Coming Up to Speed

If you’re interested in coming up to speed on a topic that’s likely to be the subject of considerable discussion in the United States in coming years, you might want to take a look at this article at FiveThirtyEight on the universal basic income:

From Switzerland to the Netherlands to Kenya to Silicon Valley, a mixture of insecurity and curiosity are driving interest in basic income, but its dominant ideology — and appeal — is utopian. The core existential struggle lurking in the debates over basic income centers on what meaning work holds in our lives. Straub, the Swiss referendum organizer, remembers his great-grandfather working 10 hours per day, six days per week. That kind of toil is no longer necessary, nor desirable. The dream of a world where we produce more than we need has come true.

Back when he was gathering signatures in 2012, he would joke about the supposedly impending Mayan apocalypse as a way to engage listeners on the core questions of basic income, questions he thinks still resonate: “Well, if the world really was going to end, how would you live this year? Why don’t you live your life like that?

“The market economy is great, but we want to substitute it with another system — take it to the next level,” he said. The big picture is about changing how we live. “This is a paradigm shift, and we want a referendum on that paradigm shift.”

Fifty years ago conservatives in the U. S. supported a universal basic income (their ideas survive in the Earned Income Tax Credit). Milton Friedman proposed a negative income tax.

From a practical standpoint in the United States any universal basic income is a non-starter unless we close our borders. You can have a UBI, equality, or open borders but you can’t have all three.

I may talk about other aspects of what’s being called “pre-distribution” in future posts.

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There Goes the Narrative

From Greg Hinz at Crain’s Chicago Business:

A new report (scroll down to read) I’ve obtained exclusively from the Illinois Partners for Human Services says agencies serving the disabled, elderly, poor and others collectively are responsible for $3.1 billion a year in direct spending and $1.4 billion in secondary spending. They employ 3.5 percent of the state’s workforce, roughly 169,000 people; and generate $597 million annually in state and local taxes.

Not to mention the value of the services to their recipients.

What’s really fascinating, though, is that such spending, proportionally, tends to be concentrated not so much in Chicago and nearby suburbs, but in rural Downstate areas.

For instance, the report says the Cook County has 262 poor persons and 160 disabled persons for every agency serving their needs. But that ratio is two to three times higher in areas such as Hancock County along the Mississippi River, Pike County west of Springfield and Massac County at the southern tip of the state.

Human service workers make up 2.9 percent of the workforce in Cook County but 4.3 percent in Gallatin County, 5.3 percent in Hardin County, 3.9 percent in Johnson County and 4.8 percent in Lawrence County, for instance.

A lot of Illinoisans believe that the state’s finances are being stressed to send money to greedy and corrupt Chicago. The truth is almost exactly the opposite.

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About Those Polls

Let’s assume, as seems likely, that Hillary Clinton and Donald Trump are the Democratic and Republican presidential candidates, respectively. What should we think about the polls that are coming out?

My opinion is not much. We need to keep several things in mind. First, it’s a long time until the election. Nearly six months. That’s an eternity in political time. Even in an ordinary quadrennial election year, the polls are practically meaningless this far ahead as are the results of the primaries as predictors for the outcome in the general election.

Second, it’s not an ordinary quadrennial election year. Have we ever had two candidates with such high name recognition and such low approval ratings? IMO those who point to a handful of points difference between the candidates are whistling in the dark. I don’t think anybody really has any idea what the heck is going to happen.

Third, we don’t elect presidents at large. We elect them state by state. In order to win in November Hillary Clinton must either hold all of the states carried by Barack Obama in 2012 or lose some of those states while picking up others. In order to win in November Donald Trump must peel off some of the states carried by Barack Obama in 2012. Rather than looking at national polls, consider those for states that are likely targets for that kind of turnaround.

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What Additive Manufacturing Will Change

Of the several disruptive technologies that have emerged over the last few years or are just starting to emerge, additive manufacturing may have the potential to be the most disruptive. “Additive manufacturing” refers to manufacturing by “printing” things in thin layers. Here’s an example from India:

t is hard to imagine, with its iconography of billowing smoke and raging furnaces, that a factory would ever be called “brilliant” or “flexible.” But, global behemoth General Electric wants to change the way you think about those far away, smoke-belching buildings and introduce you to a new era—maybe even a revolution—in manufacturing.

In 2015, GE unveiled its first ever US $200 million “Multi-Modal” facility in Chakan, located in the Indian state of Maharashtra, which it thinks will be the agent of this change. It was inaugurated by Narendra Modi, the Indian Prime Minister who is confronted by the huge challenge of delivering jobs to hundreds of millions of youth who lack measurable skills. The factory won’t be solving that gargantuan problem since it staffs a mere 1,500 technicians and engineers, but it’s not meant to, at least not in a direct way. Instead, the factory promises to create an enormous, positive ripple effect both inside and outside India that will impact employment and supply chains, as well as promote radical new designs and industrial innovation like never before.

The factory in Chakan reveals the plan at work. Steam turbines compete for space with water treatment units and jet engine parts in neat rows on a spotless, ultra-modern factory floor.

“The idea is to service a multitude of businesses—from oil and gas, to aviation, transportation, and distributed power—all under the same roof,” said GE’s Amit Kumar, who oversees the Multi-Modal facility.

This could be transformational for GE for several reasons. For starters, the company will save an enormous amount of money—up to ten times as much, say company officials—by not having to construct dedicated factories servicing each business line. Since technicians will be churning out an array of diverse products for different businesses, they will quickly acquire skills across industries and operations, enhancing the value of the jobs and their individual skill sets.

There’s one other pivotal contribution from this Multi-Modal facility—economies of scale. Kumar said that GE contracts a large number of small suppliers who will struggle to meet the demands of such a large factory. Instead, the factory itself will assist in meeting burgeoning demand for certain products until local suppliers scale up their operations over time.

There’s lots of good news here, not the least being that we’re less vulnerable to such technologies. The countries that are much more vulnerable include China and Vietnam. What’s cheaper than a labor cost of $4 an hour per worker? How about zero?

Note, too, what Indian pursuit of additive manufacturing tells us about the country’s plans for the future. Could it be that India plans to skip the “dark, Satanic Mills” phase of its economic development entirely?

But the disruption doesn’t stop with reducing the number of workers needed or the skills that those workers will need. The very way in which things are designed may change:

The undisputed poster child of its efforts in this department is the fuel nozzle.

The fuel nozzle may not have an impressive sounding name, but it plays a critical role in the inferno of an aircraft’s engine in which it nestles while spraying jet fuel into it. So, it goes without saying that the nozzle has to be durable under both high pressure and intense heat (around 3,000 Fahrenheit).

“Before GE targeted it for a reconfiguration, the nozzle was made up of 20 disparate parts procured from independent suppliers that were then painstakingly brazed and welded together. 3D printing completely transformed that process,” said Greg Morris, GE Aviation’s general manager for additive technologies.

[…]

The end result is an engineering marvel, one monolithic piece that has replicated the complex interior passageways and chambers of the old nozzle down to every twist and turn thanks to the miracle of direct metal laser melting where fine alloy powder is sprayed onto a platform in a printer and then heated by a laser, and repeated 3,000 times until the part is formed. What makes the new nozzle so special isn’t just that it has converted a many-steps engineering and manufacturing process into just one. It is also a miracle of material science since it happens to be both 25% lighter in weight, as well as a staggering five times more durable than its older sibling, all of which translates to a savings of around US $3 million per aircraft, per year for any airline flying a plane equipped with GE’s next generation LEAP engine, developed by CFM International, a joint venture between GE and France’s Snecma (Safran).

Not only is that a great increase in strength, it’s a tremendous difference in the amount of material used in the process. Yesterday’s mechanical and production engineers couldn’t even imagine this style of design.

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What Actually Happened in the 1990s

I’m glad that in his most recent New York Times column Paul Krugman is good enough to acknowledge that Bill Clinton’s policies had practically nothing to do with the boom of the 1990s:

But why was the Clinton economy so good? It wasn’t because Mr. Clinton had a magic touch, although he did do a good job of responding to crises. Mostly, he had the good luck to hold office when good things were happening for reasons unrelated to politics.

Specifically, the 1990s were the decade in which American business finally figured out what to do with computers — the decade in which offices became networked, in which retailers like Wal-Mart learned to use information technology to manage inventories and coordinate with suppliers. This led to a surge in productivity, which had grown only sluggishly for the previous two decades.

Dr. Krugman really could use a research assistant. By the end of the 1980s (not 1990s) most businesses of any significant size already had installed local area networks and just-in-time was the norm both in manufacturing and retail.

What really happened in the 1990s was that after well over a decade of substantial capital investment in technology, the investment was beginning to pay off and much of the pay-off was a consequence of the opening up of the Internet to commercial use, something that began in the mid 1980s and reached its fruition around 1995. Dr. Krugman nearly acknowledges that:

The technology takeoff also helped fuel a surge in business investment, which in turn produced job creation at a pace that, by the late 1990s, brought America truly full employment. And full employment was the force behind the rising wages of the 1990s.

Business investment actually saw a bump in the 1980s. By the end of the 1980s that had decreased and in the 1990s it really took off again. Note that Bill Clinton didn’t take office until 1993; by that time the increase in BI to which Dr. Krugman points us was well under way.

He nods approvingly to President Clinton’s tax increases:

And it’s worth remembering that in 1993, when Mr. Clinton raised taxes on the wealthy, Republicans uniformly predicted disaster. It will “kill the recovery and put us back in a recession,” predicted Newt Gingrich. It will put the economy “in the gutter,” declared John Kasich. None of that happened, which didn’t stop the same people from making the same predictions when President Obama raised taxes in 2013 – a move followed by the best job growth since the 1990s.

The difference, of course, is that during the Clinton Administration the economy was growing faster than the tax increases. That’s something I’ve pointed out repeatedly: as long as aggregate product is proceeding more rapidly than the increase in taxes, you can increase taxes without much adverse effect. That is not the case today.

It’s an amazingly weak argument and IMO illustrates Dr. Krugman’s desperation to give Bill Clinton credit for the boom of the 1990s. He follows up by putting in his oar for more federal spending:

And in any case, not all productive investment is private. We desperately need to repair and upgrade our infrastructure; meanwhile, the federal government can borrow money incredibly cheaply. So there’s an overwhelming case for a surge in public investment – and one side benefit of such a surge would be full employment, which would help produce another era of rising wages.

As Dr. Krugman undoubtedly knows not all consumption is investment. We’ve already picked the low-hanging fruit on infrastructure spending as investment. There are already 152 bridges across the Mississippi and there’s an interstate highway within a short distance of every city of 50,000 or more people. I’m skeptical that we’ll get much benefit from building the 153rd bridge across the Mississippi or connecting every city of 25,000 people to the interstate highway system.

What are really needed are infrastructure maintenance and decommissioning of unused infrastructure. Sadly, relatively little federal infrastructure money is used for either purpose—much more goes to new construction which, as I’ve noted, is not really needed.

We could use investment in energy, telecommunications, and sewer systems which, unfortunately, just isn’t very glamorous. I don’t think we’re going to see the Harry Reid Memorial Sewage Treatment Plant any time soon.

I do have one question that I wish Dr. Krugman would answer. Assume no multiplier. So much of what we consume is made somewhere else that’s a reasonable assumption. How much more federal spending would be necessary to achieve full employment?

I wish he’d have mentioned the other Clinton Administration policies and reforms: tax changes that lead to the enormous growth in CEO salaries that people complain about under the heading “income inequality”, permanent most favored nation trading status for China which economists are increasingly acknowledging was a mistake, and the repeal of Glass-Steagall. It’s going to be entertaining watching Dr. Krugman tap dance in his support of both Bill Clinton’s policies and Hillary Clinton’s policies, between which there is likely to be almost no relation.

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The Council Has Spoken!

The Watcher’s Council has announced its winners for last week.

Council Winners

Non-Council Winners

The announcement post at the Watcher’s site is here.

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How Long Will Illinois Be Able to Pay?


I’m always drawn to stories that explore Illinois’s lousy fiscal situation, so I found this piece at Forbes very interesting indeed. See here for an interactive map illustrating the highest-paid public employees in the state. The top payouts are illustrated in the graphic at the top of this post.

From the article:

Here are a few examples of what you’ll uncover by zip code:

  • 18,900 teachers and school administrators – including $503,200 for Mohsin Dada, an administrator at North Shore School District 112 who earned $248,510 salary, plus a teacher’s retirement pension of $254,700 (ZIP – 60035).
  • 9,000 college and university employees – including Dr. Fady Toufic Charbel at the University of Illinois at Chicago who earned $1.38 million (ZIP – 60601).
  • 8,838 State of Illinois employees – including Steven Valasek, a $218,519 ‘contractual worker’ employed by Illinois Comptroller Leslie Munger (R) (ZIP – 62704).
  • 5,122 small-town city and village employees – including 72 municipal managers who out-earn every governor of the 50 states at $180,000 per year.
  • 5,007 City of Chicago rank-and-file managers and workers – including $216,000 for embattled Chicago Mayor Rahm Emanuel (D).

In total, there’s roughly $9.3 billion in total compensation flowing to highly-compensated government workers when counting 7,637 federal employees based in Illinois with six-figure salaries.

Actually, that’s just the tip of the iceberg. Cost of living increases built into Dr. Charbel’s pension mean that it will increase by more than 3% per year, i.e. about $40,000 more next year, about $45,000 the next year, and onwards, compounding every year until Dr. Charbel dies.

I’m sure that someone will retort that’s what you need to pay to hire and retain quality public employees. Leaving alone the question of whether there is in fact a market in public employees, the problems facing Illinois are that businesses and people are leaving Illinois (which means that the pie is smaller and growing more slowly than it would otherwise) and Illinois GDP isn’t growing as fast as public employee compensation is (which means that public employees are claiming a bigger slice of the pie every year). How long can Illinois go on like this?

There are some obvious reforms that are necessary. Double-dipping should be prohibited. The maximum pension paid by the state should be capped. Public employees should pay more for their own pensions and healthcare (in some districts teachers neither pay Social Security nor contribute to their own pensions). Cost of living adjustments should be closer to the actual increases in the cost of living. Just for reference median household income in Illinois is around $57,000 per year and increasing at the rate of .5% per year.

Just about any reform will require an amendment to the state constitution.

Update

I have been informed that Dr. Charbel’s annual increment may be either a cost of living adjustment or a contractual annual pension increment. Without knowing the details of what contract he’s working under, it’s really not possible to tell. The point remains that there will be an annual increment.

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How Do Countries Become Rich?

Although I found econ prof Deirdre N. McCloskey’s Wall Street Journal article about the sources of American, British, etc. wealth thought-provoking and a good point of departure for reflecting not only on what was done in the past but what we might want to be doing in the future:

Nothing like the Great Enrichment of the past two centuries had ever happened before. Doublings of income—mere 100% betterments in the human condition—had happened often, during the glory of Greece and the grandeur of Rome, in Song China and Mughal India. But people soon fell back to the miserable routine of Afghanistan’s income nowadays, $3 or worse. A revolutionary betterment of 10,000%, taking into account everything from canned goods to antidepressants, was out of the question. Until it happened.

What caused it? The usual explanations follow ideology. On the left, from Marx onward, the key is said to be exploitation. Capitalists after 1800 seized surplus value from their workers and invested it in dark, satanic mills. On the right, from the blessed Adam Smith onward, the trick was thought to be savings. The wild Highlanders could become as rich as the Dutch—“the highest degree of opulence,” as Smith put it in 1776—if they would merely save enough to accumulate capital (and stop stealing cattle from one another).

Although I think there’s an element of truth in her preferred explanation, personal freedom:

If capital accumulation or the rule of law had been sufficient, the Great Enrichment would have happened in Mesopotamia in 2000 B.C., or Rome in A.D. 100 or Baghdad in 800. Until 1500, and in many ways until 1700, China was the most technologically advanced country. Hundreds of years before the West, the Chinese invented locks on canals to float up and down hills, and the canals themselves were much longer than any in Europe. China’s free-trade area and its rule of law were vastly more extensive than in Europe’s quarrelsome fragments, divided by tariffs and tyrannies. Yet it was not in China but in northwestern Europe that the Industrial Revolution and then the more consequential Great Enrichment first happened.

Why did ideas so suddenly start having sex, there and then? Why did it all start at first in Holland about 1600 and then England about 1700 and then the North American colonies and England’s impoverished neighbor, Scotland, and then Belgium and northern France and the Rhineland?

The answer, in a word, is “liberty.” Liberated people, it turns out, are ingenious. Slaves, serfs, subordinated women, people frozen in a hierarchy of lords or bureaucrats are not. By certain accidents of European politics, having nothing to do with deep European virtue, more and more Europeans were liberated.

I don’t think she’s got it quite right. Why did the United States and the countries of Western Europe become rich while China, India, etc. did not?

Let me begin my interpretation of events by explaining what borrowing and investment are. Borrowing is shifting future consumption into the present. Investment is postponing present consumption until some time in the future.

Armed with that let’s start listing the critical success factors for a country’s becoming rich. First, you need to be able to produce a surplus. That’s something that nomads, bands of hunter-gatherers, and subsistence farmers can’t do.

Second, you must be able to invest—to defer consumption. If your surplus is taxed away or if you consume everything you produce (or consume more than you produce by borrowing), you won’t become rich. Once modernization allowed the Japanese to grow beyond subsistence farming, Japan became rich in part because of distinctively Japanese cultural traits which encouraged Japanese people to invest rather than consuming what they produced.

Third, you must have not just one or two but a whole complex of institutions that support the accumulation of national wealth. Those include the rule of law, a sound currency, a government that maintains a fairly stable set of rules, and a general agreement that you should play by the rules.

I’m skeptical of Dr. McCloskey’s favored explanation for a number of reasons, the most important being that “liberty” is pretty hard to define and few countries including England have the absolutist sort of notions of freedom that have prevailed in the United States and to some extent still do. Germany is a rich country, too, and Anglo-American notions of liberty have never prevailed there.

And, most importantly, you do not have to resort to liberty as an explanation. Compound interest will do.

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It’s Not Anger—It’s Frustration

The key point of Amy Walter’s recent piece at The Cook Political Report is quotidian enough. Americans are less angry than they are frustrated:

Americans are angry, say the cable TV pundits and armchair political observers. They are angry at a dysfunctional Washington, D.C. Angry at the out-of-touch political class. Angry at an out-of-control bureaucracy. The only problem with this argument is that, well, Americans aren’t actually any angrier at government today than they were a year ago, or even four years ago. In fact, according to data from the Pew Research Center, the percent of Americans who say they are “angry at the federal government” has remained rather consistent over the last six years, ranging from a high of 32 percent in October 2013, to a low of 13 percent in March 2011. Today, 22 percent of Americans say they are “angry.” Even when asked their feelings about the broader category of “politics” just 21 percent say they are angry.

So, why the obsession with anger? Well, like just about everything else we talk about this year, it has an association with Donald J. Trump. Among Trump supporters, Pew found in March, 50 percent said they were angry with the federal government. Forty percent said they were angry with politics. Meanwhile, just 30 percent of Cruz and 18 percent of Kasich backers described themselves as angry with government. Even those who support Sanders, who is often described as the angry candidate on the left, are not any angrier about “politics today” than Clinton supporters are – 18 percent to 14 percent.

Americans are – and quite frankly have been for a while – frustrated. According to the same Pew data, 57 percent of Americans consider themselves “frustrated” with the federal government. But, this 57 percent isn’t that out of the ordinary either. In fact, since 1997, a majority of Americans – between 51 percent and 62 percent – have described themselves as frustrated.

There are, however, some pearls of wisdom that I think are worth passing along. For example:

A recent study for the National Urban League found that African-Americans are doing “much better than they did when its first ‘State of Black America’ report came out 40 years ago.” While overall, African-Americans are still doing less well on issues like poverty and high school graduation rates than whites, they are doing better on these measures than they were back in 1976.

As someone who was alive back in those olden days, I don’t see how anyone with eyes can deny that black folks are better off than they were forty years ago. Fewer young black men are being murdered today than then. Far fewer are being shot by police. Why the palpable anger, well beyond frustration, of the BlackLivesMatter folks? I think it’s because it works.

Or this:

Where Americans do find common ground, however, is that few think life for the next generation will be better. Just a quarter of all voters, 18 percent of Republicans and 29 percent of Democrats think life for the next generation will be better. It is whites, however, who are the most pessimistic, with 54 percent saying they see things getting worse for the next generation – 10 points higher than African Americans and 17 points higher than Hispanics. This is an electorate that is not satisfied with the status quo AND worried that it won’t get better anytime soon.

You’d think that level of dissatisfaction would lead more people to the conclusion that we’ve got to start doing things differently than we have for the last several decades. I guess the level of frustration hasn’t risen high enough yet.

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The Fourth Great Awakening

Recently, I was reminded of Tom Wolfe’s great essay, published in the New Yorker nearly 40 years ago, “The ‘Me’ Decade and the Third Great Awakening”. It was in that essay that he coined the phrase “the ‘Me’ decade” to describe the 1970s.

See if any of this sounds familiar.

The two most popular new figures in the 1976 campaign, Jimmy Carter and Jerry Brown, are men who rose up from state politics . . . absolutely aglow with mystical religious streaks. Carter turned out to be an evangelical Baptist who had recently been “born again” and “saved,” who had “accepted Jesus Christ as my personal Savior”—i.e., he was of the Missionary lectern-pounding amen ten-finger C-major-chord Sister-Martha-at-the-Yamaha-keyboard loblolly piny-woods Baptist faith in which the members of the congregation stand up and “give witness” and “share it. Brother” and “share it, Sister” and “Praise God!” during the service.* Jerry Brown turned out to be the Zen Jesuit, a former Jesuit seminarian who went about like a hair-shirt Catholic monk, but one who happened to believe also in the Gautama Buddha, and who got off koans in an offhand but confident manner, even on political issues, as to how it is not the right answer that matters but the right question, and so forth.

Newspaper columnists and newsmagazine writers continually referred to the two men’s “enigmatic appeal.” Which is to say, they couldn’t explain it. Nevertheless, they tried.

Why are our pundits always so puzzled?

Well, my God, the old utopian socialists of the nineteenth century—such as Saint-Simon, Owen, Fourier, and Marx—lived for the day of the liberated workingman. They foresaw a day when industrialism (Saint-Simon coined the word) would give the common man the things he needed in order to realize his potential as a human being: surplus (discretionary) income, political freedom, free time (leisure), and freedom from grinding drudgery. Some of them, notably Owen and Fourier, thought all this might come to pass first in the United States. So they set up communes here: Owen’s New Harmony commune in Indiana and 34 Fourier-style “phalanx” settlements—socialist communes, because the new freedom was supposed to be possible only under socialism. The old boys never dreamed that the new freedom would come to pass instead as the result of a Go-Getter Bourgeois business boom such as began in the United States in the 1940s. Nor would they have liked it if they had seen it. For one thing, the homo novus, the new man, the liberated man, the first common man in the history of the world with the much-dreamed-of combination of money, free time, and personal freedom—this American workingman didn’t look right.

They look like ordinary suburban folks. Or hipsters.

The old alchemical dream was changing base metals into gold. The new alchemical dream is: changing one’s personality—remaking, remodeling, elevating, and polishing one’s very self . . . and observing, studying, and doting on it. (Me!)

new new alchemical dream is transmuting the entire world so that other people treat you as though you were what you have imagined yourself to be.

Journalists (historians have not yet tackled the subject) have shown a morbid tendency to regard the various movements in this wave as “fascist.” The hippie movement was often attacked as “fascist” in the late 1960s. Over the past several years a barrage of articles has attacked Scientology, the est movement, and “the Moonies” (followers of the Reverend Sun Myung Moon) along the same lines.

Frankly, this tells us nothing except that journalists bring the same conventional Grim Slide concepts to every subject.

Mostly what it tells you is how myopic pundits are.

Tocqueville’s idea of modern man lost “in the solitude of his own heart” has been brought forward into our time in such terminology as alienation (Marx), anomie (Durkheim), the mass man (Ortega y Gasset), and the lonely crowd (Riesman).

Now we have “bowling alone”.

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