Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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I'm not kidding. At the top of the hour intro to Morning Edition they told listeners that the United States paid off its debt in 1835 and was debt free. It then added "too bad it only lasted for a year."

Most economists and analysts would evaluate the well-being of an economy and society by its per capita income, life expectancy, literacy rates and other such measures. NPR apparently uses the debt level of its government.

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Dana Milbank has apparently been assigned to the fashion beat at the Washington Post. His column on a rally at which the Progressive Caucus outlined their budget proposal, noted that caucus Chairman Raul Grijalva was,  "wearing a tie that hung loose from his neck and ended five inches above his waistband." He went on to tell readers that he was unimpressed with the group's platform encouraging readers to speculate what would happen "if progressives ran the world."

Let's see, I suppose that we could have ten years of zero job growth, 25 million people unemployed, underemployed or out of the workforce altogether, declining real wages, millions of homeowners losing their homes, and tens of millions of homeowners underwater.


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In its article covering President Obama's speech on the budget yesterday the Washington Post told readers that:

"Obama acknowledged that the debt must be tackled faster than he has previously proposed."

It is only possible to "acknowledge" something which is true. The Post obviously believes it is true that "the debt must be tackled faster than he has previously proposed," but that does not make it so. This is the Post's opinion. A real newspaper would have reported that President Obama "said that the debt must be tackled faster than he has previously proposed." It would not have implied that its view of the world is the unquestioned reality, especially in a front page news story.

Remarkably, the coverage of the President's speech in both the Post and the NYT included no mention of the recession. The main reason that the deficit has soared in the last three years is because of the economic collapse that followed the crash of the housing bubble.

If the deficit is reduced substantially before the economy has gotten back to near full employment levels of output the main effect will be to slow growth and throw more people out of work. This fact was never mentioned in either piece even though President Obama proposes to have his deficit reduction targets to become binding in fiscal year 2014, a point at which the unemployment rate is still projected to be 7.2 percent. By contrast, the first stimulus package was put into law under President George W. Bush when the unemployment rate was just 4.7 percent.

Both articles made reference to the deficit reduction plan from the President's deficit commission. This is wrong. There was no plan from the commission. The co-chairs of the commission, Erskine Bowles and Alan Simpson, never put their plan up for a vote because they knew they lacked the majority needed for passage. The plan referred to in these articles is only the proposal of the two co-chairs. It is not the plan of the commission.

This should be a simple point for a major newspaper to get right.

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The NYT discussed the agenda of an upcoming meeting of G-20 finance ministers. It focused on efforts to pressure China to raise the value of its currency.

This discussion implied that the United States must depend on its ability to pressure China to change its currency policy. In fact, the United States does not have to rely on China changing its policy, it can force a change with unilateral action.

Specifically, just as China sets an official exchange rate of the yuan against the dollar that is below the market value of the yuan, the U.S. could set an exchange rate of the dollar against the yuan that is equal to the market value of the yuan.

This could mean, for example that the Treasury Department would announce a policy whereby it would buy yuan at the rate of 4 yuan for a dollar. This compares to the rate of 6.7 yuan to a dollar supported by China's government. While it would be illegal under China's laws for its nationals to take advantage of this exchange rate, it is likely that many businesses and wealthy individuals would find ways to evade the law. This would make the exchange rate set by the Treasury the effective exchange rate in the market.

It is a policy decision by the Obama administration not to take this route. This should have been pointed out by the article. Obviously the Obama administration has chosen to not really push aggressively to raise the value of China's currency.

China's government knows that the U.S. can take these steps and has chosen not to, therefore it may infer that the push to raise the value of its currency is not really a priority and is instead being done for political purposes. This NYT article supports the Obama administration's efforts to mislead the public on this topic.

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This is the only thing that readers can infer from his reference to President Obama's "refusal to propose a viable solution" to the debt problem. In fact, the Congressional Budget Office projects that the health care bill approved by Congress last year will trim tens of trillions of dollars off the long-term deficit. One can only conclude that Milbank wasn't aware of the bill in making this accusation.

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The WSJ had a nice piece showing that United States pays far more per person for health care than other wealthy countries, even though they all enjoy longer life expectancies than we do. After presenting the data, the article then tells readers:

"Among the things that do matter [for controlling costs]: Consumers need to have some skin in the game, through mechanisms such as co-payments."

Actually, in most, if not all, of the countries in the WSJ chart, patients typically have lower co-payments/cost-sharing than is the norm in the United States. This would not seem to be an essential part of controlling costs.

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I'm not kidding. The rest of the article actually is reasonable, but we get this from a person on the street interview:

"'We have an au pair from France, and she recently filled up our minivan and gave me a bill for $70,' said Melanie Janin, a mother of three from Bethesda. 'I was like, Oh, my God.' ”

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It sure looks that way since it presents the removal of a provision in the health care bill pushed by Senator Wyden as a victory for special interests. This removal was part of the final budget deal.

The provision would have allowed healthy workers to opt out of their company's insurance plans, leaving only older and sicker workers. This is an effective way to undermine employer provided benefits, which was presumably Senator Wyden's intention in pushing this proposal.

While the NYT gave extensive space to Senator Wyden complain about the removal of his provision as a victory for special interests, and gratuitously added the irrelevant information that the provision cost the government nothing, it did not interview anyone who opposed the provision for the article.

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The Washington Post had a piece on the reaction of financial markets to the debate over the budget. It included a comment from William Gross, the manager of the Pimco bond fund, complaining that if the United States did not reform entitlements then a default is inevitable. He then said that the default would take place through "inflation, currency devaluation and low-to-negative real interest rates.”

This sort of "default" probably does not sound too bad to the overwhelming majority of the public who do not hold large amounts of government debt. More importantly, the devaluation of the currency is essential if the United States is to stop being a huge net borrower from other countries.

Changes in the currency value are the main mechanism for adjusting trade balances in a system of floating exchange rates. If the dollar is over-valued by 20 percent then this has roughly the same effect as subsidizing our imports by 20 percent and placing a tariff of 20 percent on all our exports. The over-valued dollar has far more impact on our trade balance than all of our trade deals put together.

If the value of the dollar does not fall substantially, then the United States will continue to run large trade deficits. This logically implies that we will have negative domestic savings (i.e. it is an accounting identity, there is no way around it). Low private savings means either large budget deficits or very low private savings or some combination.

In other words, if Mr. Gross does not want the dollar to fall, then he either wants to see large budget deficits and/or very low private savings. Or alternatively, he doesn't understand basic economics.

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The NYT had a piece discussing the impact on the economy of the budget cuts in the compromise agreement last week. The prospect of losing hundreds of thousands of jobs should have been a central theme in the discussion of the negotiations, but it was almost never mentioned. Add a comment

WAMU, my local NPR affiliate, had an especially appalling segment of "Power Breakfast" this morning. The segment highlighted a congressional hearing on the topic of financial literacy and then commented on the obvious irony.

Of course there is no obvious irony to anyone who has ever learned any economics. The government's large deficit (presumably the source of Power Breakfast's "irony") is supporting the economy right now. This spending is needed because the collapse of the housing bubble created a gap of more than $1.2 trillion in annual demand in the economy. Anyone who thinks that the government should balance its budget right now wants to throw millions more people out of work.

Our Power Breakfast crew might not understand enough economics to realize this fact, but that does not change the truth of the matter. It is of course ironic that someone who knows nothing about economics can have a job reporting on it, while millions of people who can do their jobs are going unemployed.

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The NYT has a front page story on the debate over Representative Ryan's plan to privatize Medicare. The article is entirely in the form of he said/she said, providing readers with absolutely no information that would allow them to assess the arguments over the plan. This is especially important since the article reports that changes like those in the Ryan plan are necessary to control costs.

The assessment from the non-partisan Congressional Budget Office (CBO) is that the Ryan plan raises, not lowers, the cost of insurance. The CBO assessment implies that the Ryan plan would raise the cost to the country of buying Medicare equivalent policies by $20.5 trillion over the next 75 years (Medicare's planning period). This amount is almost four times as large as the projected Social Security shortfall. It comes to more than $60,000 for every man, woman, and child in the country. While this extra cost would not be borne by the government under the Ryan plan, it implies an enormous burden on future generations of retirees who may have to spend more than half of their income on health care.

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In a column complaining that too many people are dependent on the government, Robert Samuelson badly underestimates how many people are dependent on the government. He failed to take note of the fact that nearly every person in the country is dependent on the U.S. Postal Service to deliver its mail.

Of course it would be silly to claim that people who use the Postal Service for some of their mail are dependent on the government, but much of Samuelson's column falls victim to the same sort of silliness. For example, he wants to say that Social Security beneficiaries are dependent on the government. The problem with this story is that these beneficiaries paid taxes during their working lifetime that cover the cost of their benefits.

Social Security is a retirement program that is run through the government because the government provides the service far more efficiently than the private sector. The administrative costs of the retirement portion of the Social Security program are equal to about 0.5 percent of the benefits paid out each year. By contrast, the administrative costs of privatized programs, like the one in Chile that is often held up as a model, are in the neighborhood of 15 percent of the benefits paid out. Why is it a problem that we choose to run our retirement system in the most efficient possible way?

The same story applies to Medicare. The Ryan plan for privatizing Medicare, which Samuelson smiles upon as a step forward, would add more than $20 trillion (more than $60,000 per person) to the cost of buying Medicare equivalent policies over the program's 75-year planning horizon. This $20 trillion is not the savings to the government from paying less for retirees' Medicare. This is the pure waste associated with establishing a more inefficient system of health care.

While Samuelson makes his usual point about a broken and bloated government, the facts tell a different story. The country has a broken health care system: full stop. If the United States paid the same amount per person for health care as people in any other wealthy country we would be looking at huge budget surpluses, not deficits.

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Nearly every public opinion poll ever taken has shown that Medicare and Medicaid are enormously popular programs. People in all demographic and political groups support these programs by large majorities. Even the vast majority of Republicans support these programs.

This is why it is peculiar to see the Washington Post tell readers that:

"House Republicans upped the pressure on the president last week when they introduced a plan to slash government spending by $6 trillion more than the president’s plan over the next decade — largely by shrinking Medicare and Medicaid."

Given that the Republican plan to essentially end Medicare and Medicaid is likely to be enormously unpopular in addition to being bad policy (it would add more than $20 trillion to the cost to the country of buying Medicare equivalent policies for the next 75 years) it is hard to see why this would place additional pressure on President Obama to do anything. Would it increase pressure on Republicans to support tax increases on the wealthy if President Obama proposed large tax increases on the middle class?

The claim that President Obama is now under increased pressure to propose cuts to Social Security, Medicare, and Medicaid coincides with the Washington Post's political position (they want to see President Obama propose large cuts to the budget), but there is zero evidence presented in the article to support this claim.

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I don't like to use this blog to settle personal scores, but I think it is important to clear up a serious misrepresentation that stemmed from an earlier post. Zero Hedge has me advocating default on the national debt because I had the audacity to point out that the world will not end if the U.S. defaults on its debt.

It did not occur to me that anyone could think that saying "the world will not end if we do X," is the same as saying "we should do X," but apparently the folks at Zero Hedge cannot see the distinction. Let me try to clarify. Defaulting on the national debt is very bad policy. It would lead to a financial crisis, as I said in my prior post. This would lead to a severe downturn in the economy and a big jump in the unemployment rate.

However the economy would eventually recover. The underlying factors that determine the country's wealth -- the physical stock of capital, the skills of the workforce, the state of technical knowledge -- will still be there following a default.

For this reason I would consider some policies worse than default. Representative Ryan's plan for ending Medicare as we know it would fit this bill. It would mean that people who spent their entire life working could not count on decent health care in their old age.

In my view, if the Republicans say "end Medicare or default," then the correct response for President Obama is "I'll see you after the crash." My guess is that in this scenario we don't get a default. Rather we get Jamie Dimon screaming his lungs out at the Republican leadership, and we get the Republicans running to compromise with their tails between their legs.

But, this assessment could be wrong. Still, in my view there has to be a bottom line. I draw the line before the elimination of Medicare.

I'm afraid that I don't really understand the opposite position. Is it the view of Zero Hedge that nothing is worse than defaulting on the national debt? If Speaker Boehner wants to bring back slavery as a condition of raising the debt ceiling should President Obama sign the bill? (We'll worry about the 13th amendment later.) If they agree that bringing back slavery is worse than defaulting on the national debt then is Zero Hedge also an advocate of default? 

If we want to have a serious argument on this issue it is going to have to be based on what I actually said, not positions that Zero Hedge has invented for me.

 

 

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They did it again! The Washington Post had a front page article devoted to the budget debate that never once mentioned the job loss that is expected to result from budget cuts at a point where the economy is still far below full employment.

According to estimates from Mark Zandi, the original package put forward by the Republican leadership would have cost 700,000 jobs. Since the final package had cuts that were roughly two thirds as large, the implied job loss would be around 450,000. It is incredible that a major newspaper could discuss the budget without ever once mentioning its impact on the economy.

The Post, which has long supported big cuts to Social Security and Medicare and other social programs, directly misrepresented reality to push its agenda. It told readers:

"the battle was fought on turf far more hospitable to Republicans, given the country’s concerns about spending that contributed to the Democrats losing the House in November."

Every post-election poll showed that the main concern of voters last November was jobs. As in JOBS!!!!, the one item that is not mentioned once in this article. Instead, the article tells readers that:

"The coming battle, which will be about fiscal priorities and society’s values as much as it is about controlling government spending."

The Post presents no evidence that the battle is about "society's values." Most obviously the battle is about redistributing trillions of dollars of income from ordinary workers to the health insurance industry and health care providers.

According to the Congressional Budget Office, the public would have to pay an extra $20 trillion over the next 75 years (an amount that is approximately equal to 4 times the projected Social Security shortfall) if Representative Ryan's plan for a Medicare voucher system is adopted. There may be questions of values here, but most immediately the question is whether we want to take money from low and middle income people and give it to these industries.

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The NYT had a piece on the implications of the United States hitting its debt ceiling and running the risk of defaulting on its debt. The article exclusively presented the views of people who portrayed hitting the debt ceiling and defaulting on the debt as being an end of world scenario.

It would have been useful to present the view of people who do not consider a default on the national debt to be the worst possible outcome. While there can be little doubt that a default on the U.S. debt would lead to a financial crisis and would likely permanently reduce the role of the U.S. financial industry in world markets, it is also likely the case that the United States would rebound and possible rebound quickly from a default.

The experience of Argentina may be instructive in this respect. Argentina defaulted on its debt at the end of 2001. Its economy fell sharply in the first quarter of 2002 but had stabilized by the summer and was growing strongly by the end of the year. By the end of 2003 it had recovered its lost output. Its economy continued to grow strongly until the world recession in 2009 brought it to a near standstill.

Book1_22628_image001

Source: IMF.

While there can be no guarantee that the U.S. economy would bounce back from the financial crisis following a default as quickly as did Argentina, it's unlikely that U.S. policymakers are too much less competent than those in Argentina.

Readers should be made aware of the fact that countries do sometimes default and they can subsequently recover and prosper. Many people may consider the short-term pain stemming from a debt default to be preferable to the long-term costs that might come from policies adopted to prevent default.

For example, if Congress were to approve a Medicare plan along the lines proposed by House Budget Committee Chairman Paul Ryan, this would be subjecting tens of millions of middle class retirees to a retirement without adequate health care insurance and potentially devastating medical bills. Plans being put forward to cut Social Security could have similar consequences. Compared to these outcomes, a financial crisis and the subsequent slump that follows may seem like a relatively small cost.   

It is also worth noting that two of the people whose views were presented in this article, Jamie Dimon, the CEO of J.P. Morgan, and Robert Rubin, a former top executive at Citigroup, are both individuals whose situation is likely to make them view a debt default as an end of the world event. Both institutions would likely not survive a debt default. For the people whose wealth depends on the health of Wall Street financial firms, a default on the U.S. debt is probably one of the worst conceivable events in the world, however this group is tiny minority of the U.S. population. 

 

Addendum: Here is my response to Zero Hedge.

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Has anyone told the White House press corps about the economic downturn? We have 8.8 percent [thanks Tony] of the workforce unemployed, more than 8 million people employed part-time who would like full-time jobs, and millions more who have given up looking for work altogether.

The reason is simple: there is not enough demand in the economy. When we cut government spending, there is less demand in the economy. As we used to say in intro econ class: Y = C+I+G+X-M. That means that GDP is equal to the sum of consumption, investment, government spending and net exports. If we cut government spending, then we have reduced demand, unless we think there are a lot of firms who will be inspired to hire people because the government is cutting back its spending.

Moody's estimated that the original Republican plan for $61 billion in cuts would lead to a loss of 700,000 jobs. Goldman Sachs had a similar number. Since the final deal had a bit less than two-thirds of these cuts, the implication is that somewhat more than 400,000 workers will lose their jobs.

And the remarkable part of the story is that these newly unemployed workers are not even mentioned in the coverage in the NYT, the Post, or it seems anywhere else. Hey why ruin a great budget drama by talking about the people who will have their lives ruined?

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I'm not kidding. Of course those who know anything about Japan recognize that the country is very densely populated and has high housing prices as a result. (Some of this also stems from a conscious effort to maintain farm land through high subsidies.) Anyhow, the prospect of less crowded cities and lower housing costs probably would not look bad to most Japanese, but it has the Washington Post terrified.

The Post tells us that the money spent on rebuilding from the earthquake and tsunami may pull funds away from programs intended to promote population growth. The article manages to combine both the concern with lack of jobs and lack of population. Japan's economy must be in really bad shape if it is simultaneously suffering from too little demand and too little supply of labor. Read about it only in the Washington Post.

The article also includes this gem:

"Hard-hit coastal towns such as Minamisoma and Rikuzentakata had been shrinking for decades, consolidating schools and struggling to provide adequate jobs for the young people who wanted to remain. The dearth of youth in rural areas will complicate long-term rebuilding efforts, observers say; even if infrastructure is rebuilt, will anybody live there?"

Ummm, I hate to spoil a crisis, but if people don't want to live in the towns destroyed by the disasters, why would anyone want to rebuild them? That doesn't seem very complicated, just common sense.

As a more general rule these shrinking population stories are just plain silly. The impact of even modest rates of productivity growth on increasing wealth per capita swamp the impact of rising dependency ratios in reducing per capita wealth.

When workforces shrink, the less productive jobs go unfilled. This is the way a market economy works. That is why half of our workforce no longer is employed in agriculture. It would be great if the Post would stop bombarding readers about an invented crisis of a less crowded Japan.

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That is what readers of its analysis of the budget deal would conclude. It told readers:

"Once in the battle, Obama and his party felt pressure to show they heard the message that many Americans believe the government spends too much and that deficits are unsustainable. As a result, the president and congressional Democrats were forced to agree to much larger spending cuts than they had wanted, rather than appear resistant to popular will."

Actually, almost all of the polling data on the election showed that jobs were by far the most important issue as people went to vote. The deficit trailed by a large margin.

According to analysis from Moody's Analytics and Goldman Sachs, the original package of $61 billion in cuts put forward by the Republicans would lead to a loss of over 700,000 jobs. (The logic is simple. There is less spending, therefore fewer people are employed. Even a Washington Post reporter should be able to get that one.) Since the final package includes roughly two-thirds of these cuts, it is reasonable to infer that it will lead to a loss of close to 500,000 jobs.

Remarkably the Post's analysis says nothing, nada, zero about the jobs impact of this bill. When it comes to ignoring the message expressed in the election last fall it would be difficult to think of a better example.

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We all know the line about history repeating itself. The first time is tragedy, but at this point we are well past farce. Ezra Klein calls attention, via Paul Krugman, to the fact Charles Krauthammer is impressed by Paul Ryan's use of 37 footnotes in his budget plan.

With the prospect of a government shutdown facing the country it's hard not to think of Dick Morris, the architect of President Clinton's triangulation strategy between the Republicans majority in Congress and the Democratic minority in Congress. Clinton had to break his ties to Morris when he was caught with a prostitute, with whom he apparently engaged in strange activities with her feet.

But the footnotes are far less important that Krauthammer's substantive errors which he kindly numbered for readers. His error number 1 is a criticism of Ryan's critics for claiming that Ryan's cuts would hurt the poor. Krauthammer's trump card is the foolishness of the liberals who complained about Clinton's welfare reform, singling out Peter Edelman who resigned from the administration in protest over the policy. We are told that:

"Within five years child poverty had declined by more than 2.5 million — one of the reasons the 1996 welfare reform is considered one of the social policy successes of our time."

The decline in child poverty was real, but it is more typically attributed to the unemployment rate dropping to 4.0 percent in the late 90s boom. More recently, the child poverty rate has risen back to its mid-90s level, meaning that we have made no progress in eliminating child poverty over the last 15 years. One of the reasons that Edelman and others objected to welfare reform is that the new TANF program that replaced the old welfare system would not guarantee that resources would expand during a recession when they were most needed. On this score, it looks like Edelman was exactly right.

In error number 2, Krauthammer complains about the people who have attacked Ryan's Medicare plan as privatization. He tells us that:

"instead of paying the health provider directly (fee-for-service), Medicare would give seniors about $15,000 of 'premium support,' letting the recipient choose among a menu of approved health insurance plans."

In fact the premium support is set at $8,000 per person in 2022. That translates into $6,100 a year in today's dollars. According to the Congressional Budget Office (CBO), this will be enough to pay less than 40 percent of the cost of a Medicare equivalent benefit in 2022. The assessment of CBO, based on the experiment with Medicare Advantage (we have tried this before) and an examination of the private health insurance market, is that Ryan's plan will raise, not lower, Medicare costs.

Krauthammer touts the lower than expected cost of Medicare Part D. The main reason that this program cost less than expected is that drug prices in general have risen less rapidly than had been projected. This in turn is due to the fact that many blockbuster drugs have gone off patent, leading to lower prices now that they face generic competition. The industry has produced few important new drugs in the last few years thereby reducing the upward pressure on costs.

Finally we have Krauthammer's error number 3:

"The final charge — cutting taxes for the rich — is the most scurrilous. That would be the same as calling the Ronald Reagan-Bill Bradley 1986 tax reform 'cutting taxes for the rich.' In fact, it was designed for revenue neutrality. It cut rates — and for everyone — by eliminating loopholes, including corrupt exemptions and economically counterproductive tax expenditures, to yield what is generally considered by left and right an extraordinarily successful piece of economic legislation."

No, actually it is not designed to be revenue neutral. It is designed to cut taxes on the wealthy. Ryan has not produced a set of loopholes whose elimination would offset the cost of his tax cuts. He just wrote in numbers. When the Tax Policy Center of the Urban Institute and Brooking Institution examined Ryan's tax plan, they found that it came up $2.9 trillion short over the course of the decade. Ryan did not describe a specific set of loopholes to close that they could score, but they would have to be quite large to fill this gap.

I suppose after reading through Ryan's plan, if you can't find much good to say about it, you can always talk about the footnotes.

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