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Of Memorial Day and Confederate statues

Of Memorial Day and Confederate statues

Memorial Day is a particularly fitting time to write about the issue of Confederate monuments. That’s because Memorial Day originated as a day set aside to honor the Civil War dead, not just those who fought for the Union, but those on both sides, including those who died in service of the Confederacy.  It was part of the process of magnanimous victory which enabled the country to heal, perhaps epitomized nowhere better than when both William Tecumseh Sherman and Joseph Johnston served as pallbearers for Ulysses S. Grant.

Part of that process was the erection of monuments in the South to honor their dead, at Civil War battlefields, and also at cemeteries throughout the South. For example, here is one in Foysth Park in Savannah:

I don’t remember if it this monument or not, but supposedly there was a mix-up in the deliveries of two civil war statues, and about 50 years later Savannahan’s learned that atop their monument was – a Union soldier!  A cemetery in Maine is supposedly watched over by a Confederate.  Go figure.

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by Dale Coberly


Here is what she said:

“and “protecting” Social Security and Medicare, a reassuring political promise that removes over one-third of the budget from consideration.”

“trying to square the circle of balancing the budget while taking the largest contributors to spending growth — Social Security and Medicare — off the table”

“many Republicans — including, notably, Paul Ryan, the speaker of the House — have made the case for why we have to reform our largest entitlement programs, including Social Security and Medicare”

“Democrats, many of whom too often act as demagogues on entitlement reform,…”

Read the Op-Ed on the New York Times Website.

Here is the truth

Social Security does not add one dime to the debt or the deficit.

It is paid for entirely by the workers who will get the benefits.

When Social Security “taxes” bring in more money than currently needed to pay benefits, that money is kept in a Trust Fund, which like other trust funds uses the money to buy interest earning government bonds. Then when Social Security taxes bring in less money than needed to pay current benefits, it cashes the bonds.

Note that Social Security is NOT borrowing money; it is LENDING money TO the government, and when SS cashes its bonds it is NOT causing the government to spend money for Social Security. The government BORROWED that money FROM Social Security and spent it on other things, including tax cuts. Paying the money BACK to Social Security does not increase the Federal Debt. It reduces it. Or it would reduce if it the government didn’t get the money to pay BACK Social Security by borrowing it from someone else.

But by talking backwards the Committee for a Responsible Federal Budget (CRFB) hopes to fool you into thinking that Social Security CAUSES the debt.

Then, when it’s time for Congress to pay back the money it borrowed FROM Social Security, this payment shows up in their budget as an “expense,” and because all the expenses add up to more than all the income, the budget is in deficit, and the payment of Congress’ debt TO Social Security, like all the other expenses, is said to “contribute to the deficit.”

But it is talking backwards to describe paying BACK the money you borrowed as contributing to your deficit.

Normal people would not think much of you if you borrowed money from Paul and then told them that Paul was responsible for your debt. And if you paid Paul back by borrowing from Peter, normal people would not think you were being honest if you said that Paul increased your deficit.

Social Security does have an “actuarial deficit.” This has nothing to do with the “budget deficit” or the Federal debt. What it means is that some time in the future if nothing is changed, Social Security will not have enough money to pay for all the “scheduled” benefits. This is a problem that can be fixed by raising the payroll “tax.”

[I put “tax” in quotes to try to remind people this is not like an ordinary tax, because you get your money back, with interest, when you will need it more than you do today.]

The amount of the raise that will be needed is not large. Ultimately about 2% of your wages from you and another 2% from your employer. It would be better to phase this in at a rate of one tenth of one percent per year… about a dollar per week in today’s money. This is at the same time your wages will be going up over ten dollars per week per year.

Or you could wait to the last minute and raise your tax by 2%. This would not be a burden, because by then your income will be at least 20% higher than it is today. But you would feel it as a burden if it hit you all at once. It’s the difference between getting a raise of 200 dollars a week and getting a raise of 180 dollars a week. If you had never expected the 200 dollars, you would be happy to get the $180. Especially if you remembered that your were not “losing” that $20 but merely setting it aside to help pay for a longer retirement than you had expected.

Or you could raise your tax about one percent today (and another one percent from your boss). This would take care of the “actuarial deficit” for the next seventy five years. But the enemies of Social Security like to scream “this won’t do: we have to solve the problem once and for all!” Actually we don’t. The people in 2090 will be in a much better position than we are to decide if they want to raise their tax another one percent or decide to do something else.

Thing is, we do have to do something now. We have to at least think about it carefully so we won’t be fooled by the people talking backwards, or stampeded by the people screaming Social Security is broke, flat bust” and “a huge burden on the young.”

Remember: a dollar a week each year if you start this year or next. Ten dollars per week for the next 75 years if you start this year and want to let the people seventy five years from now worry about another ten dollars (in today’s money) when their income will be more than twice ours. Or you can do nothing and wait a little more than ten years and then raise your tax about twenty dollars per week all at once, which will fix the problem forever (including those people living out at the infinite horizon).

Or you can listen to Maya and panic and let Congress cut your benefits, or increase the age you will be allowed to retire, or turn Social Security into welfare as we knew it (which will lead very soon to cut benefits and increases in the retirement age for the poor, and nothing for you while you still pay the taxes) with all the fun of gong to the welfare office every quarter to prove you really need it. The Left wants to help turn Social Security into welfare, because they think they can “make the rich pay for it.” I don’t think the rich are going to go along with that.

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$ 2.1 trillion here $ 2.1 trillion there and soon you’re talking real money

I didn’t think they could shock me. Then I read that the Trump OMB made a $2,000,000,000,000 arithmetic mistake

Jon Chait explains “One of the ways Donald Trump’s budget claims to balance the budget over a decade, without cutting defense or retirement spending, is to assume a $2 trillion increase in revenue through economic growth. This is the magic of the still-to-be-designed Trump tax cuts. But wait — if you recall, the magic of the Trump tax cuts is also supposed to pay for the Trump tax cuts. So the $2 trillion is a double-counting error.”

Amazing, I thought. Also Chait is much better at snark even than Paul Krugman who made it sound boring “@paulkrugman
It appears that Trump budget involves two scoops of voodoo economics: faster growth *and* tax cuts without a fall in revenue as % of GDP”

But I was wrong. Chait and Krugman are discussing two different errors (3 scoops of voodoo). Mulvaney et al both counted 2.1 trillion twice *and* assumed tax cuts don’t cause any reduction in the ratio of tax revenues to GDP.

Binyamin Applebaum explains.

One example of the budget-ledger legerdemain: Mr. Trump has pledged to end estate taxation. His budget, however, projects that the government will collect more than $300 billion in estate taxes over the next decade. Indeed, the Trump administration projects higher estate tax revenue than the Obama administration did because it expects faster economic growth.

Mr. Trump, in other words, is proposing to balance the federal budget in part by simultaneously increasing estate taxation and eliminating estate taxation.

Then later and separately explains another error.

The budget’s presentation of the benefits of the administration’s economic policies also raised questions. White House officials said that tax cuts and other changes, like reductions in regulation, would push annual economic growth to 3 percent by 2020, well above the 2 percent annual average since the recession. The budget projects that the increase in economic growth will produce $2.1 trillion in additional federal revenue.

The Trump administration appears to be counting this windfall twice. It needs the money to offset the cost of the tax cuts, but in the budget, the $2.1 trillion is also recorded as a separate line item above and beyond the steady growth of tax revenues.

They are into deep Voodoo.

See also Larry Summers

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Debts, Deficits and Social Security

Dan here…I noticed several articles in the NYT (here is one forcasting Trump/Mulvaneys’ Budget Proposal 2017, contrasting safety net program cuts with the Medicare/Social Security deficit busting programs. In an aside no less. Here we go again…as if deficit spending reduction was important to Republicans, and Social Security was one of the chief problems. I am reposting Bruce’s last piece on Budget and deficit from 2014. Also see this post Social Security: Cost, Solvency, Debt and TF Ratio.

by Bruce Webb

With the release of Tim Geithner’s new autobiography the old quarrel about whether Social Security does or even can add to “the deficit” has cropped up again. So rather than weigh in let me start from a more neutral spot. CBO produces a document called the Monthly Budget Review and in Nov 2013 it carried this title: Monthly Budget Review—Summary for Fiscal Year 2013 The introductory paragraph of the Summary of this Summary reads as follows:

The federal government incurred a budget deficit of $680 billion in fiscal year 2013, which was $409 billion less than the deficit in fiscal year 2012. The fiscal year that just ended marked the first since 2008 that the deficit was under $1 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined from 6.8 percent in 2012 to 4.1 percent in 2013. (The deficit was 1.1 percent of GDP in 2007, prior to the recent recession.)

and in turn was illustrated with the following graph: Fiscal Year TotalsFiscal Year 2013 outlays and revenues
Now in the normal course of reporting CBO gives figures for any number of ‘deficits’ including ‘on-budget deficit’, ‘off-budget deficit’, and ‘primary deficit’. But here they simply reference THE ‘deficit’ without qualification. So which of the three above adjectivally modified ‘deficits’ is CBO using in this Summary of its Summary of Fiscal Year 2013? Well none of them. Instead it is using a metric which by some measures no longer exists, at least under some readings of current law. Which has led to untold confusion. Confusion which I hope to unravel a bit under the fold.

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Output Optimum and the Roller Coaster of Immiseration

Following up on my post from two weeks ago, Immiseration Revisited, I built a spreadsheet replica of the marvelous Chapman diagram. In addition to lines on the page, the replica provides me with tables of numbers that I can add, subtract, multiply and divide in accordance with the conceptual logic of the diagram.

The chart below shows the results of some of these calculations. The red curve graphs cumulative gross “output” and green curve subtracts the value of foregone leisure and the pain cost of fatigue and wear and tear from output to calculate net “income” (green). The length of each vertical line measures the values of output and income, respectively for a work week of the length indicated by the scale on the x-axis.

“Big Dipper”: the Roller Coaster of Immiseration

I have set the hypothetical “output optimum” work week at 48 hours in deference to the diagram’s 1909 vintage. Assuming such an optimum and taking the conceptual diagram’s proportions literally, the ideal length of a work week for a laborer would be 36 hours. That is the point at which the value of foregone leisure and the pain cost of additional work begin to outweigh the additional earnings from the longer week. A workweek of 40 hours marks the threshold beyond which the value of foregone leisure alone exceeds the additional wage earnings.

If the optimal output workweek was 40 hours, the corresponding ideal length of workweek for the worker would be 30 hours, again assuming the reasonableness of the diagram’s proportions. There is, of course, only impressionistic evidence for the general shape of the curves and not for the accuracy of the proportions depicted. Nevertheless, the derived calculations indicate a steep acceleration of the discrepancy between output and worker welfare beginning well in advance of the output optimum.

Calculations based on the diagram suggest that by working 34 percent more hours per week, the employee can look forward to “enjoying” 29 percent LESS net benefit. If the actual cost to workers of working longer is even half or a third of those estimates, this still would represent a significant deviation not only from what Lionel Robbins dismissed as “the naïve assumption that the connection between hours and output is one of direct variation” but also from the equally indefensible premise of a consistently proportional relationship between work effort and reward.

(Most) Economists Balk

In a recent article, “Whose preferences are revealed in hours of work,” John Pencavel noted the “radical change in economist’s thinking about working hours” following the 1957 publication of H. Gregg Lewis’s article, “Hours of Work and Hours of Leisure,” Earlier textbooks attributed reductions in hours to pressure from trade unions, either directly through collective bargaining or by legislation promoted by organized labor. The earlier textbooks also addressed the effect that hours of work have on productivity, with reductions in hours usually leading to increases in hourly output and sometimes even to “no decline in total daily output.”

In later textbooks, the orthodoxy followed Lewis’s explanation that workers choose their own hours, based on their preferences for income or leisure. The connection between output and shorter hours vanished, as did the role of trade unions in achieving reductions of working time. But, Pencavel wondered, “If ‘employers are completely indifferent with respect to the hours of work schedules of their employees,’ [as Lewis had posited] why did employers oppose so resolutely workers’ calls for shorter hours?”

In a footnote, Pencavel also mentioned that in Lewis’s 1957 model, employers face no obstacle “to replacing shorter hours per worker with more workers.” This is an interesting point because many economists’ arguments against the employment potential of shorter working time rest on claims that workers and hours are not suitable substitutes. That conclusion is reached by smuggling back in the output/hours relationship concealed in a Cobb-Douglas production function with the Robbins/Hicks “simplifying assumption” that the current hours of work are optimal for output, so that any reduction of hours would result in a reduction of output. It is difficult to imagine how both of these things can be true at the same time.

Although the earlier textbooks and economists acknowledged the connection between hours of work and output, most were silent on the discrepancy — or at least the magnitude of the discrepancy — between an output optimum and worker welfare. Cecil Pigou, Philip Sargant Florence, Lionel Robbins, John Hicks and Edward Denison treated the output optimum as the economic ideal. Richard Lester and Lloyd Reynolds, authors of “institutionalist” labor economics textbooks, showed more sympathy to trade union arguments but did not emphasize the discrepancy between the output optimum and worker welfare.

Sydney Chapman clearly distinguished analytically between worker welfare and the output optimum but his presentation was obscured by digressions that dwelt on shift-work as a palliative and on the philosophical necessity of paying more attention to the non-tangible aspects of culture. Clyde Dankert clearly distinguished between the output optimum and worker welfare but had the rather eccentric view that although “maximization of worker satisfactions” rather than output should be the social objective, shorter hours would have to be postponed “in view of the current cold war situation.” Only Maurice Dobb clearly and concisely stated what was at stake (although he left out the increasing value of leisure):

…trade unionists in the nineteenth century were severely castigated by economists for adhering, it was alleged, to a vicious ‘Work Fund’ fallacy, which held that there was a limited amount of work to go round and that workers could benefit themselves by restricting the amount of work they did. But the argument as it stands is incorrect. It is not aggregate earnings which are the measure of the benefit obtained by the worker, but his earnings in relation to the work he does — to his output of physical energy or his bodily wear and tear. Just as an employer is interested in his receipts compared with his outgoings, so the worker is presumably interested in what he gets compared with what he gives. A man who works longer hours or is put on piece-rates, and increases the intensity of his work as a result, may earn more money in the course of the week; but he is also suffering more fatigue, and probably requires to spend more on food and recreation and perhaps on doctor’s bills.

To compare “what s/he gets” with “what s/he gives” requires above all some way of estimating the value of what is given relative to what is being received. One may even suggest that constructing those estimates was the job economists should have been doing instead of castigating trade unionists and other advocates of shorter hours for adhering to a vicious “lump-of-labor” fallacy. Heck of a job, economists!

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A thought for Sunday: the Left is winning the battle of ideas. The right’s own man says so

by New Deal democrat

A thought for Sunday: the Left is winning the battle of ideas. The right’s own man says so
Prof. Arnold Kling, a conservative neoclassical economist who has taught at George Mason University and been affiliated with the Cato Institute, has a post up this morning in which he  reflects upon whether he has changed his mind about anything in view of developments over the last sum of years. His reply is a notable bellwether:

I think that in general I have become more pessimistic about American political culture ….

…. What has [ ] transpired …… from college campuses [is a] view that capitalism is better than socialism, which I think belongs in the mainstream, seems to be on the fringe. Meanwhile, the intense, deranged focus on race and gender, which I think belongs on the fringe, seems to be mainstream…..

…. The Overton Window on health policy has moved to where health insurance is a government responsibility. The Overton Window on deficit spending and unfunded liabilities has moved to where there is no political price to be paid for running up either current debts or future obligations. The Overton Window on financial policy has moved to where nobody minds that the Fed and other agencies are allocating credit, primarily toward government bonds and housing finance. The Overton Window on the Administrative State has moved to where it is easier to mount a Constitutional challenge against an order to remove regulations than against regulatory agency over-reach.

I would call that a good start.

That being said, as usual I expect progress will be made one funeral at a time, as the deep, deep red Silent Generation (and primary Fox News demographic) passes this mortal coil.


A postscript. Kling concludes by writing:

Outside of the realm of politics, things are not nearly so bleak. Many American businesses and industries are better than ever, and they keep improving. Scientists and engineers come up with promising ideas.

I wonder if it occurs to him that these sentences completely undercut his ideology.  After all, if evil government regulation kills innovation, well, obviously, despite the shifts in the Overton Window to the left, that obviously isn’t happening, is it?

Furthermore, if that innovation has been happening during the period of time that the Brookings Institution found, via comprehensive Social Security wage data, that workers from 1983 on made only 1% more in real terms over their entire 30 year prime age careers than the workers who entered their prime earnings age in 1957, then that innovation has not translated into *any* significant increase in the well-being of average Americans over virtually their entire working lifetimes. That is a thoroughgoing and decisive failure, well worth being replaced.

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Declinable medical conditions

Lifted from Alternet:

Which ailments are on the list of preexisting conditions that can drive up prices for coverage? The Kaiser Family Foundation catalogs “so-called declinable medical conditions” before the ACA.

  • Alcohol or drug abuse with recent treatment
  • Alzheimer’s/dementia
  • Anorexia
  • Arthritis
  • Bulimia
  • Cancer
  • Cerebral palsy
  • Congestive heart failure
  • Coronary artery/heart disease, bypass surgery
  • Crohn’s disease
  • Diabetes

More listed below the fold.

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Censorship and money?

Via the NYT comes this major dilemma as a next step in the “money is speech” campaign:

The head of President Trump’s re-election campaign accused CNN of “censorship” on Tuesday afternoon after the broadcast network refused to run the group’s latest advertisement.

CNN said it would run the 30-second television spot, a celebration of Mr. Trump’s first 100 days in office, only if the campaign removed a section that featured the words “fake news” superimposed over several TV journalists, including Wolf Blitzer of CNN, and others from MSNBC, PBS, ABC and CBS.

CNN defended the decision in a statement on Twitter.

“The mainstream media is not fake news, and therefore the ad is false,” the network said. “Per our policy, it will be accepted only if that graphic is deleted.”

In response, Michael Glassner, the executive director of Mr. Trump’s campaign committee, called the decision “censorship pure and simple.”

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Social Security and North West plan

Lifted from comments by Dale Coberly

This year’s Social Security Trustees Report seems to be late as usual.

But this is the LAST year that a gradual increase in the payroll tax can begin and still solve some of the less understood problems of the projected shortfall in SS funding: This is mostly that a gradual increase starting now preserves the Trust Fund at it’s current level… meaning the Congress doesn’t have to find the money to pay back it’s debt TO Social Security. The interest from that Trust Fund will keep the needed tax increase about 1% smaller than it otherwise will need to be. And the needed increase of one tenth of one percent per year will eliminate the projected “actuarial” shortfall entirely.. and that should eliminate the “sky is falling” argument of those who want to destroy Social Security.

Trouble is that neither the Left nor the Right are interested in actually solving the SS shortfall. The Right wants to kill Social Security by calling it welfare. The Left wants to kill Social Security by turning it into welfare.

After this year, SS can still be “saved” by the one tenth percent per year increase in the payroll tax, but will not have the advantages alluded to here. Because the Trust Fund is being drawn down, the needed tax rate to prevent an actual shortfall in about 2030 will rise fairly rapidly. If nothing is done, the tax rate would need to rise about 2% all at once in about 2030 or so. This would not be a real burden to people even at that, but they will see it as such… be told to see it as such… and the bad guys will seize the opportunity to cut benefits, raise the retirement age, and even “tax the rich” as the first step to turning it into welfare as we knew it and guaranteeing that event he honest rich — who currently are NOT burdened by SS – wiil be burdened by it and join the campaign against it.

Even raising the tax rate about 1 and a half percent now would solve the projected shortfall for the rest of the century. This solution is objected to by those who want to confuse you because it would leave a need for another “significant” tax raise in 2093. That raise would be about one half of one percent.. at a time when wages will be more than 100% higher than they are today. I think we can leave that problem to those who will face it. It’s not my favorite solution, but those who tell you we must “solve the SS problem once and for all” are hoping you are stupid enough to think they are saying something sensible.

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European Union ends relocation subsidies

This isn’t actually news, but it’s news to me, and it’s something you need to know. Greg LeRoy sent me an article by James Meek in London Review of Books (20 April 2017) that he’d been sent by a friend, documenting more EU-permitted job piracy by Poland that preceded the case I discuss at length in my book, Investment Incentives and the Global Competition for Capital. There, I criticized the European Commission’s Directorate-General for Competition for approving a 54.5 million euro subsidy for Dell to move from Ireland to Poland in 2009. During my January 2011 book tour, I took a lot of flak from DG Competition when I presented there, with several staff pushing back on my criticism of this decision.

As the LRB article pointed out, this was another case involving Poland, where Cadbury received state aid of about $5 million (14.18 million zloty when the zloty was worth about 0.35 USD) in November 2008 to move from the Somerdale, United Kingdom, to Skarbimierz (the LRB gives a much bigger number, but from unspecified “Polish government figures,” so I cannot find a way to compare it with the EU’s case report). This case is only listed in the EU’s Official Journal, where it is reported as having been notified under the General Block Exemption Regulation. As this regulation is intended for uncontroversial cases, that makes it evidence, though hardly proof, for a relatively smaller rather than larger aid amount. For my purposes, the amount is less important than the fact that we have another documented relocation subsidy.

What’s the big “news”? In Meek’s article we read, “In 2014, too late for Somerdale, the EU recognised its error and banned the use of national subsidies to entice multinationals to move production from one EU country to another.” Just like that.*

Okay, I’m abstracting from the political process. But it’s pretty clear what happened. As I reported in Investment Incentives and the Global Competition for Capital, when Dell moved to Poland, all of Ireland was up in arms, including government officials and Members of the European Parliament. The European Parliament made its displeasure known. What the Somerdale case shows us is that there was at least one other country on the wrong end of a relocation subsidy, strengthening further the political pressure for state aid reform.

As I said, Commission staff believed they made the correct decision in the subsequent Dell case, and the rationale would have been exactly the same for Cadbury. The move sent economic activity from somewhere with high per capita income to a place with a far lower per capita income. They saw this as an overall increase of efficiency within the European Union. As I argued, though, even if that were the case, the decision wasn’t good for intra-EU solidarity, and it undermined support for policies promoting the growth of the EU’s poorer regions (“cohesion” policy in EU-speak). In light of the 2014 policy change, we know that arguments aligned to mine were the ones that carried the day politically.

This shouldn’t come as any surprise: People generally don’t like job piracy when they know about it. If you’ve read Chapter 5 of my book Competing for Capital, you know that it’s basically not allowed for states to use federal funds (Community Development Block Grants, Small Business Administration, etc.) to engage in job piracy. But in each program’s case, the reform happened only after one or more such incidents (many of them reported to me by Greg LeRoy during my research) had taken place, leading to demands for change.

Moreover, individual states know how to prevent job piracy within their own state. As of 2013, 40 states had shown their ability to write anti-piracy rules (p. iii). But they don’t hesitate to use relocation subsidies when it comes to raiding other states. They can’t seem to help themselves since they all need investment, and nothing stops other states from providing incentives. In fact, all multi-state anti-piracy agreement in the U.S. have failed, and even the most promising recent attempt (Kansas/Missouri) failed to get off the ground.

Only the federal government can stop states from stealing jobs from one another, but don’t hold your breath on it happening anytime soon even though the negative-sum nature of inter-state border wars is easy to see. It’s heartening to me to see the European Union has finally changed its policy, given that I have written mostly positive things about state aid control over the years. It’s great for the glaring exception to be gone.


*For the technically inclined, this is embodied in a ban of relocation subsidies under the General Block Exemption Regulation, and in the Guidelines for Regional Aid 2014-2020, which classifies a relocation aid (paragraph 122) as “a manifest negative effect,” “where the negative effects of the aid manifestly outweigh any positive effects, so that the aid cannot be declared compatible with the internal market” (paragraph 118).

Cross-posted from Middle Class Political Economist.

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