When do the Dems believe in trickle-down?

Here’s my hypothesis:  When it comes to microeconomics the Dems are the “stupid party”.  When it comes to monetary policy, and just about all non-economic areas of public policy, the GOP is the “stupid party”.

How could we tell if I’m right about the Dems?  We know that economics is really, really counterintuitive.  It doesn’t seem logical that imports would be good for the economy, or that price gouging in a natural disaster would be good for consumers, or that regulations banning banks from charging fees on ATMS would be bad for bank consumers.  But they are.

So let’s suppose that Dems are like most people; they are not very good at economics. And we also know that they claim to favor the “little guy” and have contempt for “trickle-down economics”, which is the idea that sound economic policies will also benefit people at the bottom.

If my theory is correct, then you’d expect the Dems to favor trickle down policies whenever there were easily discernible “concrete steps” linking the subsidies for big business with the welfare of the common man.

Thus Dems would oppose a cut in the corporate tax rate, unless competition from overseas started to raise fears of jobs losses.  And even then they’d demand that any cuts in the top rate be offset by the closing of loopholes.  And that’s exactly what we observe.

Most importantly, Dems would favor subsidies for big business that seemed likely to directly create jobs, such as the Ex-Im Bank.  And guess what, there is far more support for the Ex-Im Bank (an almost perfect example of crony capitalism) among Dems than among the GOP.  Even when not at the zero bound, and hence not at a time where there might conceivably be a net gain in employment.  Stupid.

Another example is the GSEs, Fannie and Freddie.  These companies have traditionally been strongly supported by the Dems, despite their outrageous business model and obscene profits, because they were seen as helping the common man buy a house.  (As an aside, a portion of the GOP agrees with the Dems, but that’s because big business owns a portion of the GOP, not for ideological reasons. The GOP ideologues tend to oppose crony capitalism.)

What about the vast range of issues where the Dems oppose sound economic policies? My claim is that those are areas where the “concrete steps” helping the average guy are harder to see.  More counterintuitive.

I conclude that the Dems actually do favor trickle-down economics, when they understand it, they simply don’t have the imagination required to see the vast array of areas where deregulation, privatization, and tax reform would help the average guy. They can’t envision anything beyond concrete steps.

The current Ex-Im dispute is the “tell” that lets us see into the mind of Dems, to understand what’s actually motivating their supposed “anti-business” worldview.

Update:  A few additional points, based on some of the comments.  Some seemed to think this post was in some way defending the GOP.  It’s far more critical of the GOP than the Dems.  Take another look.  People are also confused about “trickle down economics”.  AFAIK no one ever advocated trickle down economics.  I assumed everyone knew that.  The title of the post was a joke.  “Trickle down” was a term of derision used against some of the early neoliberal policy reform advocates such as Art Laffer and Jack Kemp, who claimed that deregulation, privatization and cuts in high marginal tax rates would help everyone, including the poor.  Again, no one actually advocated trickle down, it was a term of derision by those who didn’t understand neoliberalism, who could not fathom how conservatives could actually believe that supply-side policies would help the poor.  So they simply imagined that conservatives must believe in “trickle down”, which (AFAIK) no one believes. Why else would they favor tax cuts for the rich?

One criticism I do agree with is that this post is stupid.  All my posts on politics are stupid.  Indeed all articles on politics not written by Scott Alexander are stupid. Talking about politics immediately lowers your IQ by 25 points.  That’s why Tyler rarely writes on politics, he’s too smart to write stupid things.

And yes, the previous paragraph is also stupid, sort of.

Fed meeting today.  Daniel Reeves sent me the following movie posters:

Screen Shot 2015-10-28 at 10.56.15 AMScreen Shot 2015-10-28 at 10.55.58 AM



49 Responses to “When do the Dems believe in trickle-down?”

  1. Gravatar of foosion foosion
    28. October 2015 at 07:33

    >>”trickle-down economics”, which is the idea that sound economic policies will also benefit people at the bottom.>>

    It’s the idea that moving more resources to the best off will benefit people at the bottom, whether or not moving those resources is sound economic policy.

    >> there is far more support for the Ex-Im Bank (an almost perfect example of crony capitalism) among Dems than among the GOP>>

    There’s a whole lot of support for the Ex-Im Bank among the GOP.

    >>big business owns a portion of the GOP, not for ideological reasons.>>

    That may well be the reason for GOP support, but supporting things due to corruption is hardly a mark of honor. The GOP is well practiced in saying one thing and doing another. That’s not unique to them, but illustrates that ideology is often used to mask intentions. They get votes with expressions of ideology, then serve their masters even if doing so contradicts that ideology

  2. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. October 2015 at 08:04

    Here’s an example of how cutting employers’ disincentives to employ, worked out to the benefit of North Carolinans;


    In 2013, North Carolina’s unemployment insurance (UI) program was in terrible shape. Like most states, North Carolina borrowed funds from the federal government to cover increased unemployment benefits during the great recession. The Tar Heel State owed Washington $2.75 billion. As a result, the state’s employers were being hit with stiff federal UI tax hikes.

    …. I bet you haven’t heard a word about another tax cut that has already saved North Carolina’s economy roughly half a billion dollars, and will cut taxes by an estimated $700 million per year during the next four years.

    These sizeable savings can be traced back to North Carolina’s early repayment of the UI funds borrowed from the federal government.

    Reforms to the state’s unemployment benefits in 2013 included bringing maximum amount and duration of benefits in line with those of neighboring states. These moves also triggered the cutoff of long-term federal UI benefits being moved up by six months.

    Those changes brought savings that enabled the state to pay off the feds by May of this year. Without the changes, North Carolina would not have paid off the debt until 2020.

    Predictably, however, the reaction from the media and talking heads was fierce and uniformly negative. For instance, the New York Times’ Paul Krugman declared the reforms to be part of a “war on the unemployed.”

    Supporters, on the other hand, pointed out that reducing the UI benefits would alter the incentives facing the unemployed, tipping the scales on the margins in favor of returning to work versus staying on the unemployment rolls and waiting for more ideal job opportunities that may never materialize.

  3. Gravatar of entirelyuseless entirelyuseless
    28. October 2015 at 08:06

    If economics is hard to understand, it just might be that pretty much everything is hard to understand. So maybe you should look into that theory that the GOP is the stupid party in every other area.

  4. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. October 2015 at 08:07

    ‘There’s a whole lot of support for the Ex-Im Bank among the GOP.’

    Perhaps, but there were no bigger sponsors of it than Senators Warren Magnuson and Henry Jackson. Both Dems from Washington state. The EIB financed Boeing’s airplane sales overseas for decades.

    And there are no bigger supporters of EIB today than Patty Murray and Maria Cantwell.

  5. Gravatar of TravisV TravisV
    28. October 2015 at 09:03

    Prof. Sumner,

    Good post. It’s worth noting, however, that some lefties are better than others. For example, I think Noah Smith and Yglesias don’t advocate policies that violate micro/Econ 101 very often. Agreed? To me, those two are the best of the best on the left side of the political spectrum (along with David Glasner, maybe).

    Even Krugman is better than most lefties (Stiglitz, for example).

  6. Gravatar of TravisV TravisV
    28. October 2015 at 09:08

    Noah Smith wrote a great alternative perspective on this topic, and included a lot of links:


    Also, in March this year, I loved Prof. Sumner’s take on the huge change in the way Krugman thinks:


    P.S.: Pundits respond to incentives. Today, Krugman has a strong incentive to cater to his lefty audience compared to his days at Slate. And I think the tone of Yglesias’s writing has moved way left since he’s moved from Slate to Vox.com.

  7. Gravatar of mjc mjc
    28. October 2015 at 10:08

    Your definition of “trickle down” is off-base, and I’m sure you know it is, because it’s the straw man that your conceit is built from. Foosion’s definition is more accurate, historically, and actually. TravisV is correct, that pundits respond to incentives, and your trickle down definition allows you to make an argument that comports with your patrons’ views, but is totally laughable as a real argument. Sad. Do you really want to be taken seriously? Not with drivel such as this, I think.

  8. Gravatar of Jerry Brown Jerry Brown
    28. October 2015 at 10:15

    At first I was upset by this post, but after rereading several times, I have to say it is a fair criticism of me at least. I put more trust in those concrete steps than invisible hands most of the time. As far as lacking imagination, well I would put it as lacking trust in others imaginations, but that’s just what any lefty would say.

    So as far as your hypothesis “When it comes to microeconomics, the Dems are the ‘stupid party’. When it comes to monetary policy, and just about all non-economic areas of public policy, the GOP is the ‘stupid party'”, I can agree with the second part and give grudging partial acceptance to the first part.

    Btw, would it be wrong to quote you on the second part without including the first part? 🙂

    p.s. great posters- when do they hit the theaters?

  9. Gravatar of NOPASf NOPASf
    28. October 2015 at 10:29

    Those posters are hilarious! How about Dr. No Interest Hike? The Man with the NGDP Futures Market? The World is Not Enough Aggregate Demand?

    Ok I’m sure some other folks can do better than me.

  10. Gravatar of TravisV TravisV
    28. October 2015 at 10:31

    “Fed: We’re gonna wait and see.”


    What??? There Is No Wait And See!!

  11. Gravatar of baconbacon baconbacon
    28. October 2015 at 10:59


    If expected ngdp decreases then that is tightening, if it increases that is loosening.

    I can’t wait to find out.

  12. Gravatar of TravisV TravisV
    28. October 2015 at 11:58


    I confess, I’m questioning the Efficient Market Hypothesis more and more.

    Today, after the Fed news, the fall in stock prices seemed rational. However, the S&P 500 is now up 1%+, which seems totally irrational.

    Conversely, after the weak jobs report on October 2nd, the instant fall in stock prices seemed irrational but the subsequent increase in stock prices seemed rational.

    If we had a huge NGDP futures market, would that be a reliable indicator? Maybe not…..

  13. Gravatar of Dan W. Dan W.
    28. October 2015 at 12:06

    “Markets can remain irrational longer than you and I can remain solvent.” – J.M.Keynes

  14. Gravatar of Floccina Floccina
    28. October 2015 at 12:34

    I conclude that the Dems actually do favor trickle-down economics, when they understand it, they simply don’t have the imagination required to see the vast array of areas where deregulation, privatization, and tax reform would help the average guy. They can’t envision anything beyond concrete steps.

    True. Much of what the average voter believes is very counter productive and so both parties often scam the voters, rationalizing that it is for their own good.
    I was talking to a guy about 60 years old recently and he had no idea that his employer was contributing to his SS. I think if you asked a Democratic politician he would say that that is good because it keeps support for SS higher in 2 clever ways. If he thought matching FICA was costing him he would be unhappy how much he is paying into SS and if he thought that matching FICA was costing his employer he would fight cuts less because now he says I paid for my SS. And so Democratic politicians are consciously scamming their supporters.

  15. Gravatar of bill bill
    28. October 2015 at 12:37

    Which poster has the correct view? The faces are mirror opposites.

  16. Gravatar of Floccina Floccina
    28. October 2015 at 12:52

    entirelyuseless makes a great point.

  17. Gravatar of Jason Smith Jason Smith
    28. October 2015 at 13:22

    I am finding it hard to reconcile a market that aggregates information and produces counterintuitive results. I can see a counterintuitive solution to an allocation problem, or an intuitive solution to an information problem, but not a counterintuitive solution to an information problem …


  18. Gravatar of ssumner ssumner
    28. October 2015 at 13:26

    Everyone, I tried to respond to most of the comments in an update. One factual issue some are confused about—the Ex-Im bank has much more support among the Dems than the GOP.

    Mjc, You said:

    “allows you to make an argument that comports with your patrons’ views”

    That’s really silly. You don’t know anything about “my patrons” views.

    Jerry, Please feel free to quote me as you wish, I’m just thrilled that a commenter took the time to read the post closely, and not jump to conclusions.

  19. Gravatar of Michael Byrnes Michael Byrnes
    28. October 2015 at 14:50

    Scott Sumner wrote:

    “Jerry, Please feel free to quote me as you wish, I’m just thrilled that a commenter took the time to read the post closely, and not jump to conclusions.”

    And not just any commenter, but the governor of your future home state. 🙂

  20. Gravatar of ssumner ssumner
    28. October 2015 at 14:55

    Michael, Even better! (I was thinking of responding to him “Guv’ner”)

  21. Gravatar of Sam Sam
    28. October 2015 at 15:40

    Scott, since I know you read the comments but I suspect you missed my Tweet, I’ll go off-topic here to reiterate my complaint that your new book is not available in a Kindle edition. Is there any chance of fixing that?

  22. Gravatar of Jerry Brown Jerry Brown
    28. October 2015 at 16:35

    Scott and Michael, “Governor” was what people called me in high school about 35 years ago. Amazing he’s governor again so many years later. I’m not that Jerry Brown, but its not a bad nickname.

  23. Gravatar of Major.Freedom Major.Freedom
    28. October 2015 at 17:02

    ” We know that economics is really, really counterintuitive. ”

    Speak for yourself. Maybe in Sumner political strategizing, counterintuitive beliefs abound.

    But actual economics, the only economics: praxeology, which is not a feeble attempt to find economic laws in history but a very straightforward method of deductive logic akin to mathematics and formal logic, economics is perhaps the most intuitive social science there can be.

    Any monkey can collect data, run regressions, and declare some bogus theory true. Nothing original that is good has come out of positivist economics, including one of its many offshoot, the very anti-market, oxymoronic “market monetarism.”

  24. Gravatar of benjamin cole benjamin cole
    28. October 2015 at 17:19

    True. But just once I would like to see the GOP rhapsodize about cutting marginal income tax rates—on those rates at the bottom. While leaving the top rate unchanged. Never happens. Not one time.

  25. Gravatar of ssumner ssumner
    28. October 2015 at 17:20

    Sam, You are right that I don’t follow tweets. I am told there will be a Kindle, perhaps in December. I don’t know exactly when.

    I don’t think this is a Kindle type book, but what do I know, I almost never use Kindle.

  26. Gravatar of ssumner ssumner
    28. October 2015 at 17:22

    Jerry, Too bad, I hoped I could start calling you Moonbeam.

    Ben, They certainly favor cutting “implicit” MTRs for those at the bottom.

  27. Gravatar of Ray Lopez Ray Lopez
    28. October 2015 at 17:24

    Uh, I hate to burst your bubble people, but in WordPress you can enter any name. It’s unlikely Gov. Brown is actually commenting using his real name as such stuff gets quoted by the press. Why would Brown give “grudging partial acceptance” to the theory that the Dems are ignorant of microeconomics? In fact, it’s traditionally said the other way around: Democrats are ignorant of sound macroeconomics, but are excellent microeconomics managers, since they know how to make government actually work on a day to day basis.

    Bonus trivia: I saw Brown jogging with his Hispanic girlfriend once. He and Sumner like Latin women.

  28. Gravatar of Ronaldo Reagan Ronaldo Reagan
    28. October 2015 at 17:25

    I’m Ronald Reagan and I approve Ray’s message.

  29. Gravatar of Jerry Brown Jerry Brown
    28. October 2015 at 19:28

    Thanks for clearing that up Ray.

  30. Gravatar of Tom Brown Tom Brown
    28. October 2015 at 20:13

    Scott, what do you think of Kasich’s plea for GOP voters to wake up now and get real. That it’s time to set aside the insane fantasy world that the front-runners are indulging them with?

    I’ll bet they punish him for it. Lol

  31. Gravatar of Tom Brown Tom Brown
    28. October 2015 at 21:52

    What do you think of Ted Cruz’s idea during the debate that inflation is out of control (hamburger up 40%!!)… and we need to stop the Fed from continuing to “juice the economy” (for the greedy 1% to benefit from!) and go back to the gold standard to make things right?

  32. Gravatar of Michael Byrnes Michael Byrnes
    29. October 2015 at 03:09

    Tim Duy says a December rate hike is still very much on the table:


    Does the recent fiscal expansion raise the odds of a December hike to any significant degree? Do you expect a hike in Dec?

  33. Gravatar of Major.Freedom Major.Freedom
    29. October 2015 at 03:37

    Does Daniel Reeves know that interest rates are not a credible indicator of monetary policy? Haha

  34. Gravatar of Todd Ramsey Todd Ramsey
    29. October 2015 at 04:44

    I think the apparent lack of microeconomic understanding by Democrats/modern-day liberals is because they don’t seem to believe in incentive effects; hence proposals for higher tax rates, minimum wage laws, more regulation, etc.

  35. Gravatar of Benjamin Cole Benjamin Cole
    29. October 2015 at 05:00

    Scott; I think you are confusing enlightened right-wing intellectuals with the GOP.

    Sure, there may be AEI scholars talking about cutting tax rates on the middle-class, and who understand effective MTRs and losing benefits etc.

    But are there GOP Senators behind closed doors on the Senate Finance Committee cutting taxes on the middle-class while leaving upper-class tax rates unchanged? Who? When?

    Does the GOP ever mention onerous FICA taxes? Hoo-haw.

    And yes the Dems are Dopes!

  36. Gravatar of collin collin
    29. October 2015 at 05:35

    Of course, sometimes Democrats believe in trickle down economics and you could argue Clinton’s second term was the economically conservative Presidential term in the Post-War period. (Of course if you were President in 1998, you didn’t need to do much.)

    I would say the Democrats still follow the old Huey Long “Every Man Is King” idea (Take out the sexism of the age) that almost all citizens can succeed in our society. If we to solve people not earning enough, then minimum wage would help. If you want working people to have good family life, then more family leave time etc. So they do fail a lot of microeconomics but the hope of society great good. (And in 2015 with 5.1% most of the moves are unnecessary.)

    Anyway, without Biden, HRC is going to bury Bernie Sanders who might squeeze a victory in New Hampshire and maybe Iowa. (Bernie really has to campaign to win minority voters.)

  37. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. October 2015 at 06:12

    My inner Holden Caulfield cringed last night when Ted Cruz declared that interest rates are the price of money. So, I needed relief, and found it here;


    I’m not exactly sure how it happened, but there seems to be widespread acceptance of this idea (that the Federal Reserve can simply make interest rates whatever they want them to be).

    Over the last year or so, Fed-watching journalists have routinely asked questions such as “When will the Fed raise interest rates?” And there’s no shortage of opinions on whether “the Fed should raise interest rates now.”

    But the Fed really doesn’t have that kind of control over interest rates. It can’t simply make interest rates whatever it wants them to be.

    The Fed certainly has limited influence over short-term interest rates, but to say it has some kind of ironclad control over rates is surely incorrect.

    There’s a whole spectrum of interest rates, even in the short-term market, and the Fed has the most influence over the one that it targets: the federal funds rate.

    Notably, even the Fed doesn’t claim it sets the federal funds rate. The Fed does exactly what it tells us: It sets a target range for the federal funds rate.

    The federal funds rate represents the price banks charge each other to lend their reserves, and banks are free to negotiate their own terms in this market. This market is where the Fed regularly buys and sells Treasury securities to conduct what’s known as open-market operations.

    It conducts these operations to push the federal funds rate toward its target, but there’s usually some deviation between the Fed’s target and the actual rate.

  38. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. October 2015 at 06:27

    Here’s a good example of the kind of ‘trickle down’ politicians believe in;


    For 326 Puget Sound area workers, the journey toward one of the most generously paid union jobs in the country begins soon.

    Those workers were the winners in a lottery that attracted more than 15,000 entrants hoping to eventually secure jobs as Tacoma Longshore Union members. Those jobs, according to the Pacific Maritime Association, last year paid an average of $156,000 a year for full-time workers. The PMA represents shipping lines, stevedore companies and marine terminal operators who hire members of the International Longshore and Warehouse Union on the West Coast.

    The lottery, whose results were announced Oct. 12, was the first opportunity for potential Tacoma waterfront workers to gain access to longshore jobs since 2013.

  39. Gravatar of Floccina Floccina
    29. October 2015 at 06:30

    Could the welfare and warfare state exist at the current level if the voters understood tax incidence and how much they are paying and something about the level of efficiency of welfare and the military. I think not.

  40. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. October 2015 at 08:01

    My new hero;


    The biggest whopper concerns the Glass-Steagall Act, the 1933 law that separated commercial and investment banking. Supposedly, this Act made the banking system safe for nearly a century, and then its repeal blew the industry up.

    Both parts of this narrative are dead wrong.

    For starters, the mingling of investment and commercial banking did not cause the Great Depression or any other type of financial crisis.


    As for the 2008 crisis,the notion that the 1999 repeal of Glass-Steagall caused the meltdown is also dead wrong.

    To begin, the often-cited 1999 Gramm-Leach-Bliley Act (GLBA) didn’t actually repeal Glass-Steagall, it merely amended some of the restrictions.

    This distinction is critical, because it means that U.S. law – both before and after the GLBA – forbids insured depository institutions, commonly known as banks, from underwriting or dealing in securities.

    It also means that U.S. law prohibits securities dealers from taking demand deposits and making loans.

    What GLBA actually did was remove the Glass-Steagall restrictions on affiliates. That is, post-GLBA, banks can be affiliated with securities dealers. But they’re still separate.

    For instance, a bank holding company is allowed to control both a bank and a securities dealer.

    But these two entities – banks and securities dealers – remain legally walled off from each other. The holding company cannot use the deposits at its bank to fund its securities dealer.

  41. Gravatar of Brian Donohue Brian Donohue
    29. October 2015 at 08:06

    Is the connection between QE and 12 million new private-sector jobs in the past five years in the face of ‘fiscal consolidation’ not concrete enough?

  42. Gravatar of ssumner ssumner
    29. October 2015 at 09:47

    Tom, Don’t forget that talking about politics takes 25 points off your IQ. You don’t want to overdo it.

    But yes, both Democrat and GOP voters should face up to reality, as should we all.

    Michael, It makes it slightly more likely, I don’t know how likely. I do predict that rates 3 years from now will be lower than the Fed expects.

    Todd, That’s part of it.

    Ben, No, I assure you that I’d never confuse those two groups.

    Patrick, Thanks. Just to be clear, let’s suppose a bank holding company owns a commercial bank and an investment bank. Suppose the investment bank is reckless, and goes under. Suppose the bank holding company also fails, as a result. Does this have no effect on the commercial bank?

  43. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    29. October 2015 at 10:25

    The holding company cannot mix the two types of banks. I.e., the balance sheets have to remain separate. A commercial bank can’t hold as an asset, an interest in an investment bank.

    Under your scenario of the holding company failing, that wouldn’t affect the commercial bank. It would continue on its merry way, and, presumably, some other holding company would pick it up in bankruptcy proceedings.

  44. Gravatar of ssumner ssumner
    29. October 2015 at 16:35

    Thanks Patrick, that clarifies things for me.

  45. Gravatar of Jared Jared
    30. October 2015 at 10:54


    But isn’t it likely that a failing holding company could strip the capital base from its affiliated commercial bank, or encourage the bank to make riskier loans and investments, in order to save itself, thus, taking down the commercial bank along with the holding company?

  46. Gravatar of Benny Lava Benny Lava
    31. October 2015 at 08:30

    Both parties love and hate Fannie and Freddie equally. Everyone knows they played a role in the banking meltdown because they were bailed out. So they are politically toxic. But most voters don’t realize that getting rid of them would mean the end of the good old 30 year fixed mortgage. And that is something even dimwitted congressmen know. So neither party can do anything with or about them. But middle class voters need them and don’t even know it (and these days the FHA as well,sadly).

    But yes the Democrats are micro stupid and Republicans macro stupid, generally speaking.

  47. Gravatar of Scott Sumner Scott Sumner
    31. October 2015 at 10:55

    Benny, Most of the estimates I’ve seen are that ending the GSEs would raise mortgage rates by about 0.25%.

  48. Gravatar of Benny Lava Benny Lava
    2. November 2015 at 06:45

    Considering that the 30 year fixed 20% downpayment (plain vanilla) mortgage was invented by the FHA, I would think that the author of the money illusion would realize the importance of this. No GSE means banks stop underwriting the plain vanilla and lending requirements start going back to what they were like previously: short term floating rate high collateral loans. 15 year 40% down ARMs. What do you think the American public will say to that?

  49. Gravatar of ssumner ssumner
    3. November 2015 at 12:48

    Benny, The “author of the money illusion” is not an expert on banking, and that’s why he cites expert estimates that the GSEs had only a small impact on rates. Can you tell me the specific mistakes made by those expert studies, or have you not read them?

    BTW, I’m no fan of the GSEs, so if you are correct it makes me even more determined to drive a stake though them. The government should not be distorting credit markets.

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