The Great Depression: Causes and Consequences

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Re: The Great Depression...causes and consequences

Unread postby WeiWenDi » Mon Apr 12, 2010 11:50 pm

Objectivist wrote:Your assessment is uninformed. Hoover was nowhere near laissez faire.


Perhaps not by your standards. But even though he was not completely laissez-faire, he was still well within the mainstream fostered by Taft, believing the government should have a limited role in the economy.

Objectivist wrote:This is ridiculous...nowhere near the truth. It sounds like something a fantasy land liberal would make up. When I read a statement like this, I can't help but immediately become discouraged from bothering to engange in conversation with you.


Well, with the latter part, I can only say that puts you in a rather pitiable position. For the former, building hulls and expecting them to sail without masts does not qualify as forming a fleet, and laying the groundwork for public works programmes and funding them with the same trepidation as FDR showed during his first five years in office does not qualify as a 'massive increase' in government spending. The $5 billion in 1938, which went to those programmes - that I think you could so characterise.

And FDR did believe in limited, indirect intervention in the economy in his early presidency - that was (despite his acceptance speech) what he campaigned on. FDR tended to shift towards Keynesianism in his economic thinking later in his presidency.

Objectivist wrote:Unemployment was at 15% in 1940. Between 1933 and 1939 federal expenses tripled. The United States went back into recession again in 1945...GDP dropped 12.7% and again from 1948-49.


Yeah, unemployment was down from 25% in 1933 and from nearly 20% in 1938:

Image
courtesy Lebergott, 1964; see also second graph provided by James

James wrote:Explain the 'temporary employment statistics' observation?


She cited figures which classified the workers accounted for under the various public work-relief agencies (e.g. the WPA) as 'unemployed', specifically because many of those hired were temporary. These figures struck me as an ideological manipulation of the facts.

James wrote:Overlooking your scathing sarcasm, history is by far one of the most important tools we have for evaluating economy, and that is one of my points. That economists themselves are so strongly divided between such drastically different economic models is proof enough that the label cannot be used as the sole means of determining a position's value.


I agree with your assessment of the community of economists and with your valuation of history. But Ms Shlaes is neither an economist, nor an historian. Her work has not been subjected to peer review in either academic community; it is pop literature and should be read as such. The Forgotten Man in particular is really comprised of a series of journalistic vignettes punctuated by factoids, not the sort of literature one might read in an academic journal of economics or history.

James wrote:And we disagree on the whole 'how the New Deal[s] worked' thing in that you think they worked and I think they didn't. Your observation above is that I'm unfamiliar because I disagree with your analysis of how it worked?


It really wasn't. And I apologise if it came off as though I was claiming that.

Rather, a better summation of my observation might be suggested by a GK Chesterton paraphrase: '[The New Deal] has not been tried and found wanting; it has been found difficult and left untried'. Roosevelt's programmes, even with the half-arsed support they were getting, were producing some minor improvements in unemployment and overall economic output, and one valid interpretation of the available data is that the economy went into relapse when the supports were knocked away entirely in 1937. Dr Paul Krugman (a true blue neo-Keynesian recently decorated with a Nobel Prize in his field) seemed to be of the opinion that the success of the New Deal might have been more dramatic if what was tried in '38 had been implemented from '33.

James wrote:These are not unemployment rates. These are variations in unemployment data (a negative unemployment rate would be cool).


No, they are not unemployment rates. Neither do they have anything to do (directly) with unemployment. If you go back and read through the RAGE!, you might find that I was citing not unemployment data, but changes in federal spending, a great deal of which was going into public works. Thus, the misleading bit of the HF graph which says 'New Deal, Part 2, begins' actually coincides with a decrease in federal funding.

That doesn't strike you as odd?

James wrote:I'll overlook your rather vicious characterization of me as a right-wing tool...

Please give me some credit. I'm not talking about creating money here. I'm talking about huge government spending in the name of fixing the economy and its results. Spending, not creating.


I do give you credit, and I don't think you're a right wing tool. But it read as though you were endorsing the Heritage Foundation's misinterpretation of the data, and please use better language than 'churn out money' - you make it sound as though the government is actually the Federal Reserve buying up securities to get banks to loan more! Government spending should be independent of the money supply. Not only that, it ought to be independent of the tax rate - during recessions, governments should spend more and tax less; during recoveries, they should tax more and spend less. This was how Clinton was able to manage a balanced budget way back in the late '90's.

James wrote:#1: It is necessary. If you want to make sweeping adjustments to the population through creation of jobs those jobs must be universal enough as to be accessible to the general population (e.g. if you create a whole bunch of energy and construction jobs you're not going to employ people outside those fields, or generally speaking, those unfamiliar with them).
#2: The New Deals created jobs, but not enough to create the change necessary to end the depression, and certainly not enough to counter-act the fallout in other areas (e.g. private sector).
#3: The New Deal did not achieve this. Unfortunately, like other big government spending, it is largely wasteful. Our government has rarely ever been efficient when spending money—most governments of a sort similar to ours rarely ever are. The War was an exception to this rule in that it provided clear focus and efficient direction for expenditure of resources. (And for what it's worth, my complaint and observation here largely applies to spending today).


@ #1: I'm sceptical. Small businesses have very specific hiring needs; we don't say that any support of small businesses is misguided simply because they aren't offering jobs which are 'accessible to the general population'.
@ #2: That interpretation doesn't jive well with the unemployment data you provided. It certainly seems as though, once the New Deal policies were implemented, something was counteracting fallout in the private sector (if such there was). Perhaps not as quickly as we might have liked to see happen, but therein lies my Chesterton-inspired critique above.
@ #3: I take exception to two of the points. Firstly, inefficient does not imply ineffective. Secondly, the Second World War was incredibly inefficient, speaking from a spending perspective. WWII cost the Federal government (1939-1945) over $250 billion for a net gain in employment of 12%, while the New Deal (1933-1939) cost $32 billion for a net gain in employment of 10%. I wouldn't be so quick to rush to condemn the latter while praising the former out of measure.

James wrote:My wording there was poor and rushed. I may have decided on a different approach to my point somewhere in that paragraph without adequately correcting it—or I just plain wrote a bone-headed second sentence. "The government spending through the Great Depression may have been the single strongest factor that drew the accursed thing out. I would even say that, overall, FDR's economic programs and approach failed to positively impact the economy during the Great Depression," might better express my views.


Again, that is highly disputable, and counter-intuitive from where I'm standing. The case still hasn't been made to me how precisely the New Deal did drag out the Depression, or how if the New Deal had not occurred, the Depression would have resolved itself any more quickly.
Last edited by WeiWenDi on Tue Apr 13, 2010 12:13 am, edited 1 time in total.
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Re: The Great Depression...causes and consequences

Unread postby James » Mon Apr 12, 2010 11:58 pm

Just a quickie:

WeiWenDi wrote:Again, that is highly disputable, and counter-intuitive from where I'm standing. The case still hasn't been made to me how precisely the New Deal did drag out the Depression, or how if the New Deal had not occurred, the Depression would have resolved itself any more quickly.

Counter-intuitive? It is worthwhile to state one's position when it is confused. That said, you can't prove definitively an argument against what you're asking for here. There are just far too many factors at play to come to such a definitive position—all we can do is discuss the ranges, facts, and work against extreme arguments. Might as well ask people to definitively prove the existence of God while you're at it.
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Re: The Great Depression...causes and consequences

Unread postby WeiWenDi » Tue Apr 13, 2010 12:21 am

James wrote:There are just far too many factors at play to come to such a definitive position—all we can do is discuss the ranges, facts, and work against extreme arguments. Might as well ask people to definitively prove the existence of God while you're at it.


:lol: I think you've just encapsulated the entire problem and Sisyphean task of the economic science very neatly, right there. But if this is the case, then we're basically just left chasing correlations - the New Deal was created and halfway-funded; unemployment went down. The New Deal was defunded; unemployment went up. The New Deal was massively funded and WWII started; cyclical unemployment disappeared. I say 'counter-intuitive' because one might expect the opposite correlations to hold true if the New Deal policies were taken to be counter-productive.
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Re: The Great Depression...causes and consequences

Unread postby Objectivist » Tue Apr 13, 2010 10:36 pm

WeiWenDi wrote:he was still well within the mainstream fostered by Taft, believing the government should have a limited role in the economy


That's not really true. All through the 20's, as Commerce secretary...Hoover endorsed "economic modernization" through government intervention. He specifically denounced laissez-faire style economic policies. He admitted rejecting treasury secretary Andrew Mellon's suggested "leave-it-alone" approach, when the crash happened.

Do you know why this false concept you suggest gets tossed around? Because Hoover later openly criticized FDR for some of his government expansion. That began a general feeling among many people who basically knew nothing about Hoover to make them believe he was in some way for less government intervention in the economy.

WeiWenDi wrote:FDR did believe in limited, indirect intervention in the economy in his early presidency - that was (despite his acceptance speech) what he campaigned on. FDR tended to shift towards Keynesianism in his economic thinking later in his presidency


That's not the argument you made. You just changed your stance. You originally said this...

WeiWenDi wrote:FDR generally followed in that mould (Hoover's supposed non-interventionist policy) for the first six years of his own presidency, believing in limited, indirect intervention of government in the economy and the encouragement of business through voluntarism


You specifically argued that for the first six years he was President that he was pushing limited intervention in the economy. That's not true. He massively increased the size of government and spending. He created multiple programs (which I previously listed...all of which were specifically designed for the government to intervene in the economy).

Ironically, FDR criticized Hoover for taxing and spending too much...then later did the same thing to a much more extreme degree.

WeiWenDi wrote:Dr Paul Krugman seemed to be of the opinion that the success of the New Deal might have been more dramatic if what was tried in '38 had been implemented from '33


I don't think posting opinion articles is really going to do anything but lead to a race to see who can post the most articles that disagree with each other's point.

I will say that in 2001 Krugman demanded that the federal reserve lower interest rates to stimulate the housing crisis. The fed did in fact do this, and it helped make the housing crisis we later faced much worse. This is not Krugman's fault...later on it was admitted that George W. Bush had asked Alan Greenspan to do this...but he did in fact endorse a policy that caused our current mess. Austrian school economists immediately predicted after this happened that in the near future the housing market would bubble and bust.

Krugman did not predict the current crisis, but like every left wing economist, he called for more spending and government. Apparently you get a free Nobel Prize when you buy a box of cracker jacks these days.

WeiWenDi wrote:The case still hasn't been made to me how precisely the New Deal did drag out the Depression, or how if the New Deal had not occurred, the Depression would have resolved itself any more quickly.


I gave the example of the great depression of 1920, when our President and government drastically cut spending and taxes and the economy bounced right back 18 months later.

The only attempted argument to this I saw you make, was your stance that because Keynes was not famous during that time the example did not apply. That's not an argument. The action taken by our government at this time was the exact opposite of Keynesian economics, so the positive end result should have no bearing on anything Keynes would have endorsed.
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Re: The Great Depression...causes and consequences

Unread postby WeiWenDi » Tue Apr 13, 2010 11:45 pm

Objectivist wrote:That's not really true. All through the 20's, as Commerce secretary...Hoover endorsed "economic modernization" through government intervention. He specifically denounced laissez-faire style economic policies. He admitted rejecting treasury secretary Andrew Mellon's suggested "leave-it-alone" approach, when the crash happened.


Sorry, just because he wasn't a laissez-faire ideologue (a claim with which I agree, by the way) doesn't make him a Keynesian, or a strong-interventionist. Believe it or not, there are those who fall somewhere between one ideology and the other.

Objectivist wrote:That's not the argument you made. You just changed your stance. You originally said this...


I changed nothing in my stance. FDR was not, between 1933 and 1937, a convinced Keynesian by any stretch of the imagination. The New Deal was laid out, but he didn't do much to fund it, basically adopting a pay-as-you-go approach to the entire affair. It's not an argument against Keynesian intervention if that intervention is not executed the way it is supposed to.

Objectivist wrote:I don't think posting opinion articles is really going to do anything but lead to a race to see who can post the most articles that disagree with each other's point.


I wasn't responding to you, but rather to James' citation of Amity Shlaes - whose book was basically one long opinion article. The difference, though, is that Dr Krugman has experience working in economics and government finance.

Objectivist wrote:I will say that in 2001 Krugman demanded that the federal reserve lower interest rates to stimulate the housing crisis. The fed did in fact do this, and it helped make the housing crisis we later faced much worse.


This is monetary policy - how does this relate to the fiscal policies of the New Deal?

Objectivist wrote:Austrian school economists immediately predicted after this happened that in the near future the housing market would bubble and bust.


Um... yeah, as did a number of other economists whose ideas are considerably less muddled and divorced from reality than those of the Austrian School, like Dr Raghuram Rajan of the University of Chicago, in 2005. NB, his criticisms were macroeconomic and his prescriptions regulatory.

Objectivist wrote:I gave the example of the great depression of 1920, when our President and government drastically cut spending and taxes and the economy bounced right back 18 months later.


And this is neither an argument against the New Deal specifically (for obvious reasons) or against Keynesian intervention in general. And you neglected to mention in your selective overview of my previous argument that one of the fiscal tools in the Keynesian toolbox is lowering taxes. If you can give me some data on exactly how much taxes were cut and for whom, that might be a more interesting argument to have.
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Re: The Great Depression...causes and consequences

Unread postby Objectivist » Wed Apr 14, 2010 12:57 am

WeiWenDi wrote:Sorry, just because he wasn't a laissez-faire ideologue (a claim with which I agree, by the way) doesn't make him a Keynesian, or a strong-interventionist. Believe it or not, there are those who fall somewhere between one ideology and the other.


But he was a strong interventionist. That's one fact that is well documented and history cannot be disputed or changed. His enacted policies are there to find. Since the fall of 2008, do you have any idea how many times I've seen left wing commentators suggest that both Hoover and George W. Bush practiced laissez-faire economic policies? Nowhere near the truth, yet they both constantly get mentioned in the same discussion.

WeiWenDi wrote:FDR was not, between 1933 and 1937, a convinced Keynesian by any stretch of the imagination. The New Deal was laid out, but he didn't do much to fund it, basically adopting a pay-as-you-go approach to the entire affair. It's not an argument against Keynesian intervention if that intervention is not executed the way it is supposed to.


You just tried to change your argument again. That's three times in three posts directed toward me you have done that. You first tried to say Hoover was certainly a 'small-government' type who didn't believe the government should involve itself overly much in combating the Depression. This statement is false. Hoover specifically ignored the words of his treasury secretary (Mellon) to leave the market alone. Federal spending increased more than 50 percent from 1929 to 32. It is documented as the highest increase in federal spending ever recorded during peacetime.

WeiWenDi wrote:Hoover was still well within the mainstream fostered by Taft, believing the government should have a limited role in the economy


No he was not and no he did not. This is not true at all!!! Speaking of Taft, how can you say he believed government should have a limited role in the economy? He's the President who gave us the SIXTEENTH AMENDMENT...the guy who supported trust busting and increased power for the Interstate Commerce Commission. Taft called himself a PROGRESSIVE, for crying out loud!

WeiWenDi wrote:FDR generally followed in that mould for the first six years of his own presidency, believing in limited, indirect intervention of government in the economy.


How can FDR massively increase taxes and spending, and create multiple federal programs specifically designed to address and regulate several aspects of the economy, and still believe in limited, indirect intervention in the economy by the government? Where did you learn this stuff? I have to know.

WeiWenDi wrote:I wasn't responding to you, but rather to James' citation of Amity Shlaes - whose book was basically one long opinion article. The difference, though, is that Dr Krugman has experience working in economics and government finance...This is monetary policy - how does this relate to the fiscal policies of the New Deal?


Regardless of who you were addressing, I wanted to point out that posting opinion articles can become a race to nowhere. As for my comments on Krugman, I just wanted to give my disapproval of his opinions in general and point out the fact that he endorsed the one specific policy that most directly led to the current crisis we face.

WeiWenDi wrote:as did a number of other economists whose ideas are considerably less muddled and divorced from reality than those of the Austrian School


This is your opinion, but I'm not convinced you even understand the Austrian school of economics. It's one thing to disagree, it's another to dismiss that which you do not grasp.

WeiWenDi wrote:If you can give me some data on exactly how much taxes were cut and for whom, that might be a more interesting argument to have.


In 1921 under Harding, federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922.

Google "the depression of 1920" for more info.
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Re: The Great Depression...causes and consequences

Unread postby WeiWenDi » Wed Apr 14, 2010 2:20 am

Objectivist wrote:But he was a strong interventionist. That's one fact that is well documented and history cannot be disputed or changed. His enacted policies are there to find.


Indeed, those policies are out there, but I don't think you'll find they portray a strong interventionist - or a strong anything, really. Hoover oversaw a huge tax cut prior to the Depression and a huge tax raise afterward; he cut government spending early in his term only to raise it again during the recession. I think a valid interpretation of Hoover might be that his well-documented trust in businesses to do the right thing was increasingly shaken by the Great Depression - more so as it kept getting worse despite his efforts to reconcile businesses non-coercively with labour interests.

Objectivist wrote:You just tried to change your argument again.


No I haven't. Just because you don't agree with my argument doesn't make it inconsistent. Early on, FDR was more preoccupied with how his programmes were to be financed (for example, through the Economy Act) than with what their effect was going to be. Such measures were simply not what Keynes advocated.

Objectivist wrote:No he was not and no he did not. This is not true at all!!! Speaking of Taft, how can you say he believed government should have a limited role in the economy? He's the President who gave us the SIXTEENTH AMENDMENT...the guy who supported trust busting and increased power for the Interstate Commerce Commission. Taft called himself a PROGRESSIVE, for crying out loud!


Early on, that's true, he did. But later on, during his second term when he wedged Roosevelt and LaFollette out of the Republican primaries and shifted his emphasis into government partnership with large firms? You'll have a tough case to make there - most 'progressives' opposed him by that point.

Honestly, to hear you talk about it, you'd think the world was divided into black-hat villainous progressives and white-hat heroic classical liberals! Sorry, but people do change their views.

Objectivist wrote:How can FDR massively increase taxes and spending, and create multiple federal programs specifically designed to address and regulate several aspects of the economy, and still believe in limited, indirect intervention in the economy by the government? Where did you learn this stuff? I have to know.


Macroeconomics course, college level. We did cover the changes in the New Deal as it shifted from a balanced-budget into a full-fledged Keynesian measure.

Objectivist wrote:This is your opinion, but I'm not convinced you even understand the Austrian school of economics.


I understand enough of the policies they advocate to recognise that they radically reject the concept of macroeconomics and mathematical models of economic constraints on group behaviour, advocate hard currency despite its lack of feasibility in a modern economy and seem to hold a somewhat dissonant belief that the Federal Reserve can be done away with and that individual banks can be trusted to issue their own notes. I know that they buy into a business cycle theory which tends to discard the factor of volition in investment (a strange posture for those who proclaim themselves individualist!) and place the blame for bad investment fads on monetary regulation, which is illogical.

Objectivist wrote:In 1921 under Harding, federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922. Federal taxes fell from $6.6 billion in 1920 to $5.5 billion in 1921 and $4 billion in 1922.


That doesn't really address whose taxes were cut, or how money was being reallocated within the federal government (not to mention the private sector) to cover the continuing demobilisation from WWI. I think the comparable recession to 1920 would be the one which occurred just after WWII ended, which also troughed and recovered in a very short period of time.
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Re: The Great Depression...causes and consequences

Unread postby James » Wed Apr 14, 2010 5:12 pm

Another snippet.

WeiWenDi wrote:
Objectivist wrote:How can FDR massively increase taxes and spending, and create multiple federal programs specifically designed to address and regulate several aspects of the economy, and still believe in limited, indirect intervention in the economy by the government? Where did you learn this stuff? I have to know.

Macroeconomics course, college level. We did cover the changes in the New Deal as it shifted from a balanced-budget into a full-fledged Keynesian measure.

Am I reading this right: that you're arguing that FDR believed in limited, indirect intervention in the economy by the government? FDR is famous for being an interventionist. And this isn't just an observation of his actions—it was his stated belief. It was also in his blood. I don't think I've read a single book about him which hasn't discussed this. One thing he was actually loved for, by many, was his interest in involving himself in events around the nation—his belief that problems could (and should) be solved through government intervention and involvement—a stark contrast to elements of some previous administrations.

Also, his administration was very Keynesian in many ways—it wasn't an evolution that cropped up only toward the end. Instead we might say that he became more Keynesian. John Maynard Keynes himself followed his actions with interest. There are obvious exceptions where Keynes himself expressed dismay, such as the treatment of utility companies (IIRC), but this was the exception, not the norm.

I honestly think you're flat out wrong in your characterization of FDR here.
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Re: The Great Depression: Causes and Consequences

Unread postby WeiWenDi » Wed Apr 14, 2010 5:20 pm

James wrote:Am I reading this right: that you're arguing that FDR believed in limited, indirect intervention in the economy by the government? FDR is famous for being an interventionist. And this isn't just an observation of his actions—it was his stated belief. It was also in his blood.


All of which was completely true of FDR - later on. It was hardly 'in his blood' when he was campaigning against Hoover or adopting his balanced-budget measures early on in his presidency. And you should know better than to take the stated beliefs of politicians at their face value, regardless of which party they belong to.

His approach to Keynesian intervention was incredibly tepid at first. The Economy Act is only one example of how FDR attempted to justify his increased spending to the fiscal conservatives in his own party, before cutting funding drastically at their behest in 1937. I think the opposite here - I don't think any honest evaluation of the early New Deal can call it a faithful application of Keynesian ideas, at least not until FDR's authorised spending became more aggressive following the recession of '37.
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Re: The Great Depression: Causes and Consequences

Unread postby WeiWenDi » Wed Feb 02, 2011 8:32 am

Taken from the thread on the American educational system. I have revised somewhat my interpretive stance on Keynesian economics, though I still hold by my earlier assertions of fact.

Objectivist wrote:Keynesian economics shouldn't be considered a fallacy after the complete failure of Nazi germany and the Soviet Union, or any number of failed nations that tried to buy their way out of debt?


Keynesian economics is indeed fallacious, but for different and more subtle reasons. Keynesianism does admirably what it set out to do, which was to make capitalism a more stable system of economic organisation (after the tremendous ups and downs of GDP prior to the mid-1930's, the difference is very much marked). Baron Keynes plugged his finger into the hole in the dike of unrestrained markets by promoting government as a means of redistributing wealth and dampening unemployment during periods of stress.

However, let's be very careful how we define our terms. Keynesianism is not communism, it is not socialism and it is not fascism. It is thus wrong to consider either the Soviet Union or Nazi Germany Keynesian (the Soviet Union nationalised all businesses and created a command economy, while Nazi Germany was economically corporatist and followed economic policies discouraging wealth redistribution on Spencerist grounds). On the other hand, many of the modern 'social democracies' of Europe are, in fact, not socialist but Keynesian.

Keynesianism is a form of capitalism (by which I mean, it accepts capitalism's governing assumptions on how capital is to be acquired and managed) which makes use of transfer payments and fiscal policy in an attempt to iron out capitalism's fundamentally contradictory incentive structures. It does so to an extent - but in the process, it turns government into a tool for propping up big businesses which are deemed 'too big to fail', while leaving small businesses and homeowners pretty much out to dry (as we saw in the financial crisis). Its contradictions are essentially the same as those of unrestrained capitalism: the wealthy still have incentives to keep labourers' wages down, while at the same time to keep their consumption levels up; this they attempt to do by creating ever greater diseconomies of scale and ever higher barriers to access. Transfer payments become ever more difficult and costly to implement, and economic recessions (though fewer and milder) still become more costly to fix on account of institutional entrenchment and path dependence.
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