Bob Higgs Again on Regime Uncertainty

by Don Boudreaux on September 5, 2011

in Complexity & Emergence, Crony Capitalism, Other People's Money, Property Rights, Regulation, Scientism, Seen and Unseen, State of Macro

Bob Higgs’s latest blog-post is a must-read – one that deserves here to be singled out.

A slice:

Because of the great variety of ways in which government officials can threaten private property rights, the security of such rights turns not only on law “on the books,” but also to an important degree on the character of the government officials who administer and enforce the law. An important reason why regime uncertainty arose in the latter half of the 1930s, for example, had to do with the character of the advisers who had the greatest access to President Franklin Roosevelt at that time—people such as Tom Corcoran, Ben Cohen, William O. Douglas, Felix Frankfurter, and others of their ilk. These people were known to hate businessmen and the private enterprise system; they believed in strict, pervasive regulation of the market system by—who would have guessed?—people such as themselves. So, as bad as the National Labor Relations Board was on paper, it was immensely worse (for employers) in practice. And so forth, across the full range of new regulatory powers created by New Deal legislation. In a similar way, the apparatchiki who run the federal regulatory leviathan today can only inspire apprehension on the part of investors and business executives. President Obama’s cadre of crony capitalists, which he drags out to show that “business is being fully considered,” in no way diminishes these worries.

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{ 58 comments }

Invisible Backhand September 5, 2011 at 3:28 pm

Somebody should really update Robert Higgs’ page, Regime Uncertainty

http://en.wikipedia.org/wiki/Robert_Higgs

A little known fact about Regime Uncertainty is that it was first marketed on November 4, 2008 to undermine the Democratic President. Thanks to continued scholarship it has been extended to blame democrats and liberals for the Great Depression, Dutch Elm Disease and the heartbreak of psoriasis. It is never used against republicans or conservatives.

Michael Mace September 5, 2011 at 3:33 pm

The concept of regime uncertainty has been around for a very long time, so stop trolling.

Iain September 5, 2011 at 3:36 pm

Bye troll

muirgeo September 5, 2011 at 3:42 pm

Yeah here is what regime uncertainty looks like on paper…

http://www.nytimes.com/interactive/2008/10/14/opinion/20081014_OPCHART.html

It’s just not a factor… its an excuse for a dying religion.

SweetLiberty September 5, 2011 at 5:19 pm

Here is a quick (but by no means complete) rebuttal…

http://blog.wolfram.com/2008/10/16/stock-market-returns-by-presidential-party/

Ghengis Khak September 5, 2011 at 4:06 pm

“A little known fact about Regime Uncertainty is that it was first marketed on November 4, 2008 to undermine the Democratic President.”

As others have pointed out, this tidbit is clearly not true. A cursory google search shows at least this (by Robert Higgs), published in 1997:
http://www.independent.org/publications/tir/?issueID=34
(pdf) http://www.independent.org/pdf/tir/tir_01_4_higgs.pdf

Methinks1776 September 5, 2011 at 5:05 pm

Nothing says “Labour Day” like a psycho conspiracy theory.

muirgeo September 5, 2011 at 3:37 pm

” An important reason why regime uncertainty arose in the latter half of the 1930s,…”

What??? Regime uncertainty of the latter 1930′s. What when GDP was rising 9-10%? Or does he mean when gross private investment returned to pre – depression levels? Same for industrial production.

Regime uncertainty is the Zombie Economics of the neoliberals unable to give a cogent explanation as to why our economy is failing to rebound in spite of record corporate profits?

And then there is this;

http://www.mcclatchydc.com/2011/09/01/122865/regulations-taxes-arent-killing.html

SweetLiberty September 5, 2011 at 5:33 pm

From your article…

“My biggest problem is the current status of the banking system and how it’s being over-regulated,” Dennis Sweeney, a co-owner of Summit Sportswear Inc., told The Kansas City Star.

Um, I thought liberals like you thought government regulations were NOT the problem, but the solution – especially concerning banking. Which is it?

Invisible Backhand September 5, 2011 at 5:48 pm

For many small businesses, their chief problem is an old one: navigating the bureaucracy of the Small Business Administration to secure government-backed loans.

Then SweetLiberty’s clip, then

…but his company doesn’t have inventory or other collateral that bankers usually want to secure loans.

You should really work on the honesty thing.

SweetLiberty September 5, 2011 at 6:53 pm

And you think this proves the liberal point? Wow.

1) The SBA is a government agency. If government is good, and MORE government is better (along with more regulations), then “navigating the bureaucracy of the Small Business Administration to secure government-backed loans.” really reflects well on the government, doesn’t it?

2) …but his company doesn’t have inventory or other collateral that bankers usually want to secure loans. You are right – those mean old banks should just give anyone a loan who asks for it without looking at their ability to pay it back. Nothing bad could come of that.

Yes, you are right, I should have used the whole paragraph to make my points, but you’ve done fine adding these for me. Thanks IB!

muirgeo September 5, 2011 at 3:39 pm

Regime Uncertainty in the late 1930′s seemed to occur AFTER slashing of government programs not the other way around.

http://www.ourfuture.org/blog-entry/2009020603/fdr-failed-myth

rbd September 5, 2011 at 4:27 pm

Who can understand you Muirgeo? You rail against free markets, but put blind trust in government. You worship with blind allegiance those who would erect stumbling blocks to job creation. You loathe the business man who would risk his own time/capital/energy to make a living, but praise and idolize government who wants to stop him.

You foolishly believe those who temporarily reside inside the Beltway can erect this law and institute that rule and massage the economy in the right direction, as if there were some right direction that can be known beforehand. Your faith in more rules, more restrictions, more bans, and more mandates is so utterly perverse. You belong in Europe or North Korea. Please go there now.

People like you, if you can referred to as people, make me want to puke. You stand against freedom – against liberty – and for tyranny. It’s sickening that you even write on these blogs and people pay attention to you (I need to question why I’m wasting precious time to do it). Please leave!

Methinks1776 September 5, 2011 at 4:38 pm

Who can understand you Muirgeo?

Only people in the midst of psychosis.

Harold Cockerill September 6, 2011 at 7:33 pm

Only someone in the midst of psychosis would care to attempt it.

Invisible Backhand September 5, 2011 at 5:09 pm

Your faith in more rules, more restrictions, more bans, and more mandates is so utterly perverse.

William Roper: So, now you give the Devil the benefit of law!

Sir Thomas More: Yes! What would you do? Cut a great road through the law to get after the Devil?

William Roper: Yes, I’d cut down every law in England to do that!

Sir Thomas More: Oh? And when the last law was down, and the Devil turned ’round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man’s laws, not God’s! And if you cut them down, and you’re just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I’d give the Devil benefit of law, for my own safety’s sake!

SweetLiberty September 5, 2011 at 6:19 pm

Yes, we can never have too many laws! Thank the devil for that!!!

muirgeo September 5, 2011 at 5:50 pm

I do not rail against markets… I rail against rigged and poorly regulated markets. I think I’ve made the point well that unregulated markets are LESS efficient and allow greater concentration of power.

People like you are supporters of Kings and Queens and inherited wealth and supporters of unearned privilege. You are simple minded and not capable of looking at the nuances and the big picture of things.

The Other Tim September 5, 2011 at 6:01 pm

You support deregulation at every turn. You simply have confused regulation, i.e., viable private sector competition, with deregulation, i.e., government imposed barriers to entry.

Invisible Backhand September 5, 2011 at 6:32 pm

Regulation means cops. Deregulation means getting rid of the cops.

SweetLiberty September 5, 2011 at 6:56 pm

That’s right! And there is no limit to how many cops a police state should have!

The Other Tim September 5, 2011 at 7:38 pm

IB, I don’t know if that’s sarcasm or naivete.

Methinks1776 September 5, 2011 at 8:09 pm

Regulation means rule of man. It gives unaccountable agencies the power to do whatever they want to whomever they want. They can confiscate assets, impose fines and close you down without the benefit of due process in the court system. Cops who can do whatever they want to you with complete impunity.

gee. I can’t imagine why anyone would be scared to invest in such an environment. Backwash is right. This is clearly a conspiracy to smear Father Obamessiah and Mother Pelosi of the Federal Crime Family.

Methinks1776 September 5, 2011 at 8:10 pm

IB, I don’t know if that’s sarcasm or naivete.

That’s sheer idiocy.

muirgeo September 5, 2011 at 9:10 pm

“They can confiscate assets, impose fines and close you down without the benefit of due process in the court system. Cops who can do whatever they want to you with complete impunity.”

Methinks

LOL … and I am the psychic one… Methinks…did you hear that? Watch out…there’s a gun at your head….I think we’re being recorded… Under your desk….what was that??? Cover up your computer camera….no no look out the window….black helicopters coming to take you away…

The Other Tim September 5, 2011 at 9:48 pm

http://reason.com/archives/2010/01/26/the-forfeiture-racket
http://reason.com/archives/2010/12/13/the-swat-team-would-like-to-se
http://en.wikipedia.org/wiki/Substantive_due_process

Don’t be naive. The courts have long ruled that our basic rights to due process, privacy in our own places of business, &c., aren’t really rights when they interfere with the goals of federal economic legislation.

Methinks1776 September 5, 2011 at 10:28 pm

What a comfort to know that someone claiming to be a doctor doesn’t know the difference between “psychic” and “psychotic”.

Dan J September 5, 2011 at 7:30 pm

No, you have not made ‘the point’ on greater concentration of power, well. You have failed miserably to convince anyone but yourself of the great fallacy.
The ‘big picture’ of things is that the greater the govt powers, the greater the corruption and ‘unfair’ rules.

SweetLiberty September 5, 2011 at 5:43 pm

Muirgeo,

I know you are a slow learner, but here is the lesson again…

GDP does NOT EQUAL Prosperity!

Surely you don’t believe that all that rise in GDP during FDR’s terms were glorious and prosperous, do you? All these charts prove is that Government expenditures went up. No one disputes that. But as for fixing the problem – the Great Depression isn’t called Great because everyone enjoyed it – it’s because it lasted so long. FDR certainly didn’t solve the problem – he exacerbated it. Yep, GDP was up, along with unemployment, poverty, pig holocausts, etc.

muirgeo September 5, 2011 at 5:53 pm

Sweet Liberty…. here’s a lesson for you. Corporate profits do NOT equal liberty or prosperity.

At least GDP is usually correlated with job growth. Having a job equals prosperity and liberty. Your system will and has been shown to leave large numbers with no prosperity, no liberty and no job.

The Other Tim September 5, 2011 at 6:09 pm

Usually, but not presently. Okun’s law is broke, presently.

http://www.zerohedge.com/article/okuns-law-broken-sf-fed-discusses-why-record-worker-productivity-painting-overly-optimistic-

It’s funny how prosperity and GDP seem to uncouple when economic stimulus is used liberally. Take the great depression, which statists assure us FDR cured because of all the GDP growth that took place under his reign, yet the unemployment numbers only dropped under 15% once.

Dan J September 5, 2011 at 7:33 pm

And the austerity the nation had to live thru. Not in terms of less gift handouts, but rationing for those who had money to purchase products. The products were unavailable. FDR policies played a major role as agriculture was paid to make products more scarce. What an ass!

SweetLiberty September 5, 2011 at 6:32 pm

Corporate profits do NOT equal liberty or prosperity. Having a job equals prosperity and liberty.

When did corporations learn to make a profit without employing anyone? Why, if this is the case, they should just fire all the employees and become really, really rich!!!

Yes, a lot of jobs are going overseas, but is this a function of burdensome U.S. regulations and uncompetitive taxation driving companies away, or simply because the climate in Mexico, China and India has gotten so much more attractive in the past decade or two? (These places have always had relatively cheap labor, so what’s changed?)

You see the word “Corporation” as something dirty, but as someone who has owned several businesses, a Corporation is just one way to structure an enterprise. You can also run a business as an LLC, Partnership, or Sole Proprietor.

So does your assertion make sense when we substitute one of these terms? Let’s see: Sole Proprietor profits do NOT equal liberty or prosperity!

Um, sounds kind of dumb now, doesn’t it?

muirgeo September 5, 2011 at 6:43 pm

You can debate it with TJ…

“I hope [that] we shall crush in its birth the aristocracy of our monied corporations which dare already
to challenge our government to a trial by strength and [to] bid defiance to the laws of our country.”

SweetLiberty September 5, 2011 at 7:08 pm

Another Thomas Jefferson myth busted from monticello.org…
Quotation: “The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed incorporations.”
Variations: “The country is headed toward a single and splendid government of an aristocracy founded on banking institutions and moneyed incorporations and if this tendency continues it will be the end of freedom and democracy, the few will be ruling…I hope we shall…crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to trial and bid defiance to the laws of our country. I sincerely believe that banking establishments are more dangerous than standing armies.”[1]
Sources consulted:
1. Papers of Thomas Jefferson: Digital Edition
2. Thomas Jefferson: Papers collection in Hathi Trust Digital Library
3. Retirement Papers
Earliest known appearance in print: 1994[2]
Earliest known appearance in print, attributed to Thomas Jefferson: see above
Status: This exact quotation has not been found in the writings of Thomas Jefferson. It may be a mistaken amalgamation of the author’s comments in the above 1994 reference with a real Jefferson quotation. Jefferson wrote in 1825 to William Branch Giles of “a vast accession of strength from their younger recruits, who, having nothing in them of the feelings or principles of ’76, now look to a single and splendid government of an aristocracy, founded on banking institutions, and monied incorporations under the guise and cloak of their favored branches of manufactures, commerce and navigation, riding and ruling over the plundered ploughman and beggared yeomanry.”[3] Chomsky’s 1994 book quotes Jefferson’s 1825 letter to Giles and then comments that “[Jefferson] warned that that would be the end of democracy and the defeat of the American revolution.”

Thanks for playing Muirgeo, perhaps next time!

Dan J September 5, 2011 at 7:39 pm

Muirgeo twists and parses as if looking at everything thru a dyslexia prism. Down is up, and up is down.

SweetLiberty September 5, 2011 at 6:35 pm

Your system will and has been shown to leave large numbers with no prosperity, no liberty and no job.

Um, MY version has not been tried in my lifetime. We have been trying your version for quite some time now. How’s it going?

muirgeo September 5, 2011 at 9:13 pm

Uhh… well we achieved the highest quality of life ever and the largest middle class ever…. that’s now fading and growth is slowing unnecessarily to the benefit of the very few over the larger population.

SweetLiberty September 5, 2011 at 9:56 pm

You attribute the high quality of life and middle class to government and government alone. How much of what you have in your home or office that you consider “wealth” comes from the government corner store? Government can print all the money it wants, but without businesses to turn resources into goods and services that people want to buy, the currency is just paper and numbers. Now that the bill’s come due and you can’t think of a way to inflate another bubble, you wonder why it’s all fading.

I’ll accept that limited government is necessary to maintain the rule of law – within reason. But beyond that, government becomes a burden. But I’ll leave YOU to debate Thomas Jefferson (the real one – not the fake you tried to pass off earlier)…

“1791 Dec. 23. (to Archibald Stuart) “I would rather be exposed to the inconveniencies attending too much liberty than to those attending too small a degree of it.”

muirgeo September 6, 2011 at 8:28 am

“You attribute the high quality of life and middle class to government and government alone.”

No I did not. I attribute success to a combination of good government and competitive markets.

Keynes was a capitalist all the way. He just understood it needed proper rules to function efficiently. It’s really no big deal unless you are a narrow minded ideologue.

Keynes is the pragmatist…. the realist. You guys are the fanatics… the radicals… the unrealistic and impracticle.

The Other Tim September 6, 2011 at 11:50 am

Yet everything you suggest would inhibit competition.

John Galt September 5, 2011 at 5:04 pm

Private US business activity is only at 84% of 2005 levels according to the bureau of economic analysis. Higgs is one of the rare few who understand that regime activity is not the same as private property capitalism and that there will be no end to this depression until private interests renew making private investments.

Until then, capital will grow only if deployed in commodities creating entities or more business friendly markets like India and China.

muirgeo September 5, 2011 at 5:55 pm

How is this a depression in your libertarian mind. We’ve had RECORD corporate profits the last two quarters. Please explain.

John Galt September 5, 2011 at 6:33 pm

go to bea dot gov and look at the nipa tables yourself. 2010 is at 84% of 2005 private activity on a non weighted average basis. I don’t have the chops to falsify your state religion belief system, I’ll let Higgs take a crack at it for me. I’m just an addled freeman who hates “Happy Days Are Here Again” whether its Hoover, Roosevelt, Bush, or Obama using it as their private property bataan death march.

John Galt September 5, 2011 at 6:42 pm

A popular slogan of the Italian Fascists under Mussolini was, “everything for the state, nothing outside the state, nothing against the state” I recall this expression frequently as I observe the state’s far-reaching penetration of my own society.

What of any consequence remains beyond the state’s reach in the United States today? Not wages, working conditions, or labor-management relations; not health care; not money, banking, or financial services; not personal privacy; not transportation or communication; not education or scientific research; not farming or food supply; not nutrition or food quality; not marriage or divorce; not child care; not provision for retirement; not recreation; not insurance of any kind; not smoking or drinking; not gambling; not political campaign funding or publicity; not real estate development, house construction, or housing finance; not international travel, trade, or finance; not a thousand other areas and aspects of social life…

Dan J September 5, 2011 at 7:45 pm

Indeed, jackwads across the nation yell out for federal govt regulations on any and all things and actions….. Govt as been out of control for some time.

Methinks1776 September 5, 2011 at 8:17 pm

“everything for the state, nothing outside the state, nothing against the state”

Italian Fascists? Huh. I could have sworn that was Obama’s campaign slogan.

I no longer have patience for morons who scream for more regulation, get screwed by more regulation (because guess who it favours and hampers) and then scream for more of it.

Ghengis Khak September 6, 2011 at 2:37 am

How much of these record corporate profits is from the financial sector? I don’t know the answer to this but I suspect its rather large.

Localized prosperity (which in large part derives from bailouts they got from your government buddies) within the financial sector doesn’t indicate special about the other parts of the economy which have been hurt by this very same bailout malfeasance.

RGDP September 5, 2011 at 8:11 pm

John Galt perpetuates the same fallacy of aggregation as Bob Higgs. It’s all about (lack of) structures. Business is in no hurry to build another casino/hotel on The Strip or another condo highrise in South Beach. It’s called lack of customers.

However, the level of real business investment in equipment&software is now 98.7% of the pre-recession peak. The second half of the year should do just fine with the expiry of the 100% depreciation rule.

There is no regime uncertainty.

Krishnan September 5, 2011 at 6:49 pm

There is no doubt on where the current regime stands on “business” and “businessmen/women” – they hate any enterprise that makes a profit selling things that the public is willing to buy – All this regime understands is that businesses exist for them to do what THEY want to do – GE (and those businesses that have close ties with the regime) will thrive even if they make HUGE profits, outsource production – because they are cronies – who donate money to the people in power. Simple as that.

This regime will continue to bash oil companies even as these companies make products we need for the economy to grow, for us to live – they just HATE these companies. They will continue to pour money down the “green” drain because they can – and they divert resources to their friends and cronies.

Obama knows exactly what he is doing. He has used the White House and the power of the executive branch to in essence silence the many producers into submission – many are I presume waiting for the storm named Obama to pass – hoping that he and his fellow thugs are unable to destroy what does work – and that we can rebuild when they are gone. Till that day when this regime, openly hostile to those that can work and create and produce is gone, people will find quiet ways to simply survive.

Oh yes, I am aware of Obama telling the EPA to stop their on going assault on power producers (the Ozone ruling) – (yes, I know that this EPA is not solely responsible for the mess …) – All this regime is doing is to do whatever it needs to to fool the people again and win election in 2012 so they can finish the US off …

Now – if Obama does give the Russ Roberts’ speech
http://cafehayek.com/2011/09/the-presidents-speech.html
then yes, I imagine He*& will indeed freeze over.

Dan J September 5, 2011 at 7:46 pm

Absolutely, the moratorium on EPA regulations is only until after elections.

indianajim September 5, 2011 at 7:47 pm

Higgs seems to be going wobbly with “in no way diminishes these worries.” Obama straightaway, obviously exacerbates matters. The double negative Higgs uses appears to be pandering to power. This is no time for pandering to putzes.

Methinks1776 September 5, 2011 at 8:18 pm

*LIKE*

John Galt September 5, 2011 at 9:26 pm

Mises gets “wobbly” on Mussolini:
It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.
Hayek & Friedman were “wobbly” on Pinochet’s dictatorship.
Ayn Rand was “wobbly” on the atom bomb being a capitalist triumph of the free market. Advocating the use of this weapon conflicts with her belief that within a slave country, there still remain individual rights which must be respected where possible.

JS September 6, 2011 at 7:55 am

I’ll preface by saying that I really like the work of Robert Higgs, especially his contributions outside of economics. His currently held opinion on regime uncertainty has merit, but it is only a secondary to remote factor contributing to our present state of stagnation.

I know I repeat this theme in many posts, but I’m going to do it again. The growth of an economy originates from the actions of the consumers, not the producers who serve them. The regime uncertainty idea is based on an opinion that the economy is ready to grow, but the producers are holding back capital investment and hiring due to political uncertainty. Although it may be true that prodcuers will hold back due to that reason, to some degree, but it doesn’t account for teh true reason why they are holding back, which is for lack of consumer demand.

Producers don’t want to make capital investments that won’t be accompanied by robust consumer demand. If the demand were there, the investments would be made to a significant degree, with a smaller amount withheld for reasons of uncertainty. It might be more appropriate to say that the riskiest investments would be held back due to political uncertainty.

The question that Mr. Higgs should ask is if regime uncertainty affects the real engine of our growth, the consumer. Again, to a degree it might, but consumer spending does not entail the same risk factors that comes with business capital investment , and most consumers tend not to look at things in the same regard. Consumers lost substantial net worth since real estate peaked and crashed causing the recession. Unemployment is high, higher than the official records indicate, and savings earn negative interest rates, inflation considered.

Some producers might be cash rich, but their customers aren’t, and the producers are waiting for them more than they are waiting for a Rebublican administration to take over.

Another point is that the regime change proponents are only looking at very big companies in the public eye that have large cash balances. These don’t represent the thousands of small companies who don’t, and who are struggling with idle capacity due to weak consumer demand. These companies want to sell out their existing equipment before they’d consider an expansion. To be honest, it’s a joke to think that expansion is even on their minds.

Another fallacy inherent in the regime uncertainty argument is that these large companies that are allegedly ‘holding back’ because they are seeking secure property rights, when they are just as likely to be rent seekers holding back to see if the benefits that they have received from the Democrats will still be provided to them by the Republicans.

Jim September 6, 2011 at 10:04 am

I agree with the thrust of this post. To a great extent, the economy has been overheated by cheap credit for decades. Structurally, that is a Fed and banking problem. That consumers are now attempting to deleverage (and not doing a good job of it) will take time.

But it also unveils the structural idiocy of TARP. Using the taxpayer to preserve ill-conceived debt was not just silly, but a fundamental misunderstanding of creative destruction and preservation of a status quo that ultimately must produce a wrenching re-alignment.

Synergistically, our banking regulations are only part of the issue. For such a significant recession underscores many structural issues at the top of the economic ladder; many of our professional classes have long ago stopped adding marginal value and become nothing more than a tax on productivity. That should be addressed before we all implode in debt.

I am not just condemning economists when I make the above assertion, although we could begin there and with the models at the Fed. But functioning markets first and foremost rely on information, yet thanks to accountants we can no longer read Balance Sheets. Auditors could not even determine that Lehman was bankrupt. Our legaleze is imprenetrable, and our beauracracies are a labyrinth of over-think.

We have over-built in classically and inevitably Olson method. If you read Tainter, there is little reason for optimism. I tend to agree. For if the financial collapse does not inspire deep structural reform of our institutions, then there will never be a good time, until the moment when it suddenly is no longer complex at all.

If the American dollar were not the world’s reserve currency, I believe that day would already have come.

JS September 6, 2011 at 7:57 am

In the first sentence of the second to last paragraph, I meant ‘regime uncertainty’, not regime change.

vikingvista September 6, 2011 at 1:23 pm

Freudian slip?

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