Law Of Unintended Consequences
Holy moly, perhaps the oceans will rise and hell will freeze over – but it won’t be because of “climate change” or whatever the warmists are calling it this week. Nope, Al Gore has found a government program he doesn’t like. Yup, that’s right. And not only that – and this is the hell freezing over part of it – it’s a “green” government program.
Yes, friends, Al Gore says that the US government’s subsidies for corn ethanol is “not good policy”.
"It is not a good policy to have these massive subsidies for (U.S.) first generation ethanol," said Gore, speaking at a green energy business conference in Athens sponsored by Marfin Popular Bank.
"First generation ethanol I think was a mistake. The energy conversion ratios are at best very small.
"It’s hard once such a programme is put in place to deal with the lobbies that keep it going."
Gadzooks. A flip-flop. He supported the program previously. Oh, wait – he was just making a political statement then:
He explained his own support for the original programme on his presidential ambitions.
"One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president."
Dear farmers – vote for me and I’ll pay you outrageous subsidies to grow corn for ethanol. "Certain fondness” my rear end. Nothing has changed about Gore in the “I’ll say anything to get what I want” department, has it? Flippin’ piece of crap – buying votes with your tax dollars. Not that he’s the only one that does it, but for heaven sake, given the financial situation we’re in does he have to be so freakin’ glib about it?
Of course the reason corn-ethanol is a crappy idea is the subsidies are high and thus 40% of the corn grown is grown for ethanol. That puts it in competition with corn for food. Any guess what corn based food products have done since this nifty little program has been in place?
Yes, they’ve gone up quite a bit. In this case, we call that the “law of unintended consequences” only as a rhetorical device. The consequences may have been unintended but there were any number of economists saying “if you do that you’re going to drive up food prices”. And, of course, the answer from our government experts was the “you don’t know what you’re talking about”.
You know, the same experts that have told us that more of us can have more health care and it will cost less.
Anyway I thought you’d enjoy Gore’s little walk-back. Don’t forget the same experts who brought you corn-based ethanol and higher food prices will be “debating” an energy bill at some point in the future. I’d hide my wallet before then if I was you.
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Even more irony – the groups lining up against the EU’s energy targets mandating the use of biofuels are not who you would expect:
Energy targets for 23 of the EU’s 27 members suggest 9.5 percent of the bloc’s transportation energy will come from biofuels by 2020, said the groups, which include Friends of the Earth, Greenpeace and ActionAid. The crops may need an area twice the size of Belgium, and clearing the necessary land could make the fuels 167 percent more polluting for the climate than sticking with gasoline and diesel, they said.
The proponents naturally say that’s all nonsense:
The EU aims to get 10 percent of its energy for transportation from biofuels, hydrogen and renewable power by 2020. The target is meant to reduce greenhouse gas emissions by 20 percent by 2020.
EU energy spokeswoman Marlene Holzner said the targets require less land than the study suggests and that EU guidelines prevent the use of deforested land.
“The Renewable Directive says very clearly that it is not allowed to chop down forests to produce biofuels,” Holzner said in an e-mail. “The same goes for drained peatland, wetland or highly biodiverse areas.”
Well of course it says that’s not allowed. Whether or not that’s actually followed is another matter entirely. But here’s the point – the directive’s implementation means that existing land that can be used to reach the targets must be converted from growing whatever it is growing now (food?) to being dedicated to biofuel production. Either way a large area (twice the size of Belgium?) is going to have to be dedicated to such production to make the 10 percent target viable. So where does "food production" go? Looking for new land, that’s where. Or, the EU learns to live with the reduction in agricultural products and the resultant increase in prices required to turn the existing land into biofuel production.
The bureaucrats wave away the concern:
The 10 percent target would require 2 million to 5 million hectares of land, and there is enough unused terrain in the EU that was previously used for crop production to cover its needs, Holzner said.
This is classic government intrusion into markets and the beginning of the inevitable market distortions that brings along with the law of unintended consequences. Biofuels have to be grown somewhere. Government is going to subsidize that at a rate higher than growing food. That means, at some point, food growth is going to be displaced. Holzner, with an airy wave of the hand says “hey, the land is available – problem solved”.
Of such are man-made disasters cluelessly formulated and executed.
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Your “Econ 101” lesson for the day is a lesson politicians never seem to grasp, although they do love to harp on is “greedy corporations” outsourcing “American jobs”. In effect, they play off of free market decisions necessary to maintain competitiveness in order to characterize corporations as the bad guys (and, naturally, they and government as the white knights).
Of course the market decision I’m speaking of concerns doing what is necessary to remain competitive in highly competitive markets. And, one of the highest costs of production is headcount or the workers. So in a free market, competitive industries are going to seek the lowest cost possible for labor to remain competitive.
That may mean moving to a new country for labor intensive industries where labor costs are lower.
But sometimes it isn’t “greedy corporations” that drive American jobs offshore. Sometimes it is the US Government. Take light bulbs for instance:
The last major GE factory making ordinary incandescent light bulbs in the United States is closing this month, marking a small, sad exit for a product and company that can trace their roots to Thomas Alva Edison’s innovations in the 1870s.
Wait, you say, there’s still a demand for light bulbs! Of course there is – but thanks to government intrusion, that demand, by law, is only for a particular kind – not the incandescent types that we actually manufactured here. Instead of letting the market decide which type of light bulb it wanted, the government decided to mandate it. And what you are now allowed to “demand” is a compact fluorescent, or CFL.
What made the plant here vulnerable is, in part, a 2007 energy conservation measure passed by Congress that set standards essentially banning ordinary incandescents by 2014. The law will force millions of American households to switch to more efficient bulbs.
The resulting savings in energy and greenhouse-gas emissions are expected to be immense. But the move also had unintended consequences.
Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.
Consisting of glass tubes twisted into a spiral, they require more hand labor, which is cheaper there. So though they were first developed by American engineers in the 1970s, none of the major brands make CFLs in the United States.
CFLs, as noted, are more labor intensive to manufacture than are incandescent bulbs.
China’s labor costs are far less than the US’s. Therefore, the US government’s mandate ending the use of incandesents by 2014 and mandating CFLs be purchased in their place drove the domestic lighting industry – and the jobs it produced – off shore. And all based on dubious science and the apparent belief that energy production is finite and waning.
Oh, and “how about those green jobs?” Another promise shipped off to China.
When you screw that CFL in some family in China will thank you. And when you pay your taxes some of which go toward unemployment benefits for former light bulb manufacturers here – make sure you thank the politicians for the job well done. I’m sure those former GE workers will.
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Did you know there’s a home in Mississippi that has flooded 34 times in 32 years? And each time it has flooded, the federal government, through FEMA’s Federal Flood Insurance Program, has paid the owner’s claim. The house, worth $69,900, has cost the government $663,000 in flood damage claims. That’s almost ten times the home’s worth and averages over $20,000 a year.
If insanity is doing the same thing over and over again and expecting different results, that aptly describes this federal program. It essentially incentivizes home owners to remain in flood prone areas by bailing them out each time they are flooded. And, as you might imagine, that’s finally caught up with the program, as USA Today reports:
FEMA’s National Flood Insurance Program is the nation’s main flood insurer, created by law in 1968 as private companies stopped covering flood damage. The program insures 5.6 million properties nationwide and aims to be self-sustaining by paying claims from premiums it collects.
Instead it’s running deeply in the red. A major reason, a USA TODAY review finds, is that the program has paid people to rebuild over and over in the nation’s worst flood zones while also discounting insurance rates by up to $1 billion a year for flood-prone properties.
Along with the huge losses from Hurricane Katrina, the generous benefits have forced the program to seek an unprecedented $19 billion taxpayer bailout.
As one critic succinctly points out, “if this were a private insurer, it would be bankrupt”. In fact, it with those business practices, it would have been bankrupt years, if not decades ago. And now, hat in hand, it goes to the taxpayer for a bailout. $19 billion dollars worth of bailout.
As a government program, federal flood insurance covers anyone. It’s similar to state-run programs that insure homeowners and drivers who cannot get private coverage. Policies cannot be canceled, and individual premiums cannot be raised based on claims payments.
"It is not run as a business," [FEMA Administrator Craig ]Fugate said.
Congress’ Government Accountability Office said in April that the program is "by design, not actuarially sound" because it has no cash reserves to pay for catastrophes such as Katrina and sets rates that "do not reflect actual flood risk."
Raising insurance rates or limiting coverage is hard. "The board of directors of this program is Congress," Fugate said. "They are very responsive to individuals who are being adversely affected."
Or said another way, Congress has been “captured” by influential constituents who see no problem using their influence to burden taxpayers to subsidize the way of life they prefer – no risk building in areas prone to natural disasters. It isn’t “regulatory capture” per se, but it could certainly be called “constituent capture”. It is certainly rent seeking. Whatever the name preferred, it is an abuse of the taxpayer’s money.
It appears the plan is to continue doing business as usual – providing cheap insurance to builders and homeowners who continue to build or rebuild in flood prone areas. No fault risk taking subsidized by the federal government via taxes. So when you see stories like this, you know who to blame:
In Fairhope, Ala., the owner of a $153,000 house has received $2.3 million in claims. A $116,000 Houston home has received $1.6 million. The payments are for damage to homes and what’s inside.
After all, the view’s beautiful, coverage cheap and can’t be canceled and the risk minimal in terms of dollar loss, so what incentive is there to relocate to an area less prone to flooding as long as the taxpayer is on the hook to subsidize that lifestyle and they keep paying?
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You could also entitle it "meet the new boss, same as the old boss". What I’m talking about is a recent meeting between UAW bosses and GM workers. To say it didn’t go well would be a vast understatement)(via Sweetness and Light):
Workers at a General Motors stamping plant in Indianapolis, Indiana chased United Auto Workers executives out of a union meeting Sunday, after the UAW demanded workers accept a contract that would cut their wages in half.
As soon as three UAW International representatives took the podium, they were met with boos and shouts of opposition from many of the 631 workers currently employed at the plant. The officials, attempting to speak at the only informational meeting on the proposed contract changes, were forced out within minutes of taking the floor.
The incident once again exposes the immense class divide between workers and union officials, who are working actively with the auto companies to drive down wages and eliminate benefits.
Actively working with the auto companies? They are part owners now of the auto companies – they’re "management" for heaven sake.
Interesting how it suddenly looks when you’re on the "other side", huh? And in the face of vociferous opposition, the UAW officials abandoned the podium.
All of this was written up at the World Socialist website. There’s also a video which gives real credence to the story. In the beginning someone from the local is speaking. He or she (I really couldn’t tell which) then introduces the UAW international drones at about 2:48. As you watch it, it will remind you of some of the townhall meetings of last summer:
The article goes on to say:
Workers at Local 23 voted 384-22 in May to reject reopening a previous contract, which had guaranteed that wages would remain intact in the event of a sale. GM first announced its intention to sell the plant in 2007, threatening to close it if it did not find a buyer.
Despite overwhelming opposition by the rank-and-file, UAW executives secretly continued negotiations with JD Norman, which they outlined in a document sent to workers last week.
Pretty bad when your union which is now management sells you out, isn’t it? To paraphrase one worker, “they’ll still have their jobs while they sell ours out”. Wow – wasn’t that the argument against the hated “management?” Heh …
Irony – it’s really something to be appreciated sometimes, isn’t it? The UAW always wanted control of the auto companies didn’t it? Now it has it – sweet, huh? And private sector unions wonder why their membership is dropping like a rock.
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Or at least they won’t be given much of an incentive to do so if they provide health care:
A study by the National Center for Policy Analysis shows that tax credits in the new healthcare law could negatively impact small-business hiring decisions.
The new law provides a 50 percent tax credit to companies offering health coverage that have fewer than 10 workers who, on average, earn $25,000 a year. The tax credit is reduced as more employees are added to the payroll.
The NCPA study finds the reduction in tax relief to be a cost concern for companies looking to hire additional workers, but operate on slim profit margin yet still provide employee health coverage.
A couple of points – A) the tax credit is temporary (until 2016), and, only covers a small part of the cost of hiring an employee. However, B) it is a available to all small companies with 25 employees or less already offering health insurance. The stated purpose of the tax credit is to encourage those small businesses who fit the template (10 or fewer workers averaging about $25k a year, up to 25) to continue to provide health care and encourage those who aren’t to do so. But it provides the tax credit on a sliding scale, and that scale discourages hiring at the scale breaks:
Using insurance premium cost projections supplied by the nonpartisan Congressional Budget Office (CBO), the study states that the credit reaches its optimal point at 13 workers, with relief peaking at $36,400 for qualifying business.
After the 13th worker the economics surrounding the credit change, the study says.
For employers with 15 workers, taking on an additional hire will reduce the credit by $1,400. For a company looking to expand from 20 to 21 workers, the credit will shrink by $3,733. And businesses will take a $5,600 reduction on the credit when hiring the 25th worker.
The credit phases out for companies with at least 26 employees.
If the company is already at 13, it most likely won’t hire 14, or 15. If it is at 20, it’s most likely not going to hire 21. And 26 is most likely out of the question.
Bill Rys, tax counsel at the National Federation of Independent Businesses, told The Hill that while demand is the primary driver for hiring decisions, costs related to new hires is a key factor.
“To the extent that a tax credit is related to the benefits that you’re paying your employees, it is going to be a factor in determining what is the cost of the employee,” he said. “The fact that you’re losing a portion of the credit because you brought in a new employee is going to have to factor into the cost of who you’re hiring.”
So there is a negative incentive – at least as long as the tax credit exists – to hire people if it will lessen the tax credit. Instead:
“If a business can make a decision to substitute capital for labor – say, contract the procedure out or automate it – I believe [losing the tax credit] will play an important part in the reluctance to hire,” Villarreal said, adding, “It’s puzzling that we have this perverse incentive not to have businesses grow by not encouraging them to hire additional workers.”
UPDATE: Even more good news as companies read through the legislation and discover little hidden nuggets of penalty and cost. For instance:
About one-third of employers subject to major requirements of the new health care law may face tax penalties because they offer health insurance that could be considered unaffordable to some employees, a new study says.
It seems the law deems insurance that is unaffordable by a family to be an insurance cost that is more than 9.5% of their household income. Of course, few if any companies know the “household income” of their employees. That’s because, mostly, it’s none of their business. But also because it may be comprised of a second or third income, dividend, disability or even retirement income.
But, if it is over 9.5% of that household income, companies can be fined up to $3,000 per employee. Of course they won’t know that until and unless the employee files for a federal tax credit because he or she has determined their insurance cost is over 9.5% of their household income (is that gross or AGI?):
If an employer’s health plan is deemed unaffordable, the worker may qualify for a federal tax credit, or subsidy, to buy coverage in a new state-based marketplace known as an insurance exchange. A person claiming a credit must disclose income information to the exchange. The exchange will then notify employers if any of their workers qualify for subsidies.
Along with notifying the employer of this info, I suppose the “exchange” will also notify the appropriate government agency that is responsible for levying the fine.
Wow – no incentive there to just drop coverage for everyone, is there?
What a monstrosity the Democrats have brought upon us.
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I mentioned, a week or so ago, that it appeared the developing strategy the White House was going to use in the 2010 midterm elections was to again try running against Bush. The brain-trust behind this idea seems to think it will give President Obama the ability to “ride the wave of anti-incumbency by taking on an unpopular politician steeped in the partisan ways of Washington”. Except the most obvious partisan these last 16 months is Obama and he, in case he hasn’t noticed, is the “incumbent”.
I think Politico and Merle Black pretty much have it figured out when it comes to this sort of a strategy:
It’s a lot to ask an angry, finicky electorate to sort out. And even if Obama can rightfully make the case that the economy took a turn for the worse under Bush’s watch, he’s already made it – in 2008 and repeatedly in 2009.
It’s not clear that voters still want to hear it.
“If you’re the leader of a large corporation and you’re in power for a year and a half and you start off a meeting with your shareholders by blaming your predecessor, that wouldn’t go over very well,” said Merle Black, a political science professor at Emory University. “This is a very weak approach. … And I can’t imagine it having an impact on these very swing voters.”
Eventually, no matter hard one tries to wish it away, reality will smack you in the face. Hard.
As predicted was inevitable, today the Spanish newspaper La Gaceta runs with a full-page article fessing up to the truth about Spain’s “green jobs” boondoggle, which happens to be the one naively cited by President Obama no less than eight times as his model for the United States. It is now out there as a bust, a costly disaster that has come undone in Spain to the point that even the Socialists admit it, with the media now in full pursuit.
La Gaceta boldly exposes the failure of the Spanish renewable policy and how Obama has been following it. The headline screams: “Spain admits that the green economy as sold to Obama is a disaster.”
According to the Spanish government, the policy has been such a failure that electricity prices are skyrocketing and the economy is losing jobs as a result (emphasis added):
The internal report of the Spanish administration admits that the price of electricity has gone up, as well as the debt, due to the extra costs of solar and wind energy. Even the government numbers indicate that each green job created costs more than 2.2 traditional jobs, as was shown in the report of the Juan de Mariana Institute. Besides that, the official document is almost a copy point by point of the one that led to Calzada being denounced [lit. “vetoed”] by the Spanish Embassy in an act in the U.S. Congress.
The presentation recognizes explicitly that “the increase of the electric bill is principally due to the cost of renewable energies.” In fact, the increase in the extra costs of this industry explains more than 120% of the variation in the bill and has prevented the reduction in the costs of conventional electricity production to be reflected on the bills of the citizens.
Despite these facts, which quite frankly have been known for quite some time, the Obama administration is still planning to move ahead with its own policy based explicitly on the Spanish one. As Horner states:
That fight [over the “green economy” policy] begins anew next week with the likely Senate vote on S.J. Res. 26, the Murkowski resolution to disapprove of the Environmental Protection Agency’s attempt to impose much of this agenda through the regulatory back door without Congress ever having authorized such an enormous economic intervention.
Just as with the ObamaCare boondoggle that was rammed into law despite its (a) known problems that are only now being admitted to, (b) real costs that are only now becoming evident, and (c) unacceptability to the vast majority of Americans, Obama is going full steam ahead with this “green economy” nonsense. Regardless of facts or reality, this administration is dead set on re-creating America in the image it likes best (i.e. European social democracy), regardless of the costs. So long as we end up with all the bells and whistles that are the hallmarks of our European betters (e.g. universal health care, carbon taxes, depleted military, enhanced welfare state, overwhelming government controls of the economy, sufficiently apologetic “transnationalist” foreign policy), the actual results of that transformation are unimportant. We may end up an economic basket case a la Greece, but hey, at least we’ll have all the nanny-state accouterments necessary to commiserate with the cool European kids.
It’s gotten to the point where pointing out that the emperor has no clothes only results in naked orgies of Utopian spending. This cannot end well.
Today seems to be a “government and the law of unintended consequences” day. Below you saw the consequences of draconian diet rules. Here we’ll see the effect of poorly written law and government intrusion into the most effective health care system in the world. Dr. Scott Gottlieb explains:
President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors. It’s clear that this promise cannot be kept. Insurers and physicians are already reshaping their businesses as a result of Mr. Obama’s plan.
Gottlieb goes on to explain why the caps on how much an insurer can spend on expenses and take for profits is going to result in huge changes in the way medicine is delivered. One thing that is rapidly happening now is doctors, seeing the handwriting on the wall, are opting to sell their practices and services to insurance companies and hospitals. As Gottlieb points out:
Consolidated practices and salaried doctors will leave fewer options for patients and longer waiting times for routine appointments. Like the insurers, physicians are responding to the economic burdens of the president’s plan in one of the few ways they’re permitted to.
That means they’ll work under the rules dictated by either the insurance company or a hospital – in both cases an entity which comes between you and your doctor. It means less choice, less access, fewer doctors available to see depending on your insurance plan. And the obvious possibility that the doctor you’re now happy with may not be on your plan when all of this falls out. Gottlieb summarizes:
The bottom line: Defensive business arrangements designed to blunt ObamaCare’s economic impacts will mean less patient choice.
There are other unintended consequences as well that point to less choice. Texas provides the example:
Texas doctors are opting out of Medicare at alarming rates, frustrated by reimbursement cuts they say make participation in government-funded care of seniors unaffordable.
Two years after a survey found nearly half of Texas doctors weren’t taking some new Medicare patients, new data shows 100 to 200 a year are now ending all involvement with the program. Before 2007, the number of doctors opting out averaged less than a handful a year.
“This new data shows the Medicare system is beginning to implode,” said Dr. Susan Bailey, president of the Texas Medical Association. “If Congress doesn’t fix Medicare soon, there’ll be more and more doctors dropping out and Congress’ promise to provide medical care to seniors will be broken.”
Remember this is the same government that is now messing with the rest of the system. How will Congress “fix” Medicare? As is obvious, doctors are dropping out because they can’t afford to stay in that system. As Dr. Guy Culpepper said:
“You do Medicare for God and country because you lose money on it,” said Culpepper, a graduate of the University of Texas Medical School at Houston. “The only way to provide cost-effective care is outside the Medicare system, a system without constant paperwork and headaches and inadequate reimbursement.”
And fewer and fewer doctors are finding they can afford to do Medicare for “God and country” and stay in business.
So you have this new realignment taking place among doctors, hospitals and insurers and a growing trend of doctors opting out of the Medicare system and yet the promise of increased and better care as a result of government meddling is still being parroted by our political betters.
“If you like your doctor and you like your insurance company … blah, blah, blah.” You just have to wonder when we’ll ever learn.
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Apparently the Scots, much like our government, have decided that Scottish children just don’t eat healthy enough meals. So they’ve decided they’ll take the matter in hand via government and introduce their version of healthy eating in school. After all it is “for the children” and who wouldn’t be for that? Apparently the children:
NEW rules introduced to make school meals healthier have resulted in tens of thousands of Scottish pupils consuming a worse diet, it has been claimed.
The company which provides school meals in Glasgow revealed yesterday that 30,000 fewer children are eating school lunches since healthier meals were introduced.
Uptake of school meals in Glasgow has fallen from 61% to 2006 to 38%, with some schools as low as 24 per cent. Across Scotland, the number of secondary school pupils taking school meals fell to 39.2 per cent in 2009 – the lowest level for a decade.
Fergus Chambers, managing director of Cordia, which provides school meals in Glasgow, urged the Scottish Government to carry out a “root and branch” review of the regulations which limit salt, fat and sugar content.
He said: “The original objective of the legislation was to improve uptake and improve health.
“But I believe the most recent rules, which allow no flexibility to those providing school meals, have fallen victim to the law of unintended consequences.
The unintended consequence isn’t just that they don’t eat the school meal. It is that they leave school during the lunch period and go to the nearest fast food franchise.
The answer to that? Well certainly not improving the food. Instead some schools have “experimented” with banning kids from leaving the grounds at lunchtime. But consider changing the draconian rules that have them fleeing? Of course not:
“Fat, salt and sugar levels are now set so low as to be almost non-existent. We can no longer sell diet drinks, flavoured water or even fruit juice of any reasonable portion size. Confectionery, including most home baking, is banned – yet pupils can walk out and buy anything they want.
Damn those students. How dare they attempt to exercise their freedom to eat what they want. Oh wait, here’s a solution – John Dickie, head of the Child Poverty Action Group in Scotland, said:
“It is clear that if local authorities and ministers are serious about boosting the take-up of healthy school lunches, then providing them free to all pupils is by far the most effective action they can take.”
Well there you go – just give it to them “free” and they’ll eat what they’ve already demonstrated they won’t eat . What would we do without the advocates and experts.
Growing kids need a certain level of fat, salt and even sugar. They’re not going to eat what they don’t like, no matter how “healthy” it is purported to be. That’s something any parent can tell you. When the state takes over those responsibilities and attempts to impose it’s ideas about healthy eating, these are the sorts of results you can expect. The law of unintended consequences, as Fergus Chambers notes, couldn’t be more evident than in this case.
Coming to a “war on childhood obesity” near you soon.
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