539 of 564 people found the following review helpful
5.0 out of 5 stars An important book offering critical insight into the true cause of the economic crisis
AFTERSHOCK may well be the most important book written on the current economic crisis. I say this because it offers a critical insight that I have seen in very few other places: The fundamental cause of our problems is the relentless drive toward income concentration. The problem with concentrating income into the hands of a few people is that you take money from millions...
Published on September 21, 2010 by Robert Stryzinski
184 of 231 people found the following review helpful
3.0 out of 5 stars Good, but Politically Hobbled
Former Labor Secretary Robert Reich (Clinton Administration) contends that the recent 'Great Recession' was an outgrowth of an increasingly distorted distribution of income in which the richest 1% garnered 23.5% of all income in 2007 - the highest imbalance since 1928, and nearly 3X the 9% share of 1975. "Aftershock" does a good job covering how incomes have stagnated,...
Published on September 28, 2010 by Loyd E. Eskildson
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539 of 564 people found the following review helpful
5.0 out of 5 stars An important book offering critical insight into the true cause of the economic crisis,
AFTERSHOCK may well be the most important book written on the current economic crisis. I say this because it offers a critical insight that I have seen in very few other places: The fundamental cause of our problems is the relentless drive toward income concentration. The problem with concentrating income into the hands of a few people is that you take money from millions of people who would spend nearly all of it, and give it to a tiny number of people who can't and won't spend it -- but will instead save it, gamble with it, or invest it offshore. The end result is simply too few viable consumers to drive the economy.
Reich points out that income for American middle class families has been essentially stagnant or declining for over three decades. The middle class has coped with this in three basic ways: (1) Women have entered the workforce, (2) People worked longer hours, and, of course, (3) We all relied on debt (credit cards and home equity loans) rather than income to support our consumption. Those coping methods are now exhausted, and we are left in a position where average Americans simply do not have sufficient discretionary income to support a sustainable recovery. The great American consumer class -- which was the driving force behind our prosperity in the 1950s and 1960s -- has been largely decimated.
To his credit, Reich correctly identifies globalization and, especially, automation technology as primary forces behind declining middle class wages. At the same time, rather than enacting countervailing policies, the United States (beginning with Reagan) has gone in the exact opposite direction and adopted a conservative agenda that has actually accelerated the trend toward income concentration.
The one shortcoming of the book is that Reich -- not being a technologist -- fails to anticipate how advancing technology is likely to dramatically worsen the situation in the relatively near future. As someone who works in this area, I can tell you that the degree of progress we are soon likely to see in automation technologies is historically unprecedented.
To get a sense of what we may face in the future, I would strongly recommend that this book be read in conjunction with Aftershock: The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. Both books offer an eerily similar analysis of the crisis -- both concluding that the problem is a dearth of viable consumers. Both books also propose very similar solutions: direct income supplementation. Reich proposes a negative income tax (which was supported by free-market icon Milton Friedman).
Anyone who wants to understand the current crisis and the danger we face in the future should read both "Aftershock" (for its emphasis on political and social implications) and "The Lights in the Tunnel" (for insight into how technology and globalization will continue to transform the economy -- and lead to an even more severe crisis, if we do not act ).
202 of 217 people found the following review helpful
5.0 out of 5 stars "History does not repeat itself, but it sometimes rhymes" Mark Twain,
Every middle class American should read this book. Many observations about income disparities have been written up lately but Reich pulls the important points together in a powerful and accessible way.
Reich's main thesis is that the current transition the US economy is under is misunderstood. Many of the policy elite (Geithner, Volcker) have repeated the familiar claim that Americans are living beyond their means. Personally I don't discount that completely but Reich's insight goes much deeper and rings truer: "The problem was not that American spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them."
"We cannot have a sustained recovery until we address it. ... Until this transformation is made, our economy will continue to experience phantom recoveries and speculative bubbles, each more distressing than the one before."
Anyone looking at the unemployment data since WWII has to wonder why the unemployment component of the last three recessions is so prolonged. Instead of a sharp trend up, there are long slopes of delayed returns to peak employment. (Google "calculated risk blog" and look at Dec. 2010 articles.) I believe Reich has demonstrated the main culprit this. To be clear, he is not describing the detailed mechanics of what triggered the Great Recession. (Nouriel Roubini has a good book that I would recommend for more on the financial fraud, leverage and credit risks involved - Crisis Economics: A Crash Course in the Future of Finance. ) But Reich is taking a long term view and exposes a dysfunctional trait of the US economy that no one can afford to ignore. It is this weakness that will delay the current recovery and continue to create greater risks in the future.
Reich draws the parallels between the Great Depression and the Great Recession, particularly the imbalance of wealth concentrated in fewer hands and middle class workers with less income to convert into consumer demand. One of the fascinating devices he found to do this was the writings of Marriner Eccles (Fed chair between '34 to '48):
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth - not of existing wealth, but of wealth as it is currently produced - to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
Reich also shares a couple of powerful and disturbing graphs that show how the middle class has been squeezed and also how since the late 70s, hourly wages have not only not kept up with the rise in productivity but have remained essentially flat.
Another driving theme Reich presents is the "basic bargain" and he evokes Henry Ford, the man that took mass production to new heights and paid his workers well:
"[Henry] Ford understood the basic enconomic bargain that lay at the heart of a modern, highly productive economy. Workers are also consumers. Their earnings are continuously recycled to buy the goods and services other workers produce. But if earnings are inadequate and this basic bargain is broken, an economy produces more goods and services than its people are capable of purchasing."
I was concerned early in the book that Reich would leave out some of the important complexities of the topic but he covered related finances, politics and even consumer/voter psychology in a succinct yet informative way. His summary of changes to the labor market in the last 30+ years was very good.
His ideas for correcting this were interesting if perhaps difficult to implement politically. My take away however was that this is a strong indicator of how bad he thinks the situation really is. Many Americans may be yearning to return to "normal". Reich is the first to thoroughly convince me that it is not going to happen.
This is a very quick read of 144 pages and is well worth the time.
128 of 142 people found the following review helpful
4.0 out of 5 stars Redistributing the Wealth,
In this concise and well reasoned book, Robert Reich shows that the origin of the "Great Recession" lay in the widening gap between the very rich and the middle class. In brief, middle class incomes, adjusted for inflation, have stagnated or even declined, while the very rich have accumulated a larger and larger share of the nation's wealth. The nation's wealth has indeed been redistributed: upward.
This created a structural problem in the economy, since middle class workers no longer can afford to buy the products and services they produce, and the very rich cannot possibly spend the vast amounts of money they accumulate. Businesses remain "profitable" by outsourcing jobs or replacing workers with technology; this compounds the middle class dilemma because many of the jobs they did are gone forever.
With a shrinking consumer base for the products they offer, businesses cannot justify expansion, and do not create jobs. The rich, looking for places to put the huge amounts of money they control, are attracted to speculation; new bubbles are inevitable. At the same time, great wealth translates into political power, making any useful change extremely difficult.
Since the problems are structural, they must be solved with structural changes, and Reich ends with a list of suggestions for the kinds of changes that could help direct more money and success to middle class Americans. Many readers will think his suggestions are politically unfeasible, and while he makes a valiant stab at optimism, it is clear that Reich is very much aware of the obstacles in the way.
Before things get better, it seems, they will have to get worse. Much worse.
39 of 44 people found the following review helpful
4.0 out of 5 stars Well-reasoned analysis of our current catastrophe,
The "aftershock(s)" in the title refer to the waves of damage caused by the supposedly finished Great Recession -- shocks that Reich warns will be shaking us up for years to come, and are bound to become regular occurrences unless we fix this fundamentally imbalanced economy of ours.
Actually, this book isn't so much about the calamity of 2008 as much as an exploration of the slow, steady march that got us there. Expanding somewhat on his "Supercapitalism" book, Reich points out (and backs up with data) that nearly ALL of the benefits from economic expansion since the late 70s have gone straight to the top, especially the top 1% -- a group that went from earning 9% of total income to 23% (not to mention 36% of total current wealth) -- while earnings for everyone else hasn't budged one bit, which translates to a decline in relative terms. Thank Reagan for that one, who hacked the top-tier tax rate in half, and then the Bushes, who trimmed it further while introducing tax loopholes (i.e. letting people classify income as capital gains), which collectively dropped the effective rate for top dogs from about 92% in mid-century to 35% today (25% after the loopholes).
It's fun to watch Reich vividly show us the absurdity of the results, i.e. pointing out how in order for the CEO of Bank of America to successfully spend the $96,000,000 he made in 2006, he'd have to find $23,000 worth of crap to buy every waking hour -- a level that's not only past the point of boosting happiness, but beyond an amount that's even possible to spend. Basically, there are more than a few extra billions of dollars just sitting stagnant in the bank accounts of schmucks that didn't deserve it, wouldn't miss it, and couldn't even use it if they tried -- a colossal waste from society's perspective. Logically, Mr. Reich believes this waste will be our undoing, because those of us in the bottom three-quarters are becoming so piss poor that we losing the ability to even buy the stuff the economy produces anymore, which makes EVERYONE worse off (even the bourgeoisie, since they'll have fewer masses to buy their wares). And no, the millionaires & billionaires don't compensate with their own spending, because they pretty much already have everything they need.
After touching upon a number of related issues, he ends on an optimistic note as usual, pointing out that we've been wavering between massive inequality and shared prosperity every few decades for a while now, and he believes we have enough "common sense" to return to the latter state without too much unrest. I'd say the jury's still out on that one.
I guess my only reservation is that if you're a Reich regular, you've probably heard much of this before. For me, quite a bit of the content evoked memories from his past books or blog. But it's still a worthy read in any case, and the guy still writes a better book than Krugman or Dowd or Moore.
And familiarity notwithstanding, I walked away with one pretty cool blinding insight I hadn't known before: his point about the "three coping mechanisms" that the average household has been using over the past 30 years to compensate for dwindling wages:
1. pushing women into the workforce
2. making men work overtime
3. borrowing money from home values
Reich says we've exhausted all three and are now out of options, doomed to lower standards of living unless our employers start actually sharing the wealth a little. He's right.
33 of 38 people found the following review helpful
5.0 out of 5 stars The Widening Income Gap and the Beleaguered Consumer,
The defining statistic of this book is the fact that by 2007 the top 1 percent of America's earners garnered 23 percent of the nation's income. It hasn't been that high since 1928 which of course was right before the Great Depression. Robert Reich thinks that this is one of the reasons we are now in the Great Recession. The recovery, if and when it starts, will be very weak since the middle class has not gained any real buying power for the last 30 years.
Consumers constitute 70 percent of all economic activity in the United States, and if they are no longer employed or overburdened with debt they can no longer be the engine of growth that drives the economy. Many say that this figure is too high and that consumers should learn to live within their means. Reich, on the other hand, thinks their means should be increased.
There was time in American history that Reich refers to as the Great Prosperity, the years 1947-1975. (Read also Reich's book Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Vintage) for more on this period.) This was a time when income was more equally distributed. The top 1 percent received about 9 percent of the nation's income. The top marginal tax rate ranged from 70 to 90 percent.
During the Great Prosperity a single earner - usually male - could provide a middle class lifestyle for an average family. Since then wages have stagnated and families have found other ways to increase cashflow. Over the years women entered the workforce, people worked two or three jobs, and finally, during the last decade, they lived on credit cards and home equity to maintain middle class lifestyles. Now they have run out of sources of income.
Reich makes some suggestions that will have his critics up in arms. One of his proposals is a more progressive tax rate. In his plan the top 1 percent - those making over $400K anually - would pay a 55 percent marginal rate. This would be a relatively mild increase compared to the era of Great Prosperity. The top 2 percent would pay a 50 percent marginal rate and the top 5 percent would pay about 40 percent.
On the other end of the spectrum, those earning less than $20k would be supplemented and the large middle class - those with incomes ranging from $50k to $160k would be paying anywhere from a 10 to 20 percent rate. He believes something of this magnitude needs to be done to get the economy growing again. But it won't happen in the current political climate.
Many say progressive taxation and redistributive income is unfair, or worse yet, confiscatory. The fact of the matter is all taxation is redistributive. Taxation is the price of civilized society - to borrow from Oliver Wendell Holmes.
The current Tea Party movement is doing the bidding of the super rich. They are terrified of the poor and, in their view, the undeserving ending up with some of their money. Unbeknownst to them, the better off the poor and the middle class are, the better off the super rich will also be. Reich's modest proposal will not only strengthen the economy, it will also strengthen our democracy.
12 of 12 people found the following review helpful
4.0 out of 5 stars The US Needs to Heed Reich's Advice Before it's Too Late,
Reich does an inciteful job laying the foundation for loss of the middle class in America and increasing diparity in income, wealth between the top 1% in the US vs the bottom 40%. The middle class provides a major share of the purchasing power, as shown from 1948 to say 1982 when Reagonomics or trickle down economy started its disastorous run. He points out that if we don't turn this around we will lose out in the coming globalization battle, e.g. losing jobs overseas.
I guess that 80% of the public doesn't understand that they are pawns in corporate greed. The wealthy must pay more tax, even Warren Buffet said so recently. These underclass people do not vote their pocket book or best future interests. The media, especially the conservative right wing new shows on cable are a big part of it. America needs to spend more time on economics and less time on "Dancing With The Stars" before we disappear from this planet.
184 of 231 people found the following review helpful
3.0 out of 5 stars Good, but Politically Hobbled,
Former Labor Secretary Robert Reich (Clinton Administration) contends that the recent 'Great Recession' was an outgrowth of an increasingly distorted distribution of income in which the richest 1% garnered 23.5% of all income in 2007 - the highest imbalance since 1928, and nearly 3X the 9% share of 1975. "Aftershock" does a good job covering how incomes have stagnated, families have adjusted, and why China is extremely unlikely to help the U.S. reduce its trade deficit. Reich believes that if only we had met this downturn with strengthening safety nets, empowering unions, bolstering education and job training, our current situation would be much better. Unfortunately, the logic supporting his diagnosis and recommendations is blinded by political ideology and would never pass a test for simplicity.
Reich says automation and outsourcing flattened average hourly compensation starting in 1977. In 2007 the median inflation-adjusted male wage was less than it was 30 years earlier; middle-class family incomes were only slightly better - undoubtedly because of greater workforce participation by mothers with young children (20% in 1966, 60% in the late 1990s) and greater work hours (up 500 hours/year increase for the average family from 1979 to the 2000s). Middle-incomers also coped by reducing savings (from 9% in the Nixon years to 2.6% in 2008), and increased borrowing (average household debt rose form 50-55% to 128% of after-tax income during the same period. However, Reich does not mention that much more outsourcing is likely - a number of economists predict that absent change, outsourcing will dramatically expand into our service sector and further undermine our economy.
Reich believes that high levels of inequality harm the economy because the very rich cannot possibly spend all that money. However, Reich offers no counter in "Aftershock" to those who contend that stock market and other investments by those with high incomes are essential to spurring innovation and expansion in the economy.
Reich's recommendations include: 1)Expanding the Earned Income Tax Credit (EITC) program ($15,000 given households earning $25,000) and reducing taxes for most lower-income individuals, 2)Implementing a carbon tax to reduce global warming and fund investment in reduced emissions, 3)Increased taxes on the wealthy, 4)Wage insurance to temporarily maintain income at 90% of former income after a job loss, 5)School vouchers available to all, priced proportionately to income, 6)College loans with payback linked to a student's future income, 7)Taking money out of politics, 8)Medicare-type health care for all (30% administrative overhead for private insurance vs. 2% for Medicare and 11% for Medicare Advantage plans), and 9)Massive public-spending on infrastructure. Reich does not recommend trade measures against China (eg. a 40% tariff to offset its alleged currency manipulation) because of concern that China would retaliate by ceasing to buy massive amounts of increasing American debt, thereby throwing our economy into turmoil.
Unfortunately, some of Reich's recommendations, statements, and omissions strain credulity. 'Empowering unions,' for example - despite their history of bringing constant turmoil to industry in the 1960s, bankrupting G.M., Chrysler, the legacy airlines, and others, threatening to do the same for innumerable cities and school districts today, and creating much of the original impetus for outsourcing. 'More education' - despite our having already wasted trillions by tripling inflation-adjusted per-pupil spending since the 1970s, for very little or no improvement - those monies would be better used to build successful international firms (per Laura Tyson). Reich's ignoring the negative impact on employment and wage/benefit earnings of American citizens from tens of millions of illegal aliens, while likely political, is inexcusable. Increasing public spending on infrastructure would also boost deficits and the need for China and others to fund them. As for expanding the EITC and unemployment insurance, that would create never-ending pressure for future increases and extensions, acerbate inflation, increase deficits, and undermine self-initiative for millions.
Conversely, a carbon tax would be a very good thing for the environment - however, its impact on the economy is probably much less than Mr. Reich envisions. Thanks to decades of our increasing manufacturing outsourcing (including high technology) and lack of industrial policies that help nascent industries quickly achieve scale and learning-curve economies, Japan, South Korea, and especially China are already close to or far ahead of us in areas such as nuclear reactor manufacturing experience and capability (we're now building the first since 1977, they're currently adding at least 30), high-speed and high-altitude rail operation (thousands of miles, vs. none in the U.S.) and manufacturing, maglev operation, solar PV and wind-power production, and planned 2011 hybrid and all-electric vehicle production about 6X that of the U.S. Another problem - much of our R&D has already moved to Asia.
Finally, Reich also fails, again probably for ideological reasons, to recognize the need for reducing overheads and deficit contributors that impede our international competitiveness and generate the need for foreign funding of our deficits. The most important is the need to restructure American health care (17.3% of GDP) to to levels comparable to our competitors - 6+% of GDP in Taiwan, 4% in China. This would save $1.6 - 1.9 trillion/year, as well as reduce unfunded health care liabilities (mostly Medicare) by about $35 trillion. Similarly we could cut defense + Homeland Security at least 50% to reach economically competitive levels and save about $500 billion/year, and directly force K-12 and colleges to reduce costs by about 50% (another $500 billion/year) as requisites for participation in student loan programs and other assistance programs.
Bottom-Line: A number of Reich's recommendations would be very beneficial and should be implemented ASAP - eg. converting to Medicare-type health care for all (save about $200 billion/year), taking money out of politics, making college loans contingent on students' future income, increased taxes on the wealthy, implementing a carbon tax, and increased support for R&D involving green energy. Increased spending on infrastructure should also be implemented as soon as we eliminate budget deficits. Eliminating those deficits would best be addressed by reducing health care, defense, and education spending to prior inflation-adjusted levels that more closely match those of our Asian competitors. Cutting just $1.5 trillion/year in spending could eliminate the need for China's funding our deficit, mitigate Reich's concern over directly confronting our trade deficit/offshoring job losses, and help restore the American Dream.
18 of 20 people found the following review helpful
4.0 out of 5 stars Excellent Analysis of the Why and a Naive Perspective on How to Move to the Next Level,
Reich's writing is some of the clearest that comes from any economist alive. His analysis of how we got in this Great Recession is on the money (ha!) but he is naive when it comes to the solutions for tomorrow. The process of the rich becoming the uber-rich continues unabated. The table is so tilted to the wealthy today it reminds me of France or Russia before their Revolutions. However, despite the fact violence is American as apple pie, individually we take out anger on each other and not the groups that have caused the Great Recession. Those who are Tea Baggers should be looking at Wall Street and K Street and not to Washington, D.C. as the source of inequity, but they will not do so, because their mouthpieces such as Rush and Beck are becoming part of the uber-rich themselves. They will not point fingers at those who really deserve hostility from the Tea Baggers.
Reich's proposals to redistribute the wealth will be met by the uber-rich in the legislatures, courts, and in the streets if necessary by their armed security guards from a Black Water like group. Tea Baggers and the silk suited corporate lobbyists will make certain the status quo remains. Yes, what is wrong with Kansas? Don't they know their bread is half saw dust and butter is rancid?
I read this book near Halloween and three pages in it make any tale written by Stephen King seem tame and childlike in comparision. I am talking about the inauguration of the Presidential Candidate from the Independence in 2020 and her speech of isolationism and other scary stuff!
I recommend everyone should read it and begin to think creatively about how to get back to the period of the Great Prosperity. I would like to see my grandchildren (4 to date) have a chance to be in the middle class.
9 of 9 people found the following review helpful
4.0 out of 5 stars Great analysis. Author's optimism & enthusiasm for government to solve these problems is incredible,
Note: This review is based on my purchase of the audible version. Also, I suspect this book's audio version is superior because the author is the reader, and Robert Reich has a pedantic way of speaking that communicates nuances.
Be advised that Aftershock is informative and also political. You do not have to agree with the remedies suggested by the author to benefit from his analyses. I listened to the 4+ hour book several times in an effort to comprehend the significance of each point. I'd be disingenuous if I didn't admit that parts of the book made my angry, really angry. Time then turned my anger to a feeling of helplessness and finally to acceptance.
We Americans have had it good, in certain economic respects. Emerging from WWII, we as a nation could not have been better situated. Over time, the rest of the world has risen relative to us. Therefore, we should not be surprised when pressures and stresses erode our collective sense of economic well-being. However, in the midst of all this, other forces were at work to concentrate wealth and power, and this is the focus of Reich, former Secretary of Labor in the Clinton administration.
Reich is concerned with the distribution of income and the opportunities for a working or middle class American to advance in terms of wealth and power. He identifies forces at work, trends in play and even corruption in the processes of our federal government. Simply, those with money buy influence from our elected officials and get favorable policies that tilt the playing field. That translates into yet greater financial gains for the top wealthy Americans, and so money and power naturally concentrate.
Interestingly, Reich is an optimist. While he warns that a diminished middle class could result in nationalism, trade restrictions and backlash against immigrants, he believes a different outcome is likely. The caveat: the different outcome would result from a worsening of the wealth disparity in this country. He thinks the citizenry will become aware of the policies that titled the playing field and use the vote to enforce positive political change - but only after things get bad enough to motivate them.
Areas which Reich would address include tax policy, education policy and health policy. He didn't suggest ending the Fed, although he seems to be preparing the ground for a revolution of sorts. I think Reich was factually correct in Aftershock, although I fear his confidence in government to solve problems might be misguided, at least in part. That's why I don't share the author's optimism.
11 of 12 people found the following review helpful
5.0 out of 5 stars A Wakeup Call,
We all agree, I think, that America does not need an aristocracy, but we are doing nothing much to prevent that from happening.
This book is a wakeup call, in a way. While Reich has suggestions on how to spread the wealth, he does not supply the scare tactics we need to hear, in my opinion. One day, a charleton will come along with the words that effecting change, and we will elect someone like Huey Long for President.
I am a lifelong Republican because I resist the nanny state and I cherish my freedom. I am an old man now (82), and have had a full, successful life. My children are all university grads, and my grandchildren graduated from Ivy League schools. My descendents are headed up the ladder. What I fear is that the hoi polloi, living in a regressive economy, will rise up and pull the rungs out of that ladder.
When an honest, hard working man cannot support his family, we are in trouble.
Sixty years ago, I began, uneducated, at the bottom of the pay scale in a non-union shop that made motors. On my pay alone, with two children, I supported my family. That cannot happen today. In today's economy, it takes two incomes to pay the bills. Husband and wife must both work.
In 1950, my pay was $1/hour, and I bought a house for $10,000. That means it took ten thousand hours of factory labor to buy that house. Recently, that same house, now much older, with worn our appliances, bad roof, etc. sold for $455,000. That means, at an entry level job ($12/hour)today, a man must earn $45.50/hour to buy that same house for one thousand hours of labor. This is what Reich hints at in his book. Something has happened in this country, and it is not good.
We need to boost the minimum wage to a living wage. Reich points out one way to do this, and it is a path we must tread if we want to avoid a Huey Long for President. Sadly, I would vote for a Huey Long today. Somebody must shake things up radically, and now.
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Aftershock: The Next Economy and America's Future by Robert B. Reich (Paperback - April 5, 2011)
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