Jim Tankersley and Jeanna Smialek had a column in the NYT talking about how economists seem to be worried about the economy, in spite of low unemployment and continued growth. The economists cited had a variety of concerns, but most seemed to center on the possibility that the government will lack the tools to respond to the next recession.
The basis of the concern is that the federal funds rate, at 1.5 percent, is already very low, leaving little room to fall further. In terms of fiscal policy, we already have deficits of more than $1 trillion (4.6 percent of GDP), which are high by historical standards. The argument is that both monetary and fiscal policy seem to be near limits, so that there is not much else the government can do.
The prospect of ending up like Japan, which now has a debt to GDP ratio of more than 250 percent, was raised as one possible bad outcome. It is not clear why this would be an especially bad outcome to fear. On a per capita basis, Japan’s economy has grown at an average annual rate of 1.4 percent since 1990. That is less than the 2.3 percent rate in the U.S., but hardly seems like a disaster.
Furthermore, the length of the average work year has been reduced by 16 percent over this period, which means that workers in Japan are enjoying far more leisure time than they did before the collapse of the country’s stock and housing bubble. The work year has only declined by 3.0 percent over this period in the United States.
As far as the burden of Japan’s debt, interest payments on Japan’s debt will amount to 0.005 percent of GDP this year, according to the I.M.F. That would be equivalent to interest payments of roughly $1.2 billion in the U.S. economy. (Our interest payments will be a bit over $200 billion this year, after netting out money rebated by the Federal Reserve Board.) The I.M.F. projects that Japan’s interest burden will turn negative next year, as investors are paying the country money to hold its debt.
In short, there doesn’t seem to be much of a horror story here. If the U.S. economy does fall into recession it seems the only obstacle to a large fiscal stimulus will be political, not any actual economic constraint.
Jim Tankersley and Jeanna Smialek had a column in the NYT talking about how economists seem to be worried about the economy, in spite of low unemployment and continued growth. The economists cited had a variety of concerns, but most seemed to center on the possibility that the government will lack the tools to respond to the next recession.
The basis of the concern is that the federal funds rate, at 1.5 percent, is already very low, leaving little room to fall further. In terms of fiscal policy, we already have deficits of more than $1 trillion (4.6 percent of GDP), which are high by historical standards. The argument is that both monetary and fiscal policy seem to be near limits, so that there is not much else the government can do.
The prospect of ending up like Japan, which now has a debt to GDP ratio of more than 250 percent, was raised as one possible bad outcome. It is not clear why this would be an especially bad outcome to fear. On a per capita basis, Japan’s economy has grown at an average annual rate of 1.4 percent since 1990. That is less than the 2.3 percent rate in the U.S., but hardly seems like a disaster.
Furthermore, the length of the average work year has been reduced by 16 percent over this period, which means that workers in Japan are enjoying far more leisure time than they did before the collapse of the country’s stock and housing bubble. The work year has only declined by 3.0 percent over this period in the United States.
As far as the burden of Japan’s debt, interest payments on Japan’s debt will amount to 0.005 percent of GDP this year, according to the I.M.F. That would be equivalent to interest payments of roughly $1.2 billion in the U.S. economy. (Our interest payments will be a bit over $200 billion this year, after netting out money rebated by the Federal Reserve Board.) The I.M.F. projects that Japan’s interest burden will turn negative next year, as investors are paying the country money to hold its debt.
In short, there doesn’t seem to be much of a horror story here. If the U.S. economy does fall into recession it seems the only obstacle to a large fiscal stimulus will be political, not any actual economic constraint.
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I’m asking because a New York Times piece on the troubles facing a steel factory in southern Italy asserted that closing the troubled factory would cost Italy 1.4 percent of its GDP. According to the piece, the plant directly employs 10,500 workers. That is a bit less than 0.05 percent of Italy’s workforce of 23,400,000.
The piece is surely right in highlighting the importance of the plant to a very depressed region in Italy, but the claim its closing would reduce Italy’s GDP by 1.4 percent does not seem plausible.
I’m asking because a New York Times piece on the troubles facing a steel factory in southern Italy asserted that closing the troubled factory would cost Italy 1.4 percent of its GDP. According to the piece, the plant directly employs 10,500 workers. That is a bit less than 0.05 percent of Italy’s workforce of 23,400,000.
The piece is surely right in highlighting the importance of the plant to a very depressed region in Italy, but the claim its closing would reduce Italy’s GDP by 1.4 percent does not seem plausible.
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The Washington Post ran a classic “really big numbers” piece on how much Democratic presidential candidates want to spend on the various initiatives they are proposing. These stories are known as “really big numbers” pieces because they provide basically zero context as they throw really big numbers at readers that they know almost none of them would understand.
The piece starts off by telling us that Bernie Sanders wants to spend $50 trillion over the next decade. It tells us that Warren would spend over $30 trillion and that Biden comes in at $4.1 trillion. While these proposals, especially the one for Medicare for All supported by Sanders and Warren, are complicated, the Post could at least show this spending as a share of projected GDP.
The Congressional Budget Office projects that GDP will be close to $280 trillion in the decade after the next president takes office in 2021. This means that Sanders projected spending comes to roughly 18.0 percent of projected GDP, while Warren’s would be a bit less than 11.0 percent. Biden’s proposals would be less than 1.5 percent of GDP. We are currently spending close to 22.0 percent of GDP.
However, this is only the beginning of the picture. The Sanders and Warren’s proposals would both radically reduce what the country pays for prescription drugs and medical equipment. Most of our payments for these items now are an implicit tax that the government imposes by granting patent monopolies. The Washington Post literally never talks about this implicit tax. (One can speculate about the reason for this neglect, but it is worth noting that the paper gets lots of advertising revenue from the prescription drug industry.)
There are other random uses of really big numbers in the piece. For example, it tells us that Trump signed a $1.4 trillion spending bill this month. That $1.4 trillion (6.6 percent of GDP) was mostly renewing existing spending for fiscal year 2020. The piece tells about Trump’s boast that he secured more than $2.5 trillion in military spending, without letting readers know whether the claim refers to an increase or how many years it covers. (Of course, with Trump, that may be hard to know.)
In throwing out its really big numbers the piece also refers to a proposal by Democratic presidential candidate Andrew Yang to give $100 in “Democracy Dollars” to each voter to support the candidate, party, or cause of their choice. If 200 million voters used this voucher it would $20 billion a year. That would come to less than 0.1 percent of GDP, but it is still a really big number.
Anyhow, this piece could be a classic in the really big numbers genre. The point is obviously to scare readers with really big numbers rather than to provide information.
The Washington Post ran a classic “really big numbers” piece on how much Democratic presidential candidates want to spend on the various initiatives they are proposing. These stories are known as “really big numbers” pieces because they provide basically zero context as they throw really big numbers at readers that they know almost none of them would understand.
The piece starts off by telling us that Bernie Sanders wants to spend $50 trillion over the next decade. It tells us that Warren would spend over $30 trillion and that Biden comes in at $4.1 trillion. While these proposals, especially the one for Medicare for All supported by Sanders and Warren, are complicated, the Post could at least show this spending as a share of projected GDP.
The Congressional Budget Office projects that GDP will be close to $280 trillion in the decade after the next president takes office in 2021. This means that Sanders projected spending comes to roughly 18.0 percent of projected GDP, while Warren’s would be a bit less than 11.0 percent. Biden’s proposals would be less than 1.5 percent of GDP. We are currently spending close to 22.0 percent of GDP.
However, this is only the beginning of the picture. The Sanders and Warren’s proposals would both radically reduce what the country pays for prescription drugs and medical equipment. Most of our payments for these items now are an implicit tax that the government imposes by granting patent monopolies. The Washington Post literally never talks about this implicit tax. (One can speculate about the reason for this neglect, but it is worth noting that the paper gets lots of advertising revenue from the prescription drug industry.)
There are other random uses of really big numbers in the piece. For example, it tells us that Trump signed a $1.4 trillion spending bill this month. That $1.4 trillion (6.6 percent of GDP) was mostly renewing existing spending for fiscal year 2020. The piece tells about Trump’s boast that he secured more than $2.5 trillion in military spending, without letting readers know whether the claim refers to an increase or how many years it covers. (Of course, with Trump, that may be hard to know.)
In throwing out its really big numbers the piece also refers to a proposal by Democratic presidential candidate Andrew Yang to give $100 in “Democracy Dollars” to each voter to support the candidate, party, or cause of their choice. If 200 million voters used this voucher it would $20 billion a year. That would come to less than 0.1 percent of GDP, but it is still a really big number.
Anyhow, this piece could be a classic in the really big numbers genre. The point is obviously to scare readers with really big numbers rather than to provide information.
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My friend, Bill Greider, died on Christmas day. Greider, who was 83, was an old-time journalist who believed that the job meant exposing the corruption of the rich and powerful, rather than becoming their friends in order to get inside stories. This meant that he was never very popular with elite types, as perhaps best evidenced by his minimal obituary at the Washington Post, where he had worked for a decade as a reporter and an editor.
Greider’s writing had a large impact on my thinking about the economy and the world. When I was still in graduate school I read his great study of the Federal Reserve Board, Secrets of the Temple. While there were many things in that book which were not exactly right, it did much to highlight the power of this fundamentally undemocratic institution. I, and many others, have worked with considerable success in recent years to make the Fed more open to public input, and for it to take its legal mandate for maintaining full employment more seriously.
Greider also wrote the book, Who Will Tell the People? The Betrayal of American Democracy, about the corruption of politics in Washington. The book became the basis for a PBS documentary with the same name. I remember well a segment from this documentary.
It was an interview with a reporter. (Sorry, can’t remember who it was.) The reporter was discussing how he came to fully appreciate the corruption of Washington. The reporter explained that someone asked him “why do you think members of Congress sit on the banking committee?” The reporter gave the textbook answer about sitting on the committee to oversee the regulations and laws on banking. His questioner responded, “they sit on the banking committee to get money from bankers.”
I grew up in Chicago, when the machine politics of the first Mayor Daley was the only game in town, so I was not naive about politics and corruption, but this still stunned me. Folks who have been around Washington know it is obviously true, but I think the level of corruption is probably news to most people in the country. This was an education for me.
Back in 1997, Greider wrote a book, One World, Ready or Not: The Manic Logic of Global Capitalism, which warned that competition from the developing world would put downward pressure on the wages of manufacturing workers and that large trade deficits could lead to serious shortfalls in aggregate demand, meaning weak growth and high unemployment. The book was widely trashed by economists, including the leading liberals of the day. In particular, they ridiculed the idea that trade deficits could lead to unemployment, after all, the Fed could just lower interest rates to make up any shortfall in demand.
Two decades later, most of the mainstream of the profession accepts the idea of “secular stagnation,” meaning a sustained shortfall in demand that leaves the economy operating well below its potential level of output. With interest rates having bottomed out at zero following the Great Recession, most economists would concede that the Fed does not have the ability to boost the economy back to full employment, or at least not with its traditional tool of lowering the federal funds rate.
While economists generally do not like to talk about the trade deficit as a cause of secular stagnation, fans of logic and arithmetic point out that if we had balanced trade rather than a deficit of 3.0 percent of GDP, it would provide the same boost to the economy as an increase in government spending of 3.0 percent of GDP or roughly $650 billion a year in today’s economy. There is little doubt that would be a huge boost to demand and would have gone far towards ending the problem of secular stagnation. (There is no magic to balanced trade. I only use it as a point of reference.)
There were certainly things that Greider got wrong in One World, Ready or Not, as he did in his other economic writings. He was a journalist not an economist. Still, as one great economist commented, it is better to be approximately right than exactly wrong, a position that described many of his economist critics.
The response to Greider’s death as well as his life calls to mind another great saying. In Washington, the only thing worse than being wrong is being right. And Greider was often guilty of that.
My friend, Bill Greider, died on Christmas day. Greider, who was 83, was an old-time journalist who believed that the job meant exposing the corruption of the rich and powerful, rather than becoming their friends in order to get inside stories. This meant that he was never very popular with elite types, as perhaps best evidenced by his minimal obituary at the Washington Post, where he had worked for a decade as a reporter and an editor.
Greider’s writing had a large impact on my thinking about the economy and the world. When I was still in graduate school I read his great study of the Federal Reserve Board, Secrets of the Temple. While there were many things in that book which were not exactly right, it did much to highlight the power of this fundamentally undemocratic institution. I, and many others, have worked with considerable success in recent years to make the Fed more open to public input, and for it to take its legal mandate for maintaining full employment more seriously.
Greider also wrote the book, Who Will Tell the People? The Betrayal of American Democracy, about the corruption of politics in Washington. The book became the basis for a PBS documentary with the same name. I remember well a segment from this documentary.
It was an interview with a reporter. (Sorry, can’t remember who it was.) The reporter was discussing how he came to fully appreciate the corruption of Washington. The reporter explained that someone asked him “why do you think members of Congress sit on the banking committee?” The reporter gave the textbook answer about sitting on the committee to oversee the regulations and laws on banking. His questioner responded, “they sit on the banking committee to get money from bankers.”
I grew up in Chicago, when the machine politics of the first Mayor Daley was the only game in town, so I was not naive about politics and corruption, but this still stunned me. Folks who have been around Washington know it is obviously true, but I think the level of corruption is probably news to most people in the country. This was an education for me.
Back in 1997, Greider wrote a book, One World, Ready or Not: The Manic Logic of Global Capitalism, which warned that competition from the developing world would put downward pressure on the wages of manufacturing workers and that large trade deficits could lead to serious shortfalls in aggregate demand, meaning weak growth and high unemployment. The book was widely trashed by economists, including the leading liberals of the day. In particular, they ridiculed the idea that trade deficits could lead to unemployment, after all, the Fed could just lower interest rates to make up any shortfall in demand.
Two decades later, most of the mainstream of the profession accepts the idea of “secular stagnation,” meaning a sustained shortfall in demand that leaves the economy operating well below its potential level of output. With interest rates having bottomed out at zero following the Great Recession, most economists would concede that the Fed does not have the ability to boost the economy back to full employment, or at least not with its traditional tool of lowering the federal funds rate.
While economists generally do not like to talk about the trade deficit as a cause of secular stagnation, fans of logic and arithmetic point out that if we had balanced trade rather than a deficit of 3.0 percent of GDP, it would provide the same boost to the economy as an increase in government spending of 3.0 percent of GDP or roughly $650 billion a year in today’s economy. There is little doubt that would be a huge boost to demand and would have gone far towards ending the problem of secular stagnation. (There is no magic to balanced trade. I only use it as a point of reference.)
There were certainly things that Greider got wrong in One World, Ready or Not, as he did in his other economic writings. He was a journalist not an economist. Still, as one great economist commented, it is better to be approximately right than exactly wrong, a position that described many of his economist critics.
The response to Greider’s death as well as his life calls to mind another great saying. In Washington, the only thing worse than being wrong is being right. And Greider was often guilty of that.
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The New York Times had an interesting piece about how developers of antibiotics are finding it impossible to make a profit, which most abandoning the field or going bankrupt. Incredibly, no one the piece talked with seems to have thought of a solution that does not rely on government-granted patent monopolies as the main financing mechanism for research.
“Public health experts say the crisis calls for government intervention. Among the ideas that have wide backing are increased reimbursements for new antibiotics, federal funding to stockpile drugs effective against resistant germs and financial incentives that would offer much needed aid to start-ups and lure back the pharmaceutical giants.”
The possibility that is excluded here is simply having the government pay for the development of new antibiotics up front, under contract, as it already does now with more than $40 billion in research that goes though the National Institutes of Health and other public agencies. If this funding mechanism were used all new antibiotics would be cheap, since they would be available as generics from the day they were approved by the Food and Drug Administration. (The piece tells us that the industry charges up to $2,000 per prescription for some of the new antibiotics.)
If the government was directly financing the research, as opposed to indirectly through patent monopolies, it could also require that all research be fully public as soon as practical. This would mean posting findings on the Internet as soon as practical, as was done with the Human Genome Project. This would allow the science to advance more quickly.
People should not die because we rely on the antiquated patent system as our main mechanism for financing the development of new drugs. I talk about this issue more in chapter 5 of Rigged (it’s free). Maybe we will see some new thinking in the new decade.
The New York Times had an interesting piece about how developers of antibiotics are finding it impossible to make a profit, which most abandoning the field or going bankrupt. Incredibly, no one the piece talked with seems to have thought of a solution that does not rely on government-granted patent monopolies as the main financing mechanism for research.
“Public health experts say the crisis calls for government intervention. Among the ideas that have wide backing are increased reimbursements for new antibiotics, federal funding to stockpile drugs effective against resistant germs and financial incentives that would offer much needed aid to start-ups and lure back the pharmaceutical giants.”
The possibility that is excluded here is simply having the government pay for the development of new antibiotics up front, under contract, as it already does now with more than $40 billion in research that goes though the National Institutes of Health and other public agencies. If this funding mechanism were used all new antibiotics would be cheap, since they would be available as generics from the day they were approved by the Food and Drug Administration. (The piece tells us that the industry charges up to $2,000 per prescription for some of the new antibiotics.)
If the government was directly financing the research, as opposed to indirectly through patent monopolies, it could also require that all research be fully public as soon as practical. This would mean posting findings on the Internet as soon as practical, as was done with the Human Genome Project. This would allow the science to advance more quickly.
People should not die because we rely on the antiquated patent system as our main mechanism for financing the development of new drugs. I talk about this issue more in chapter 5 of Rigged (it’s free). Maybe we will see some new thinking in the new decade.
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That is the inevitable conclusion for readers of a NYT article on Putin and Russia that had the headline, “Russia is a mess. Why is Putin such a formidable enemy.” While the article notes the recent economic stagnation in Russia, it misses the extraordinary turnaround that took place under Putin.
According to I.M.F. data, Russia’s per capita income fell by almost 50 percent between 1990 and 1998.
Source: International Monetary Fund.
This unprecedented peace time collapse took place largely under Boris Yeltsin, who was regarded as a hero by the leaders of both political parties in the United States. In the first decade of Putin’s rule it’s per capita income doubled, which translated into enormous improvements in living standards for most of Russia’s population.
The economic collapse and chaos that preceded Putin’s tenure, and the subsequent reversal in his first ten years in office likely has a lot to do with Putin’s current standing in Russia. It is unfortunate that the NYT apparently does not have access to economic data on Russia.
That is the inevitable conclusion for readers of a NYT article on Putin and Russia that had the headline, “Russia is a mess. Why is Putin such a formidable enemy.” While the article notes the recent economic stagnation in Russia, it misses the extraordinary turnaround that took place under Putin.
According to I.M.F. data, Russia’s per capita income fell by almost 50 percent between 1990 and 1998.
Source: International Monetary Fund.
This unprecedented peace time collapse took place largely under Boris Yeltsin, who was regarded as a hero by the leaders of both political parties in the United States. In the first decade of Putin’s rule it’s per capita income doubled, which translated into enormous improvements in living standards for most of Russia’s population.
The economic collapse and chaos that preceded Putin’s tenure, and the subsequent reversal in his first ten years in office likely has a lot to do with Putin’s current standing in Russia. It is unfortunate that the NYT apparently does not have access to economic data on Russia.
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The NYT had a piece describing the departure of the UK from the EU as the end of an era:
“The notion that global economic integration amounts to human progress had a good run, dominating the thinking of the powers that be for more than seven decades. But a new era is underway in which national interests take primacy over collective concerns, with trading arrangements negotiated among individual countries.”
This fundamentally misrepresents past trade policies and totally misrepresents the crux of recent trade deals, like the Trans-Pacific Partnership (TPP).
Past trade deals were about making it easier to trade manufactured goods, making it as easy as possible for corporations to take advantage of low-cost labor in the developing world. This has the predicted and actual effect of putting downward pressure on the wages of less-educated workers.
The impact of trade was devastating for large segments of the U.S. workforce. It cost 3.4 million manufacturing jobs (20 percent of the total) between the years 2000 and 2007. (It cost almost 40 percent of all unionized manufacturing jobs.) Note, that this was before the Great Recession, which began in December of 2007.
The argument that this was technology and not trade is truly Trumpian and deserves the same sort of derision as Trump’s claims about his “perfect” phone call with Ukraine’s president. We lost relatively few manufacturing jobs between 1970 and 2000, and we have gained a small number since 2010. So the Trumpers arguing for the technology story want us to believe that technology only cost us manufacturing jobs in the years when the trade deficit exploded, but not in the years prior to that or in the years since. Right.
It is also worth noting that the “free traders” have pretty much zero interest in free trade in professional services. Even though we could save on the order of $100 billion a year ($700 per family per year) if we liberalized rules for physicians, and allowed qualified doctors in places like Canada and Germany to practice in the United States, the people who think that “global economic integration amounts to human progress,” have little interest in global integration when it might reduce the living standards of highly paid professionals.
It is also important to point out that the liberalization of trade in goods is largely a done deal. Tariffs are already zero or near zero in the vast majority of cases. The potential gains from further liberalization are limited, especially since goods are a rapidly falling share of total output.
Instead, deals like the TPP are largely about locking in rules on items like intellectual property protections and preserving Mark Zuckerberg’s dominance of the Internet. The TPP, like other recent trade deals, calls for longer and stronger patent and copyright monopolies.
These protections are 180 degrees at odds with free trade. They are about shifting more income from the bulk of the population to people who benefit from rents on patents and copyrights, by making them pay more for drugs, medical equipment, software and a wide variety of other items.
The deals also look to lock in existing rules on the Internet, making it more difficult for both the United States and other countries to regulate Internet behemoths like Facebook and Google. Perhaps most importantly, these deals enshrine Section 230, which protects Facebook and other Internet intermediaries from facing the same liability for circulating libelous material as print and broadcast outlets. This has nothing obviously to due with economic integration, but it is likely to make Mark Zuckerberg richer.
The NYT had a piece describing the departure of the UK from the EU as the end of an era:
“The notion that global economic integration amounts to human progress had a good run, dominating the thinking of the powers that be for more than seven decades. But a new era is underway in which national interests take primacy over collective concerns, with trading arrangements negotiated among individual countries.”
This fundamentally misrepresents past trade policies and totally misrepresents the crux of recent trade deals, like the Trans-Pacific Partnership (TPP).
Past trade deals were about making it easier to trade manufactured goods, making it as easy as possible for corporations to take advantage of low-cost labor in the developing world. This has the predicted and actual effect of putting downward pressure on the wages of less-educated workers.
The impact of trade was devastating for large segments of the U.S. workforce. It cost 3.4 million manufacturing jobs (20 percent of the total) between the years 2000 and 2007. (It cost almost 40 percent of all unionized manufacturing jobs.) Note, that this was before the Great Recession, which began in December of 2007.
The argument that this was technology and not trade is truly Trumpian and deserves the same sort of derision as Trump’s claims about his “perfect” phone call with Ukraine’s president. We lost relatively few manufacturing jobs between 1970 and 2000, and we have gained a small number since 2010. So the Trumpers arguing for the technology story want us to believe that technology only cost us manufacturing jobs in the years when the trade deficit exploded, but not in the years prior to that or in the years since. Right.
It is also worth noting that the “free traders” have pretty much zero interest in free trade in professional services. Even though we could save on the order of $100 billion a year ($700 per family per year) if we liberalized rules for physicians, and allowed qualified doctors in places like Canada and Germany to practice in the United States, the people who think that “global economic integration amounts to human progress,” have little interest in global integration when it might reduce the living standards of highly paid professionals.
It is also important to point out that the liberalization of trade in goods is largely a done deal. Tariffs are already zero or near zero in the vast majority of cases. The potential gains from further liberalization are limited, especially since goods are a rapidly falling share of total output.
Instead, deals like the TPP are largely about locking in rules on items like intellectual property protections and preserving Mark Zuckerberg’s dominance of the Internet. The TPP, like other recent trade deals, calls for longer and stronger patent and copyright monopolies.
These protections are 180 degrees at odds with free trade. They are about shifting more income from the bulk of the population to people who benefit from rents on patents and copyrights, by making them pay more for drugs, medical equipment, software and a wide variety of other items.
The deals also look to lock in existing rules on the Internet, making it more difficult for both the United States and other countries to regulate Internet behemoths like Facebook and Google. Perhaps most importantly, these deals enshrine Section 230, which protects Facebook and other Internet intermediaries from facing the same liability for circulating libelous material as print and broadcast outlets. This has nothing obviously to due with economic integration, but it is likely to make Mark Zuckerberg richer.
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