As a general rule budget reporting in this country is atrocious. It is standard practice to report numbers for the aggregate budget or specific programs without providing any context that would make these numbers meaningful. Often articles do not even make clear the number of years over which spending or revenue will be spread, as though it makes no difference whether we are talking about spending $200 billion over one year or ten. The NYT carried this a step further in a news article on Detroit’s budget which can only be taken to mean that the NYT wants you to think that Detroit has a serious budget problem.
Let’s start with the basics:
“Within days of Mr. Bing’s [Detroit Mayor Dave Bing] announcement, state officials said they were starting a preliminary review of the city’s finances, which concluded this week with the announcement of a deeper state look at the books and an alarming snapshot of Detroit: more than $12 billion in long-term debt, an estimated general fund deficit of $196 million and no sufficient plan for dealing with the shortfall.”
This is supposed to sound really bad to readers. After all, how many of us will ever see $12 billion? And a deficit of $196 million is also really scary. But what on earth does this mean to Detroit? The article gives us no information whatsoever on the size of the city’s budget or its economy.
If we make the long trek to the City of Detroit’s website, we find that its proposed budget for 2012 is $3.1 billion. This means that the deficit is just under 6.5 percent of its budget. Is that big? Well, the federal deficit is more than 30 percent of the federal budget, so by that metric Detroit is not doing bad. Federal debt (counting money owed to Social Security and other public trust funds) is just under 3 times the size of the budget, not hugely different than Detroit’s ratio of a bit less than 4 to 1.
Of course the federal government is not bound by any balance budget requirements and it has the ability to print its own currency, so it does have far more ability to deal with debt and deficits than a city government. Still, the article really provides no basis for assessing how bad Detroit’s budget problems actually are. If the city’s economy turns around and begins to grow at a healthy pace, these deficits will likely be manageable. On the other hand, if it continues to shrink, as it has been doing for the last five decades, then the deficits will likely be a very serious problem.
The article also includes one other outstanding example of meaningless numbers. It told readers:
“With 11,000 city employees and 139 square miles of increasingly vacant land to tend to, it has struggled, year by year, deficit by deficit, to pay its bills. Once the nation’s fourth-largest city, it has seen its population drop since a high of 1.8 million in 1950 to a low last year of 714,000.”
Imagine that, 11,000 city employees in a city that now has just 714,000 people. Is that a bloated bureaucracy or what?
The answer would have to be the “or what?” in really big letters. The Bureau of Labor Statistics reports that 14.1 million local government employees. With a population of just over 300 million people that translates into 1 employee for roughly every 21 people. By comparison, Detroit’s government looks positively austere with a ratio of just 1 employee for every 65 people.
Of course the article is not entirely clear on who counts as a local employee. In most cities the schools are run by an independent entity. If we pull out local employees in education, we find that there are 6.2 million non-education employees at the local level. This translates into a ratio of 48 people for every city employee. This is closer but still implies a much lower ratio of people to city employees than Detroit’s 65 to 1.
There may be more to this story and Detroit may really have a badly bloated city bureaucracy, but the numbers presented in this article do not support that story and they certainly give readers no ability to assess the issue for themselves.
As a general rule budget reporting in this country is atrocious. It is standard practice to report numbers for the aggregate budget or specific programs without providing any context that would make these numbers meaningful. Often articles do not even make clear the number of years over which spending or revenue will be spread, as though it makes no difference whether we are talking about spending $200 billion over one year or ten. The NYT carried this a step further in a news article on Detroit’s budget which can only be taken to mean that the NYT wants you to think that Detroit has a serious budget problem.
Let’s start with the basics:
“Within days of Mr. Bing’s [Detroit Mayor Dave Bing] announcement, state officials said they were starting a preliminary review of the city’s finances, which concluded this week with the announcement of a deeper state look at the books and an alarming snapshot of Detroit: more than $12 billion in long-term debt, an estimated general fund deficit of $196 million and no sufficient plan for dealing with the shortfall.”
This is supposed to sound really bad to readers. After all, how many of us will ever see $12 billion? And a deficit of $196 million is also really scary. But what on earth does this mean to Detroit? The article gives us no information whatsoever on the size of the city’s budget or its economy.
If we make the long trek to the City of Detroit’s website, we find that its proposed budget for 2012 is $3.1 billion. This means that the deficit is just under 6.5 percent of its budget. Is that big? Well, the federal deficit is more than 30 percent of the federal budget, so by that metric Detroit is not doing bad. Federal debt (counting money owed to Social Security and other public trust funds) is just under 3 times the size of the budget, not hugely different than Detroit’s ratio of a bit less than 4 to 1.
Of course the federal government is not bound by any balance budget requirements and it has the ability to print its own currency, so it does have far more ability to deal with debt and deficits than a city government. Still, the article really provides no basis for assessing how bad Detroit’s budget problems actually are. If the city’s economy turns around and begins to grow at a healthy pace, these deficits will likely be manageable. On the other hand, if it continues to shrink, as it has been doing for the last five decades, then the deficits will likely be a very serious problem.
The article also includes one other outstanding example of meaningless numbers. It told readers:
“With 11,000 city employees and 139 square miles of increasingly vacant land to tend to, it has struggled, year by year, deficit by deficit, to pay its bills. Once the nation’s fourth-largest city, it has seen its population drop since a high of 1.8 million in 1950 to a low last year of 714,000.”
Imagine that, 11,000 city employees in a city that now has just 714,000 people. Is that a bloated bureaucracy or what?
The answer would have to be the “or what?” in really big letters. The Bureau of Labor Statistics reports that 14.1 million local government employees. With a population of just over 300 million people that translates into 1 employee for roughly every 21 people. By comparison, Detroit’s government looks positively austere with a ratio of just 1 employee for every 65 people.
Of course the article is not entirely clear on who counts as a local employee. In most cities the schools are run by an independent entity. If we pull out local employees in education, we find that there are 6.2 million non-education employees at the local level. This translates into a ratio of 48 people for every city employee. This is closer but still implies a much lower ratio of people to city employees than Detroit’s 65 to 1.
There may be more to this story and Detroit may really have a badly bloated city bureaucracy, but the numbers presented in this article do not support that story and they certainly give readers no ability to assess the issue for themselves.
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It is more than a little bizarre to read a column on public attitudes to inequality in the NYT which completely equates reducing inequality with raising taxes. In fact, the main reason that inequality has risen so much over the last three decades has been the increase in the inequality of before-tax income.
This increase is attributable to policies like a trade policy that subjects manufacturing workers to competition with low-paid workers in the developing world, while largely protecting doctors, lawyers, and other highly paid professionals from similar competition. Inequality stems in part from the government’s too big to fail insurance for large banks that allows them to take large risks with taxpayers bearing the downside.
Inequality is due to the enormous extension of patents and copyright monopolies over the last three decades. The country currently pays close to $300 billion a year for prescription drugs that would sell for around $30 billion in a free market. The difference of $270 billion a year is five times the amount of money at stake with the Bush tax cuts for the rich.
It is likely that the public would reject most of the policies that have allowed the wealthy to seize a much larger share of income over the last three decades if any politician ever had the courage to raise them. Instead, Gelman and many others would like to restrict debate to “Loser Liberalism,” where the question is exclusively whether we want to tax the winners to help the losers.
Addendum:
Andrew Gelman has added to his earlier note and indicated that he was only referring to the particular pieces being discussed. He did not intend to restrict a discussion of inequality to tax rates.
It is more than a little bizarre to read a column on public attitudes to inequality in the NYT which completely equates reducing inequality with raising taxes. In fact, the main reason that inequality has risen so much over the last three decades has been the increase in the inequality of before-tax income.
This increase is attributable to policies like a trade policy that subjects manufacturing workers to competition with low-paid workers in the developing world, while largely protecting doctors, lawyers, and other highly paid professionals from similar competition. Inequality stems in part from the government’s too big to fail insurance for large banks that allows them to take large risks with taxpayers bearing the downside.
Inequality is due to the enormous extension of patents and copyright monopolies over the last three decades. The country currently pays close to $300 billion a year for prescription drugs that would sell for around $30 billion in a free market. The difference of $270 billion a year is five times the amount of money at stake with the Bush tax cuts for the rich.
It is likely that the public would reject most of the policies that have allowed the wealthy to seize a much larger share of income over the last three decades if any politician ever had the courage to raise them. Instead, Gelman and many others would like to restrict debate to “Loser Liberalism,” where the question is exclusively whether we want to tax the winners to help the losers.
Addendum:
Andrew Gelman has added to his earlier note and indicated that he was only referring to the particular pieces being discussed. He did not intend to restrict a discussion of inequality to tax rates.
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In an article discussing House Speaker John Boehner’s performance in his job, the Post referred to his negotiations last summer with President Obama over, “the federal government’s swelling debt problem.” Newspapers interested in maintaining the separation between the news and opinion pages would have simple referred to the debate over raising the debt ceiling, which is what was at issue.
The debt has risen rapidly because of the recession that followed in the wake of the collapse of the housing bubble. Financial markets do not see the debt as a problem, which we know since they are willing to lend the government huge amounts of money at very low interest rates. There was no reason to interject this sort of editorial comment in a news story.
In an article discussing House Speaker John Boehner’s performance in his job, the Post referred to his negotiations last summer with President Obama over, “the federal government’s swelling debt problem.” Newspapers interested in maintaining the separation between the news and opinion pages would have simple referred to the debate over raising the debt ceiling, which is what was at issue.
The debt has risen rapidly because of the recession that followed in the wake of the collapse of the housing bubble. Financial markets do not see the debt as a problem, which we know since they are willing to lend the government huge amounts of money at very low interest rates. There was no reason to interject this sort of editorial comment in a news story.
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The United States pays more than twice as much per person for its health care as the average for other wealthy countries. It has little to show for this in the way of outcomes as it ranks near the bottom in terms of life expectancy. If we paid the same amount per person as people in other wealthy countries then we would face no long-term deficit problem, as the long-term projections would show budget surpluses rather than deficits.
This is why it is striking that a lengthy Washington Post article on health care never mentioned the sharp contrast between health care costs in the United States and elsewhere in the world. This implies the potential for large gains from trade. For example, if beneficiaries opted to buy into the health care systems of Canada, Germany, or England, the Medicare projections imply that there would be tens of thousands of dollars a year in annual savings that could be split by the government and beneficiaries. A less protectionist paper would have noted these opportunities.
The article also includes a couple of assertions that are questionable or could use some further elaboration. It cites House Budget Committee Chairman Paul Ryan as saying that:
“cutting provider payments beyond the targets in the Affordable Care Act [is] a sure path to Medicare’s collapse.”
Given the size of the Medicare program, it is not clear that many providers would have much choice but to accept lower rates. This is almost certainly true in the case of doctors. There are few wealthy patients who do not currently have all the physicians’ services they want. This means that if doctors refused to take Medicare patients because they considered the payments inadequate they would simply have to work less or retire early. Since most doctors probably cannot afford to do this, they would likely have little choice but to accept lower pay. (Of course if we removed the protectionist barriers that exclude qualified foreign physicians there would be plenty of doctors willing to accept much lower Medicare payments.)
The article also fails to note the reason that Medicare Part D has cost less than projected. According to the Food and Drug Administration there has been a sharp slowdown in the development of breakthrough drugs. It is possible that the decision to run Part D through private insurers is responsible for the slowing pace of technical innovation in the drug industry, but it is difficult to see how this would be the case. However, if the proponents of this decision (using private insurers rather than Medicare to run the program) want to take credit for slower cost growth, this is what they would be claiming.
The United States pays more than twice as much per person for its health care as the average for other wealthy countries. It has little to show for this in the way of outcomes as it ranks near the bottom in terms of life expectancy. If we paid the same amount per person as people in other wealthy countries then we would face no long-term deficit problem, as the long-term projections would show budget surpluses rather than deficits.
This is why it is striking that a lengthy Washington Post article on health care never mentioned the sharp contrast between health care costs in the United States and elsewhere in the world. This implies the potential for large gains from trade. For example, if beneficiaries opted to buy into the health care systems of Canada, Germany, or England, the Medicare projections imply that there would be tens of thousands of dollars a year in annual savings that could be split by the government and beneficiaries. A less protectionist paper would have noted these opportunities.
The article also includes a couple of assertions that are questionable or could use some further elaboration. It cites House Budget Committee Chairman Paul Ryan as saying that:
“cutting provider payments beyond the targets in the Affordable Care Act [is] a sure path to Medicare’s collapse.”
Given the size of the Medicare program, it is not clear that many providers would have much choice but to accept lower rates. This is almost certainly true in the case of doctors. There are few wealthy patients who do not currently have all the physicians’ services they want. This means that if doctors refused to take Medicare patients because they considered the payments inadequate they would simply have to work less or retire early. Since most doctors probably cannot afford to do this, they would likely have little choice but to accept lower pay. (Of course if we removed the protectionist barriers that exclude qualified foreign physicians there would be plenty of doctors willing to accept much lower Medicare payments.)
The article also fails to note the reason that Medicare Part D has cost less than projected. According to the Food and Drug Administration there has been a sharp slowdown in the development of breakthrough drugs. It is possible that the decision to run Part D through private insurers is responsible for the slowing pace of technical innovation in the drug industry, but it is difficult to see how this would be the case. However, if the proponents of this decision (using private insurers rather than Medicare to run the program) want to take credit for slower cost growth, this is what they would be claiming.
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Several people have asked me about the news that the National Association of Realtors (NAR) are revising down their estimates of existing home sales over the last 4 years by an average of 14 percent. I have not looked at this issue in great detail, but the NAR explanation does seem plausible on its face.
Their story is that they rely on data from realtor sales for most of their estimate and then impute a fixed percentage for owner sold properties. In principle, they should also remove new homes that were sold by realtors. (These are not existing homes.) It seems that their survey was in fact capturing a larger portion of total sales since fewer people were selling homes on their own and builders were increasingly turning to realtors to sell new homes.
There were some people who had raised issues about the data previously, but it is time consuming and expensive to re-benchmark a survey. It is understandable that the NAR would not have done it sooner, although they could have made more of a point of noting some of the issues that had been raised about the survey’s accuracy.
This sort of problem arises in other contexts. John Schmitt, my colleague at CEPR, found evidence that the Current Population Survey (CPS), which provides the basis for the monthly employment report, was overstating employment. This is due to the fact that it is covering a smaller share of the population than it did three decades ago. A comparison of the CPS with the 2000 Census data indicated that the people who are excluded from the survey are less likely to be employed than the people who are covered. This effect was especially large for young African American men. The CPS may overstate employment by this group by as much as 8 percentage points.
As a more general point, reporters should know that comments from the NAR, or any trade association, must be taken with a grain of salt. While its survey may in general be credible, its economists are not paid to give information to the public. They are paid to advance the interests of its members. In the case of the NAR, this means selling houses. It was absurd that David Lereah, then the chief economist of the NAR, was the primary and often only source in stories on the housing market during the bubble years. Remarkably, reporters tend to treat his successor, Lawrence Yun, the same way.
Several people have asked me about the news that the National Association of Realtors (NAR) are revising down their estimates of existing home sales over the last 4 years by an average of 14 percent. I have not looked at this issue in great detail, but the NAR explanation does seem plausible on its face.
Their story is that they rely on data from realtor sales for most of their estimate and then impute a fixed percentage for owner sold properties. In principle, they should also remove new homes that were sold by realtors. (These are not existing homes.) It seems that their survey was in fact capturing a larger portion of total sales since fewer people were selling homes on their own and builders were increasingly turning to realtors to sell new homes.
There were some people who had raised issues about the data previously, but it is time consuming and expensive to re-benchmark a survey. It is understandable that the NAR would not have done it sooner, although they could have made more of a point of noting some of the issues that had been raised about the survey’s accuracy.
This sort of problem arises in other contexts. John Schmitt, my colleague at CEPR, found evidence that the Current Population Survey (CPS), which provides the basis for the monthly employment report, was overstating employment. This is due to the fact that it is covering a smaller share of the population than it did three decades ago. A comparison of the CPS with the 2000 Census data indicated that the people who are excluded from the survey are less likely to be employed than the people who are covered. This effect was especially large for young African American men. The CPS may overstate employment by this group by as much as 8 percentage points.
As a more general point, reporters should know that comments from the NAR, or any trade association, must be taken with a grain of salt. While its survey may in general be credible, its economists are not paid to give information to the public. They are paid to advance the interests of its members. In the case of the NAR, this means selling houses. It was absurd that David Lereah, then the chief economist of the NAR, was the primary and often only source in stories on the housing market during the bubble years. Remarkably, reporters tend to treat his successor, Lawrence Yun, the same way.
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The NYT reported on the Immigration and Customs Enforcement Agency’s seizure of unauthorized copies of goods, which it priced at $77 million. (It’s not clear whether this is the value of the copies or the price of the goods that were being copied.) The piece repeatedly refers to these goods as “counterfeit.”
It is not clear from the article that the goods were in fact counterfeit. If they were counterfeit, then consumers were deceived into believing that they were getting the brand product that was being copied. Often consumers know that they are getting copies of the brand product, not the actual product produced by the company. In this case, the product cannot properly be termed “counterfeit.”
This distinction is important because the consumer is being ripped off in the case of an actual counterfeit item. They would presumably cooperate with law enforcement in efforts to eliminate counterfeit items. However, consumers are often happy to buy unauthorized copies of brand products because they sell for much lower prices than the brand product. In this case, consumers will be allied with the sellers in trying to evade law enforcement, since both are benefiting from the transaction.
This piece provides no indication that the products seized were in fact counterfeit. It is only clear that they were unauthorized copies. Reporters should be careful to note this distinction.
The NYT reported on the Immigration and Customs Enforcement Agency’s seizure of unauthorized copies of goods, which it priced at $77 million. (It’s not clear whether this is the value of the copies or the price of the goods that were being copied.) The piece repeatedly refers to these goods as “counterfeit.”
It is not clear from the article that the goods were in fact counterfeit. If they were counterfeit, then consumers were deceived into believing that they were getting the brand product that was being copied. Often consumers know that they are getting copies of the brand product, not the actual product produced by the company. In this case, the product cannot properly be termed “counterfeit.”
This distinction is important because the consumer is being ripped off in the case of an actual counterfeit item. They would presumably cooperate with law enforcement in efforts to eliminate counterfeit items. However, consumers are often happy to buy unauthorized copies of brand products because they sell for much lower prices than the brand product. In this case, consumers will be allied with the sellers in trying to evade law enforcement, since both are benefiting from the transaction.
This piece provides no indication that the products seized were in fact counterfeit. It is only clear that they were unauthorized copies. Reporters should be careful to note this distinction.
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The NYT has a good piece noting factors that are likely to lead to somewhat stronger growth for the 4th quarter of 2011, but which will not be present in 2012. As a result, it suggests that we will see growth close to 3.7 percent in the fourth quarter, but this will fall back to 1.5-2.0 percent in the first half of 2012.
It is worth noting that even at a 3.7 percent annual growth rate it will take us until almost 2017 to get back to the economy’s potential GDP. According to the Congressional Budget Office, the economy is operating at about 6 percent below its potential level of output. With a potential annual growth rate of 2.5 percent, 3.7 percent growth GDP growth reduces this gap by 1.2 percentage points a year. That means it will take roughly five years of growth at this rate to close the gap.
Following steep recessions in the 70s and 80s, the economy had years of growth between 6-8 percent. In this context, a 3.7 percent growth rate does not look especially strong, even if it is more rapid than the economy is likely to see over the next couple of years.
The NYT has a good piece noting factors that are likely to lead to somewhat stronger growth for the 4th quarter of 2011, but which will not be present in 2012. As a result, it suggests that we will see growth close to 3.7 percent in the fourth quarter, but this will fall back to 1.5-2.0 percent in the first half of 2012.
It is worth noting that even at a 3.7 percent annual growth rate it will take us until almost 2017 to get back to the economy’s potential GDP. According to the Congressional Budget Office, the economy is operating at about 6 percent below its potential level of output. With a potential annual growth rate of 2.5 percent, 3.7 percent growth GDP growth reduces this gap by 1.2 percentage points a year. That means it will take roughly five years of growth at this rate to close the gap.
Following steep recessions in the 70s and 80s, the economy had years of growth between 6-8 percent. In this context, a 3.7 percent growth rate does not look especially strong, even if it is more rapid than the economy is likely to see over the next couple of years.
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Some of us may have thought the dispute over the extension of the payroll tax cut involves maneuvering between politicians who are looking to get re-elected next fall. They all have important interest groups who they rely upon for votes and/or campaign contributions.
However the Post told us that we are wrong to think this. Its lead front page article yesterday told readers that:
“at its heart, the fight over the tax cut is only the latest incarnation of the same ideological clash that has afflicted Congress for the past year, over what the government should fund and how it should be paid for.
Once again, Democrats and Republicans foundered over whether to fund an initiative by cutting entitlements and other spending or by raising taxes on the wealthy.”
Isn’t it great that the Post can get into politicians’ minds and determine the real motives for their actions? Ordinary people would just think of them as people who seek power, who say and do whatever is necessary to advance their careers, but the Post can tell us their innermost thoughts. That is why we need newspapers like the Washington Post.
Some of us may have thought the dispute over the extension of the payroll tax cut involves maneuvering between politicians who are looking to get re-elected next fall. They all have important interest groups who they rely upon for votes and/or campaign contributions.
However the Post told us that we are wrong to think this. Its lead front page article yesterday told readers that:
“at its heart, the fight over the tax cut is only the latest incarnation of the same ideological clash that has afflicted Congress for the past year, over what the government should fund and how it should be paid for.
Once again, Democrats and Republicans foundered over whether to fund an initiative by cutting entitlements and other spending or by raising taxes on the wealthy.”
Isn’t it great that the Post can get into politicians’ minds and determine the real motives for their actions? Ordinary people would just think of them as people who seek power, who say and do whatever is necessary to advance their careers, but the Post can tell us their innermost thoughts. That is why we need newspapers like the Washington Post.
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We made John Nichols’ Honor Roll for “Most Valuable Economic News Source” over at the Nation. I’d like to get a mention for most accurate, but no one gives awards for that.
We made John Nichols’ Honor Roll for “Most Valuable Economic News Source” over at the Nation. I’d like to get a mention for most accurate, but no one gives awards for that.
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Politifact told its readers about the “Echo Chamber Nation” in its follow up to its “Lie of the Year” story, but not quite in the way they intended. To remind readers, the Politifact Lie of the Year was the Democrats’ claim that the Ryan plan approved by the Republican House would end Medicare. The Ryan plan would in fact replace the fee for service Medicare that has been in place since the program was created in 1966 with a system of “premium supports,” which most people would call vouchers.
This is comparable to replacing a traditional defined benefit pension with a 401(k). Most people would probably say that if a company had done this that they had ended their pension. However, if anyone said this, Politifact would call them a “liar” and possibly even the “liar of the year.”
Yes, calling such a person a liar may make sense in some circles. This passes for wisdom in that narrow group of Washington elites who think that they are balanced because they can criticize both Democrats and Republicans without paying any attention to the evidence. Within this Echo Chamber, saying the Republicans voted to end Medicare could be the Lie of the Year, but not in reality land.
Politifact told its readers about the “Echo Chamber Nation” in its follow up to its “Lie of the Year” story, but not quite in the way they intended. To remind readers, the Politifact Lie of the Year was the Democrats’ claim that the Ryan plan approved by the Republican House would end Medicare. The Ryan plan would in fact replace the fee for service Medicare that has been in place since the program was created in 1966 with a system of “premium supports,” which most people would call vouchers.
This is comparable to replacing a traditional defined benefit pension with a 401(k). Most people would probably say that if a company had done this that they had ended their pension. However, if anyone said this, Politifact would call them a “liar” and possibly even the “liar of the year.”
Yes, calling such a person a liar may make sense in some circles. This passes for wisdom in that narrow group of Washington elites who think that they are balanced because they can criticize both Democrats and Republicans without paying any attention to the evidence. Within this Echo Chamber, saying the Republicans voted to end Medicare could be the Lie of the Year, but not in reality land.
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