such have Switzerland have shown how spending caps produce very positive results.

But that requires some commitment for good policy by at least some people in Washington.

And that may be lacking. In a column for the Wall Street Journal, Steve Moore takes a closer look at how GOPers are poised to throw away their biggest fiscal victory of the Obama years.

Let’s start with an excerpt illustrating how the BCA and sequestration have worked.

…the Budget Control Act helped slam the brakes on Mr. Obama’s first-term spending spree. …In 2009 the federal government accounted for nearly a quarter of the American economy, 24.4%. That fell by 2014 to 20.3% of GDP.

He’s right. I’ve shared similar numbers showing how Obama’s spending binge was halted.

And that’s led to the biggest five-year reduction in the burden of government spending since the end of World War II.

But fiscal sobriety needs to be sustained. Deciding to have “just one drink” at the big spender’s bar is not a good way to stay on the wagon.

And Steve shares some bad news on this issue.

Congress and the White House are quietly negotiating a deal for the new fiscal year that would bust the spending caps that have brought down the deficit. Breaking the caps yet again—this would be the third violation in four years—is lousy policy. …the GOP is reportedly forging a compromise with Mr. Obama that would raise the caps by $70 billion to $100 billion. …What’s worse, the deal would likely raise the spending caps permanently, meaning…nearly $1 trillion…over the next decade.

By the way, there’s a reason why this sounds like déjà vu all over again. Republicans already agreed to bust the spending caps at the end of 2013.

That was an unambiguous victory for Obama.

And now it may happen again. Steven discusses the implications of this looming GOP surrender.

The mystery is why Republicans are so ready to throw away their best fiscal weapon… Liberals hate the sequester because it squeezes their favorite programs, from transit grants to Head Start. But it is the law of the land. President Obama can do nothing to circumvent the sequester—unless Republicans in Congress cave in. …Busting the spending caps will only reverse progress toward a balanced budget, fatten liberal social programs, and confirm what many tea-party voters have been shouting for years: that Republicans break their promises once elected.

For all intents and purposes, the battle over BCA spending caps is a huge test of GOP sincerity. Do they really believe in limited government, or is that just empty rhetoric they reserve for campaign speeches.

P.S. Some Republicans argue that they favor smaller government, but that the sequester is “unfair” and the spending caps are too “harsh” because the defense budget is disproportionately affected.

It’s true that the defense budget is being capped while most domestic spending (specifically entitlement programs) is left unconstrained. But that doesn’t mean the nation’s security is threatened.

Defense spending still grows under these laws and our military budget is still far bigger than the combined budgets of all possible adversaries.

For further information, read George Will’s sober analysis and also peruse some writings by Mark Steyn and Steve Chapman.

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When I first got to Washington in the mid-1980s, one of the big issues was the supposedly invincible Japanese economy. Folks on the left claimed that Japan was doing well because the government had considerable power to micro-manage the economy with industrial policy.

With the benefit of hindsight, it’s now quite apparent that was the wrong approach.

In more recent years, some on the left have praised China’s economic model. And while it’s true that the country has enjoyed strong growth, it’s far from a role model.

Here’s some of what I wrote back in 2010.

Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. …This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation.

With my skeptical view of the Chinese economic system, I figured it was just a matter of time before the nation experienced some economic hiccups.

And the recent drop in the Shanghai stock market certainly would be an example. I discussed the topic earlier this week in this Skype interview with Blaze TV.

To elaborate, there’s no precise formula for determining a nation’s prosperity. After all, economies are not machines.

But there is a strong relationship between prosperity and the level of economic freedom.

And as I explained earlier this year, China’s problem is that government is still far too big. As such, its overall ranking from Economic Freedom of the World is still very low.

And this means that the Chinese people – while much better off then they were under a pure communist system – are still not rich.

I mentioned the comparative numbers on per-capita economic output in the interview, which is something I wrote about back in 2011. And you can click here if you want the underlying figures to confirm that Americans are far more prosperous.

By the way, this is an issue where the establishment seems to have a semi-decent understanding of what’s happening, even if they don’t necessarily draw any larger lessons from the episode.

The Associated Press, for instance, has a good report on the issue. Here’s some of the story, which looks at why the the stock market seems untethered from economic fundamentals.

When China’s economy was roaring along at double digit rates in the 2000s, Chinese stocks floundered. But starting in the summer of 2014, as evidence of an economic slowdown gathered, the Shanghai Composite index climbed nearly 150 percent. …Now the Chinese stock bubble has burst and Shanghai shares are in a free fall. They’ve lost about 30 percent since peaking last month. …Prices in the stock market are supposed to reflect business realities: the health of the economy, the quality of the companies listed on stock exchanges, the comparative allure of alternative investments. But in a communist country where the government plays an oversized role in the economy, investors pay more attention to signals coming from policymakers in Beijing than to earnings reports, management shake-ups and new product announcements.

If savvy investors think it’s important to focus on what the government is doing, that’s obviously bad news.

During the booming 2000s, only politically connected firms were allowed to list on stock exchanges for the most part. Many of them were run by insiders of dubious managerial talent. The markets were dominated by inefficient state-owned companies. Investors were especially wary of investing in big government banks believed to be sinking under the weight of bad loans. Stocks went nowhere.

And when the government started to encourage a bubble, that also wasn’t a good idea.

…state media began encouraging Chinese to buy stock, even as the country’s economic outlook dimmed. The economy grew 7.4 percent last year, the slowest pace since 1990. It’s expected to decelerate further this year. But authorities allowed investors to borrow to buy ever-more shares. Unsophisticated investors — more than a third left school at the junior high level — got the message and bought enthusiastically, taking Chinese stocks to dangerous heights. Now it’s all crashing down.

I’m not sure “all crashing down” is the right conclusion.

As I said in the interview, the market doubled and now it’s down about 30 percent, so many investors are still in good shape.

That being said, I have no idea whether the market will recover, stabilize, or continue to drop.

But I do feel comfortable making a larger point about the relationship between economic freedom and long-run prosperity.

So if you want to learn lessons from East Asia, look at the strong performances of Hong Kong, Taiwan, Singapore, and South Korea, all of which provide very impressive examples of sustained growth enabled by small government and free markets.

P.S. I was greatly amused when the head of China’s sovereign wealth fund mocked the Europeans for destructive welfare state policies.

P.P.S. Click here if you want some morbid humor about China’s pseudo-communist regime.

P.P.P.S. Though I give China credit for trimming at least one of the special privileges provided to government bureaucrats.

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I’m not a big fan of Obamanomics. We’re going through the weakest recovery since the Great Depression. Income and wages have been stagnant, particularly when compared to previous expansions. And while the unemployment rate has finally come down, that’s in part a consequence of people dropping out of the labor force.

The net result is that our nation’s output is far lower than it would be if economic performance had simply matched the average for previous business cycles. And that translates into foregone income for American households.

Yet the President seems to think that he deserves applause for his economic legacy. Here are some excerpts from an AP story in the Oregonian.

President Barack Obama is not shy about defining his achievements and casting them in the most positive light…on Monday Obama offered a rare glimpse at how he wants history to judge his presidency, letting the “L” word cross his lips as he touted the U.S. economic recovery… “Obviously there are things that I’ve been proud of,” he said. He first cited the economic crisis he faced upon assuming office in 2009. “It was hard, but we ended up avoiding a terrible depression,” he said.

You won’t be surprised to learn that I have a different perspective. I was on CNN earlier this week and expressed my disappointment with the President’s policies and their impact on the nation.

To be fair, I’m focusing in the interview on the strength (or lack thereof) of the recovery. Obama, by contrast, wants credit for the fact that the 2008 recession didn’t turn into a depression.

Needless to say, there aren’t alternative universes where we can see what would have happened if Obama didn’t get to the White House. And it probably wouldn’t matter even if there were alternative universes since neither McCain nor Romney had a substantially different vision anyhow.

But here’s why I think it’s absurd for Obama to take credit for avoiding a depression. Simply stated, it takes a lot of mistakes, on a sustained basis, to produce a depression.

And that’s precisely what we got from Presidents Hoover and Roosevelt. Thanks to protectionist policies, higher tax rates, a bigger burden of government spending, and massive intervention in markets, a normal downturn was magnified and extended to last an entire decade.

So I suppose we could give Obama credit for not being as bad as Hoover and Roosevelt, but that’s an extreme case of damning with faint praise. And even faint praise is probably unwarranted since Obama wanted more statism and was stopped by the 2010 election.

The bottom line is that Obama wants people – based on zero evidence – to believe a depression would have occurred naturally in the absence of his policies.

The more realistic assessment is that Obama’s policies have been a net negative for the economy. But as I remarked in the interview, I’m not making a partisan argument. Bush’s policies also were a net negative.

By comparison, you can look at Reagan and Clinton for examples of Presidents who increased economic freedom during their reigns.

P.S. Since today’s topic is the economy, here’s a grim reminder of one of the reasons why growth has been relatively anemic.

The folks at Mercatus have put together a pictograph on the regulatory burden.

Something to keep in mind when considering the degree to which red tape is constraining growth and entrepreneurship.

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I don’t understand the left’s myopic fixation on income inequality. If they genuinely care about the less fortunate, they should be focused on policies that produce higher incomes.

But instead, they agitate for class warfare and redistribution, which leads me to believe that many of them hate the rich more than they love the poor.

And while it’s surely true that governments can harm (or worse!) the financial status of folks like Bill Gates, that doesn’t help the poor.

Indeed, the poor could be worse off since statist policies are linked to weaker economic performance.

So relative inequality may decline, but only because the rich suffer even more than the poor (as Margaret Thatcher brilliantly explained).

That’s a bad outcome by any reasonable interpretation.

But let’s set aside the economic issues and contemplate the political potency of so-called income inequality.

Writing for the Wall Street Journal, William Galston of the Brookings Institution (and a former adviser to Bill Clinton) opines that income inequality isn’t a powerful issue in America.

Hillary Clinton was reportedly struck that no one had asked her about inequality. She shouldn’t have been surprised… Recent opinion surveys show inequality well down the list of public concerns. In a February CBS News poll, for example, only 4% of Americans named income disparities as the most important problem facing the country. In March only 2% told Gallup that the income gap was at the top of their list.

Galston cites a couple of studies of public opinion trends.

In…Public Opinion Quarterly in 2013, Matthew Luttig also found that rising inequality has failed to boost support for redistribution and may actually have the opposite effect. What is going on? The authors of the Brookings paper found that the principal beneficiaries of government programs—especially the elderly—have become increasingly resistant in recent decades to additional redistributive policies. During that period, just about every new cohort entering the ranks of the elderly has been less supportive of redistribution than its predecessor.

He doesn’t think voters necessarily are becoming libertarian or conservative.

But he does think leftists are deluding themselves if they think more propaganda will sway voters in favor of redistribution.

Many Democratic activists believe that the weakness of public support for redistribution rests on ignorance: Give them more information about what is really happening, and their policy preferences will be transformed. But a recent paper for the Washington Center for Equitable Growth reported that while survey respondents “who view information about inequality are more likely to believe that inequality is a serious problem, they show no more appetite for many interventions to reduce inequality.” The best explanation for this apparent anomaly: rising mistrust of government, especially the federal government. Many people who think inequality is an important problem don’t believe that Washington’s political institutions can be trusted to fix it.

Gee, I wonder why people think the federal government is incompetent in helping the poor?

Could it be that voters are slowly but surely realizing that P.J. O’Rourke was right?

In any event, Galston concludes with some very sound recommendations.

What matters most is growth that includes everyone. To get that kind of growth, we will have to act on a broad front to expand opportunity for those who now lack it—and ensure that workers earn enough to provide opportunity for their children. These measures will reduce inequality, all the more so if they are financed by linking real wages to productivity gains and terminating tax preferences that don’t promote growth while benefiting mainly the wealthiest Americans.

To be sure, Galston’s embrace of growth instead of redistribution doesn’t mean he has good ideas on what causes growth.

But at least he understands that the goal should be to make the pie bigger.

And that’s the point I made in this CNN interview, which took place via Skype since I was at a conference in Brussels.

Though you may notice that I mangle my metaphor at the end of the interview, switching from pie to cake.

But setting aside that one glitch, I hopefully got across my main point that the focus should be growth rather than inequality.

P.S. It’s worth noting that states with the most support for class warfare and redistribution also are the states with the most inequality. Maybe they should experiment with bad policy inside their own borders before trying to foist such policies on the entire nation.

P.P.S. I wrote last year about six remarkable examples of leftist hypocrisy. Make that seven.

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What’s America’s main fiscal policy challenge, particularly in the long run?

Most sensible people will agree that our greatest threat is the rising burden of entitlement spending.

More specifically, demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades.

So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper.

Here are some excerpts from a recent article in the Washington Examiner.

Elizabeth Warren is pushing Democrats to expand Social Security rather than cut it, a move that could pressure presumed party frontrunner Hillary Clinton to move left. …”What Elizabeth Warren has done on pushing the ball forward on Social Security is another example of why she’s a bold progressive hero,” said T.J. Helmstetter, a representative for the Progressive Change Campaign Committee, an outside group that pushes for progressive causes. …In March, almost all Democratic senators voted for a symbolic budget amendment to express support for expanding Social Security. …The messaging amendment approved by most Senate Democrats also did not specify how benefits were to be expanded.

I discussed this topic in a recent interview.

Though I’m surprised that my head didn’t explode while discussing such a reckless idea.

I closed the interview by expressing a modest bit of optimism.

Surely (at least I hope) politicians won’t dig the hole deeper when we can see right before our eyes the fiscal chaos and economic disarray in Greece, right?!?

I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund.

Fortunately, not all politicians think it’s smart to accelerate as you’re driving toward a cliff.

Writing in the Washington Post, Charles Lane explains Governor Christie’s proposal.

New Jersey Gov. Chris Christie…wants to campaign on a sweeping proposal to rein in federal entitlement spending on the elderly. …he urged a phaseout of Social Security benefits for retirees with $80,000 or more in other income and backed a gradual upward adjustment of the retirement ages for Medicare and Social Security, which is also appropriate, given increased life expectancy. …Social Security…remains a non-trivial cause of the government’s long-term fiscal imbalance. Its trust fund, admittedly an accounting fiction of sorts, is on course to run out of cash by the early 2030s. Christie’s plan would provide three-fifths of the resources necessary to guarantee Social Security’s solvency for 75 years

Kudos to Governor Christie for recognizing that you can’t repeal mathematics with politics.

And this modest bit of praise isn’t based on policy. I’m not a big fan of means testing, which has some unfortunate economic effects.

And I also think that raising the retirement age is sub-optimal since it forces people to pay longer into an inferior system that already is giving them a very low rate of return.

The right approach is to transition to a system of personal retirement accounts, but at least Christie has an adult proposal based on real-world considerations.

Though, to be fair, many leftists claim we can afford higher benefits and also “fix” the system with a giant tax increase. So they sometimes recognize that math exists, even if they want us to believe that 2 + 2 = 7.

P.S. If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

P.P.S. Is Elizabeth Warren more of a faux populist or more of a faux American Indian?

P.P.P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

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With tax day looming, let’s wallow in misery by contemplating the burden on America’s taxpayers.

But we’ll ignore the angst caused be dealing with an indecipherable tax code and an oppressive IRS and simply focus on the amount of money that gets extracted from our income each year.

The bad news is that the federal government is collecting a record amount of money, even after adjusting for inflation. Here’s a chart, based on the latest numbers from the Office of Management and Budget.

But there is some good news. This isn’t a record tax burden when measured as a share of economic output.

Federal taxes are projected to consume 17.7 percent of GDP this year. That’s higher than the post-WWII average of 17.2 percent of GDP, but there have been several years in which the federal tax burden has been higher than 17.7 percent, most recently in 2007, when it reached 17.9 percent of economic output.

So while it’s bad news that the IRS is collecting a record amount of revenue in inflation-adjusted dollars, I guess we should consider ourselves lucky that it’s not a record share of GDP.

I discuss the growing federal tax burden in this CNBC debate with Jared Bernstein.

A few points are worth emphasizing from the interview, two of which deal with corporate taxation.

First, it’s silly to talk to compare “taxes by individuals” to “taxes paid by corporations.” That’s because all taxes on business ultimately are paid by individuals, whether as workers, consumers, or shareholders. To be blunt, corporations may collect taxes, but the burden inevitably falls on people.

Second, the fact that corporate tax receipts are lagging is a sign that tax rates are too high rather than too low. In other words, there’s a Laffer Curve effect, and there’s lots of evidence that a lower corporate rate will generate more revenue. Which is precisely what happened when personal tax rates were reduced on the “rich” in the 1980s.

Third, if we want a balanced budget, the only responsible approach is spending restraint. As I’ve noted before, our long-run fiscal challenge is because of a rising burden of spending. Indeed, spending is more than 100 percent of the long-run problem.

By the way, let’s not forget about the role of state and local governments. WalletHub just released a report on state and local tax burdens.

Here are the 10 best states.

I’m mystified to see California in the top 10.

Though maybe this is a Laffer Curve-based result. In other words, perhaps taxes are so high that people are paying less?

Moreover, the Golden State drops to 30 if you adjust for the cost of living (see column on far right).

Now here are the 10 worst states.

I’m not surprised to see Illinois in last place, but who knew that Nebraska was a hotbed of taxaholism?

And if you look at the right-most column, you’ll see that New York and Connecticut could be considered the worst states. Both jurisdictions are richly deserving of that designation.

P.S. Don’t forget that Puerto Rico is a secret tax haven for American citizens, particularly when considering federal taxes, so it deserves honorary first place recognition.

P.P.S. The best (i.e., least worst or least destructive) approach to taxation is the flat tax.

P.P.P.S. Though the ideal scenario is to have a very small federal government so that there’s no need for any broad-based tax whatsoever. Our nation enjoyed strong growth before that dark day in 1913 when the income tax was imposed.

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With tax day fast approaching, it’s time to write about our good friends at the Internal Revenue Service.

One of the new traditions at the IRS is an annual release of tax scams. It’s know as the “dirty dozen” list, and while it may exist mostly as a publicity stunt, it does contain some useful advice.

And that’s true of this year’s version. But I worry that the IRS is looking at a few trees and missing the forest.

The Washington Examiner was kind enough to let me write a cover story on the “dirty dozen” list. Here’s my effort to add some context to the discussion.

…our friends at the Internal Revenue Service have a relatively new tradition of providing an annual list of 12 “tax scams” that taxpayers should avoid. It’s an odd collection, comprised of both recommendations that taxpayers protect themselves from fraud, as well as admonitions that taxpayers should be fully obedient to all IRS demands. Unsurprisingly, the list contains no warnings about the needless complexity and punitive nature of the tax code. Nor does the IRS say anything about how taxpayers lose the presumption of innocence if there’s any sort of conflict with the tax agency. Perhaps most important, there’s no acknowledgement from the IRS that many of the dirty dozen scams only exist because of bad tax policy.

In the article, I list each scam and make a few observations.

But I think my most useful comments came at the end of my piece.

…maybe the tax system wouldn’t engender so much hostility and disrespect if it was simple, transparent, fair, and conducive to growth. And that may be the big-picture lesson to learn as we conclude our analysis. When the income tax was first imposed back in 1913, the top tax rate was only 7 percent, the tax form was only two pages, and the tax code was easily understandable. But now that 100 years have gone by, the tax system has become a mess, like a ship encrusted with so many barnacles that it can no longer function. …the bottom line is that the biggest scam is the entire internal revenue code. The winners are the lobbyists, politicians, bureaucrats and insiders. The losers are America’s workers, investors, and consumers.

In other words, if we actually want a humane and sensible system, we should throw the current tax code in the garbage and replace it with a simple and fair flat tax.

And that’s exactly the message I shared in this interview with C-Span.

Here are a few of the points from the discussion that are worth emphasizing.

The current tax code benefits Washington insiders, not the American people.

But I’m not optimistic about fixing the tax code, in part because the crowd in DC would lose some power.

We’ll never get good tax reform unless there’s genuine entitlement reform to restrain the growing burden of government spending.

The flat tax and national sales tax are basically different sides of the same coin.

If you want class-warfare tax rates on the rich, keep in mind that high rates don’t necessarily translate into more revenue.

The no-tax-hike pledge is a vital and necessary component of a strategy to restrain government.

Itemized deductions benefit the rich, not the poor.

If you care about poor people, focus on growth rather than inequality.

We should mimic Hong Kong and Singapore, not France and Greece.

P.S. I wrote last week that the Senate GOP put together a budget that is surprisingly good, both in content and presentation. A reader since reminded me that the Chairman of the Senate Budget Committee was a sponsor of the “Penny Plan,” which would lower non-interest outlays by 1 percent per year.

Since Mitchell’s Golden Rule simply requires that spending grow by less than the private sector, Senator Enzi’s Penny Plan obviously passes with flying colors.

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