Growing cooperation and inequality

Didn’t everyone used to wish for more and better cooperation?  The 1960s left in particular, but pretty much everyone.  And isn’t that what we got?  And didn’t that — in fact — lead to rather spectacular rises in income inequality?

Consider one implication of the Garett Jones model, which is that more talented people gain more, in percentage terms, from cooperating and working with each other than do less talented people.  The mere existence of a (non-universal) export sector is enough to establish this conclusion, but you can see why it is true using other arguments as well.  If there are non-linear synergies from bringing together talent, those synergies with be stronger with greater amounts of talent by the very nature of the initial assumptions.

Organizing a high school band brings a modest boost in quality entertainment, but forming the Beatles or Rolling Stones a much much larger gain, again in both absolute and percentage terms.  So if it is easier to organize bands of all sorts, income inequality likely will rise.

You are probably aware of the results that the higher wages in super-firms — clusters of lots of talent — relative to normal firms, account for a major share of income inequality.  In other words, additional cooperation boosted income inequality.

Or maybe you saw the recent stories “90 percent of growth in high-tech jobs happened in just 5 metro areas.”  That too is an instance of greater cooperation, and it has led to more income inequality, with the biggest gains coming in New York City and the Bay Area and a few other places.

More cooperation  → → greater income inequality.  Think about it.

Be careful what you wish for!  Though I very much appreciate the virtues of additional cooperation.

Comments

If I read anymore about the role of IQ in economic development, I'm going to have a meltdown.

So there are stars. They like to live together. Great. What, do we have more stars now? If so, very, very good! :-)

The rich are not taking anything form the rest of us.

It's certainly true that if James Watt had died as a child there would be no trains in the world to this day.

Hi prior.

Weren’t you banned ?

The only answer is socialism/communism. Then we will finally be economically equal. See Venezuela for details.

During the Robber Baron era of giant monopolies when inequality was very high, American businessmen prided themselves not on their competitiveness but on their cooperativeness. Whenever a new industry, such as oil, emerged, business statesmen would organize cartels and/or monopolies to prevent the horrors of competition.

The notion that competition was the essence of business was more of a post-1911 break-up of Standard Oil notion, and it seems like it is slowly fading today.

"... to prevent the horrors of competition" - don't forget the merriment and diversion, in this season of all seasons.

It should go without saying that without high-IQ whites and libertarian fossil fuel use, the prostitutes in academia, sexual or otherwise, would live in the gutter.

+1. First thought, "cooperation" = euphemism for collusion + tribalism

Steve: a very good point, particularly noting the characteristics of cooperation amongst "Robber Barons". I would personally argue that Tyler is mistaking productivity gains for cooperation.

If the income rises are in a small number of cities, then doesn't that limit a lot of the inequality to within those cities? For example, in Seattle inequality is up, but not in Louisville.

How come only NYC and the Bay Area are capable of cooperation and nobody else? What is the rest of the country doing? Watching Netflix all day?

Moving to the Bay Area to work on the next Netflix. Visiting tech companies in the Bay Area or, say, the London/Oxford/Cambridge triangle, you'll find extremely capable people who've nearly all moved there from somewhere else. We've gotten better at getting the smartest, most driven people together in one place.

That hasn't been my experience. Successful firms can't get that way unless their people play well together. There's also more inter-firm cooperation than I expected, and and less of a zero-sum mindset.

Think football, not tennis - being spectacular at cooperating with others is also a way to compete! A team full of brilliant individuals that aren't brilliant at cooperation isn't going to ship anything => no 50% profit margins => no inequality-boosting salaries.

You can look a spectacularly able & focused person and think "Gosh, I would hate to compete for a job with that person" or, you could think "How can I find a way to work with them to our mutual advantage?".

You can be the most self-interested ambitious person in the world, but if you are far-sighted about it, you'll be playing with a football mindst.

In this thread

Prior drops Straussian hints of how he was fired from George Mason’s public affairs office.

Prior's obsession with GMU and MR is obviously related to his resentment of his low status at GMU and the low status of his tribe while there as well. He extends this to his consistent insistence that somewhat socialist Europe is inherently superior to the US despite Europe's slow growth and need to free ride on American innovation for the last several decades.

Of course, prior never points out where Europe lags the US, he only high lights the bright spots. He's like Thiago, but working from a higher baseline.

They effectively cooperate in the long run because they can copy each other's innovations. Think about play innovations in football as they evolve from season to season and spread among all teams.

"How come only NYC and the Bay Area are capable of cooperation and nobody else?"

Only NYC and the Bay Area have the crushingly high taxes that force workers to work together to earn the millions needed to pay the crushingly high taxes.

In the areas in decline, tax cuts have eliminated the need to work hard to pay taxes, instead motivated working less to cut their taxes even more.

You really need to understand the arrow of casuality.

"to work together to earn the millions needed to pay the crushingly high taxes."

This is on the "wet streets cause rain" level.

Ooooh! Do one for growing diversity and inequality and how diversity causes all these problems but that you still appreciate the virtues of diversity.

"More cooperation → → greater income inequality. Think about it."

Wrong conclusion/summation entirely.

"Didn’t everyone used to wish for more and better cooperation? The 1960s left in particular, but pretty much everyone."

No. Not in Australia. Definitely not in practice. Just considering the post WW@ history of Australia, the White Australia policy could have been ended at any time and women made made equal in law but it took until the 70s and 80s for that to happen. And it wasn't until around the 80s that children were no longer encouraged to use child on child violence to settle disputes and establish pecking orders.

So a general trend towards greater quality and protection under law, but clearly not enough people cared about it enough in the 60s to get the job done.

Put the bottle away and have a hot cup of tea, a Bex and a lie down, you'll feel much better.

Yeah, but then I'll have a bex and a coke and get all worked up again.

One big change in since the 60s has been the decrease in wishing ruination upon others. Even the United States, whom you'd think we'd be a bit more grateful towards, but some were upset that the US had clearly surpassed Britain as the dominant world superpower and jealous that Australia wasn't that superpower. (Read Year of the Angry Rabbit to see what an Australian hegemon looks like. Spoiler: Almost everyone dies.)

But now people seem more willing to cooperate with other nations rather than hoping disaster will befall them.

Now where's that bex? I have to import it since they no longer make it here, and I have to say that Vietnamese bex is even better than the Australian stuff. Who knew white powder could be so invigorating?

I would steelman the left argument to say that yes they wanted more cooperation but they also want people who win to share more of their gains from cooperation with those who didn't win. The argument being that being a winner is random luck (even if you attribute winning to working hard or being smart, ultimately the distribution of these traits is due to luck). So it is morally wrong for people who win to keep their gains, especially if the people losing are in dire financial straights and cannot afford to eat etc.

All this argument though can be countered by another morality, that of private ownership of property. It is not right to take someone's private property away from them without their say so, especially if it is earned through their own hard work and sacrifice.

Of course this shows the difficulty of arguing morals. You have to have an agreed consistent moral framework to make moral arguments, and such frameworks don't really exist. Moral feelings come from the modules in our brains that developed to create cooperation in small hunter gathering bands earlier in our evolution. So moral intuition is not a logically derived system, it is a kludge designed to work only in a certain range of settings.

In the cases described above, it is clear why evolution developed these two feelings of empathy for others and the right to have what you worked for.

Myself I tend to look at this from a more practical empirical approach. Are societies with practice more sharing of winnings more preferable than societies that focus on preserving private property? I think we have enough data now to be clear on this, a certain amount of forced sharing is fine, but not too much. Getting the exact ratio right is hard, but it seems to me that the poor in the US do quite well compared with international and historical experiences and so I wouldn't want to significantly change the ratio in the US.

Luck plays a role but, sometimes, so does shameless anti-competitive behavior and exploitation of the legal system.

Look at the U.S. health care system with its surprise billing, patent trolling and anti-competitive practices in generic drug manufacturing. Or look at the owners of car dealerships -- who are frequently millionaires and even have colleagues regularly serving in Congress and state legislatures -- and how they use political muscle to squelch any attempt to allow competition from online car-selling platforms that might save ordinary people money on such an essential expense.

Then there are the conservative and libertarians who speak highly of "right to work" laws but then fall oddly silent when it comes to non-compete clauses in employment agreements and how most states allow their courts to enforce these agreements on even low-paid former employees or employees who are merely the unlucky targets of mass layoffs.

Ok I agree that some private property is obtained through nefarious means which I wholeheartedly condemn, but the for the portion obtained through honest labor (and saving); do you think people have no moral right to that property and it should be taken from them by force?

"but the for the portion obtained through honest labor (and saving); do you think people have no moral right to that property and it should be taken from them by force?"

I'd call that the "You didn't build that" POV.

On this third Advent Sunday, with the Geminids in the heavens, let us all cooperate to see who the true shining stars of this comment section are.

Because this is a rare opportunity to really enjoy ourselves at the feast laid out by our gracious host.

The complaint about inequality is only secondarily about the poor. It's mainly about the middle class having status envy/anxiety.

My suggestion is to stop obsessing about inequality - it's never going to happen and if it happens it will be completely underwhelming - and focus instead on technological progress. Technology is accessible by everyone, so if you care for the poor (why tho) technology is your friend.

GDP growth is highest when consumers in increasing majority have less money to spend because consumer spending does not drive GDP growth, but instead increases in profits from slashing labor costs of the lowest 80% of workers.

Ideally, 80% of workers will be slaves, working for free for at least 20 hours a week to get welfare to give them food, housing, etc.

“To cooperate” can mean I. to helpfully assist or II. to permit or comply with a request. My hunch is cooperation in the first sense would seem to decrease inequality (cooperative winners share), in the second sense to increase inequality (winners are permitted to win even more).

Another troll post. Too many comments here clearly don't have a clue how things work here. Hint: It's Straussian.

"You are probably aware of the results that the higher wages in super-firms — clusters of lots of talent — relative to normal firms, account for a major share of income inequality. In other words, additional cooperation boosted income inequality."

I think that one could just as easily conclude that these "highly talented" people are competing with one another just as much as they are "cooperating." Why does one conclude that it is "cooperation" that produces these results rather than "competition"? If you are in the same room (or firm) with other talented and obviously ambitious people, does one not tend to try to be better than them as much as cooperate with the them? Were Braque and Picasso cooperating or competing---or both?

Sure they are competing, but if they aren't also excellent at working together, they'll never actually get anything built, and some other team will eat their lunch. So there's competition (and hilariously paranoid NDAs), but that competition is itself a reason to cooperate, and to cooperate with the best available people. The list of billion dollar products built by a single individual is very short!

I think we may agree---to categorize the phenomenon where the close proximity of talented people leads to large(r) returns as simply "cooperation" is a gross simplification, naive, and ultimately incorrect. The environment in which this occurs includes both, but in which measure of each is open to debate, and likely varies from situation to situation. One should come up with a better term, such as "competitive cooperation", "cooperative competition", etc. to describe this. I think the example of Braque and Picasso demonstrates this combination fairly well.

Enrico Moretti's research shows fairly strong evidence that formal and informal knowledge sharing are behind the clustering of jobs. If you live in New York for finance or the Bay Area for tech, you have the opportunity to learn from some of the best in the business. This can happen on the job through mentorship or teamwork or through after-work drinks, networking, and events and conferences that happen regularly if you are lucky enough to live in one of these knowledge hubs.

Despite all of the hype over remote work and online learning, it is very, very difficult to reach expert levels of knowledge in any discipline without real-life interaction with someone.

People love false dichotomies. We need competition and cooperation, and to allow some people to do financially better than others. We can improve on inequality, not solve it, whatever that would mean, with some decent policies. Some policies are like asking someone to get up off the couch, to which they act as if they're being asked to run a marathon. Life is messy, and no one can clean it up.

Felix Rohatyn has died. From his obituary in the NYT: “The basic test of a functioning democracy is its ability to create new wealth and see to its fair distribution,” Mr. Rohatyn said in 1982. “When a democratic society does not meet the test of fairness — when, as in the present state, no attempt seems to be made at fairness — freedom is in jeopardy.”

It seems quaint today, but at one time competition was considered a virtue, not only a virtue but the sina qua non of an efficient and prosperous economy. Today, monopoly is the preferred model among a certain class of economists. Of course, the entrepreneur has always preferred monopoly, so Peter Thiel's advice to aspiring entrepreneurs to seek monopoly isn't all that shocking; indeed, it's the monopolist who can capture extraordinary returns by controlling markets, and prices and costs. Cowen emphasizes the higher wages paid by what he calls super-firms, by which he means primarily tech and banking, the coastal industries where billionaires are made. But billionaires are not made from labor but capital: ownership of firms in tech or in which the banks invest. As for tech, are the enormous returns a reflection of an efficient market or a reflection of an abundance of capital seeking higher returns through greater risk? As for banking, are the enormous returns from investment and consolidation and downsizing labor a reflection of an efficient market or a reflection of short-term greed?

Mr. Rohatyn lamented the shift in banking from an advice-centered business to a capital-centered business, from when bankers advised their clients what was in the best interest of the clients to when bankers became investment speculators for their own interest.

My view, often expressed, is that wealth inequality poses the greater risk to an economy, the historical connection between excessive wealth inequality and financial instability undeniable. Many economists believe that the risk of a financial crisis can be managed by, well, economists. Even Piketty believes it - it's right there in his famous book although overlooked by almost all economists who bother to read the book. Markets have the remarkable ability to correct excesses, and that includes excessive wealth inequality. One might observe that the most recent financial crisis was the first fruits of a market correction, a correction thwarted by government intervention directed by, yes, economists. Can economists save us from ourselves next time? Or the next?

I'm also an admirer of Mr. Rohatyn. Sad to lose him.

Periodically in the history of economic thought economists have, in parallel fashion, made distinctions between two employments of the word cooperation.

Edward Gibbon Wakefield and John Stuart Mill: "simple" vs. "complex"
Max Hirsch (1901): "conscious" vs. "unconscious"
Myself*: actual vs. allegorical.

I elaborate briefly here:
https://fee.org/articles/allegory-and-political-economy-communication-and-cooperation/

*Knowledge and Coordination: A Liberal Interpretation

The headline reads:

"90 percent of growth in high-tech jobs happened in just 5 metro areas"

But the article says immediately that the 90 percent figure applies to only a 'top' portion of the tech industry:

"Since 2005, five metro areas — Boston, the San Francisco Bay Area, San Jose, Seattle, and San Diego — accounted for 90 percent of all US growth in 'innovation sector' jobs, which Brookings defines as employment in the top science, technology, engineering, and math industries that include extensive research and development spending"

"That too is an instance of greater cooperation, and it has led to more income inequality, with the biggest gains coming in New York City and the Bay Area and a few other places."

But the gains are a mirage for the majority of tech-workers. The median software developer salary in Silicon Valley is about $125K. In nominal terms, that sounds like a lot. But it's nowhere near enough to compensate for the astronomical cost of living. Developers live much better pretty much everywhere else in the country. You don't find this kind of thing anywhere but the Bay Area.

(Although, I suppose you could argue that living communally in a room full of bunk-beds is just the thing to maximize cooperation).

My daughter moved to SF after graduating college this year. She rents a 3 bedroom apartment with two roommates in the city and is able to max out her 401k and save a bit of money each month on top of that. She does not make $125K, or even $100K.

Rent is crazy, but other elements of cost-of-living are similar to, say, Chicago. She doesn't own a car and has access to the entire Bay Area (which, come on, it's a nice place) via public transit and bicycle.

+1, if you can reliably save 20% of your income for 25 years then move somewhere else, you can essentially retire on your former income at a relatively young age.

For perspective, there's roughly a 40% difference in San Francisco and Nashville including cost of rent. So, a single earning $56K per year in SF is equivalent to someone earning $40K per year in Nashville.

https://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=United+States&city1=San+Francisco%2C+CA&country2=United+States&city2=Nashville%2C+TN

No solitary individual can achieve "riches", regardless of his talent or industry. The cooperation of others, either as partners or assistants or as customers is required, as explained by Spengler here.

Well, cumulative advantage, what some people have called the Justin Timberlake Effect, applies to individuals as much as bands

So maybe it's more the cumulative advantage than the cooperation as special ingredient.

Taylor Swift etc

Looking it up, "Is Justin Timberlake a Product of Cumulative Advantage?" was a 2007 NYT piece.

Because my native curiosity works only as well as it does, I read Tyler's intro replacing the word "fashionable" for "talented" and "fashion" for "talent".

I can report now that "fashion" and "the fashionable" have ably replaced "talent" and "the talented" in contemporary discourse.

I apologise if I am stating the obvious, but this works pretty well as a Reductio ad absurdum to show that reducing inequality is the wrong target. We should instead be concentrating on the absolute well-being of some percentile of the population. My personal suggestion would be a target that measures what percentage of the nation's families could (given reasonable management) ensure that their children have a decent education, and enough of the surrounding goods (starting with food) to benefit by it.

Sure. I'm not sure why it is necessary to reframe cumulative advantage as cooperation, but .. viewed properly, losers in CA iterations are not necessarily less virtuous, or less cooperative.

It's more random than that.

It's specifically not cumulative advantage. You've once again missed the entire point of the post. It's almost exactly the opposite.

If you wanted to rephrase it would be: 'if we lower transaction costs to forming bands....we get more bands with a higher variance."

Lowering transaction costs .... reduces cumulative advantage. In a world with extremely high transaction costs cumulative advantage...is high.

Dude. He cites "90 percent of growth in high-tech jobs happened in just 5 metro areas."

If that is not cumulative advantage, nothing is.

You add nothing. Just go away.

For redundancy, from the link above:

As the report stated: “These places enjoy the benefits of what economists call cumulative causation, through which their earlier knowledge and firm advantages now attract even more talented workers, startups, and investment, creating a gravitational pull toward the nation’s critical innovation sectors while simultaneously draining key talent and business activity from other places.”

Again, just go away.

Lol. You missed the point of the post and are drawing the opposite of the conclusion. You’re fundamentally misunderstanding transaction costs and how it’s tied to cooperation.

Good lord, Boomer.

If you reduce transaction costs, what happens ?

You know what, it's Sunday and I'm feeling generous. I'll throw you a bone:

The Jones reference: Why does he include this?

Cooperation: This is the game theory definition, not Sunday school. Think prisoner's dilemma, society wide macro view.

Transaction costs: not your credit card transaction costs, these are societal. Think Gordon Tullock's work with Buchanan at UVA.

Society where everyone chooses defect - defect versus society where everyone chooses cooperate - cooperate. What's the difference?

How does lowering transaction costs create higher inequality from a game theory perspective?

You are trying to draw me off into the weeds, but I understand both what Tyler is saying, and what he is arguing against:

Cumulative Advantage as a Mechanism for Inequality: A Review of Theoretical and Empirical Developments

Or directly connected to "the Beatles or Rolling Stones:"

Power Laws and Market Shares: Cumulative Advantage and the Billboard Hot 100"

So just go away.

Ah, you’re not one of us are you. You don’t know math or economics.

We will always be wrong if we believe a anonymous moron.

Remember, that this anonymous is all hatred and racism.

Continue your KKK.

"More cooperation → → greater income inequality."

I believe that.

But what about consumption inequality? Seems consumption is easier to measure than income. Consumption is also probably less volatile. Technology, associative mating, cooperation - all make highly capable people 'richer'.

But they also throw off a lot of positive externalities. There's a lot of innovation happening among the top half of the income (or consumption) distribution. The bottom 5% may be contributing to this innovation not at all. But their standard of living is getting dragged up with everyone else.

The Beatles get very rich from their cooperation, but almost everyone gets to listen to their music.

There's a lot of innovation happening among the top half of the income (or consumption) distribution. The bottom 5% may be contributing to this innovation not at all.

Hmm? What percent of the income distribution were all the Beatles in when they started off in working class Liverpool? I'm pretty sure they were much closer to the bottom 5% than the top 5% in the UK. In the U.S. arguably most significant musical innovations in the 20th century came from (initially) lower-income people (in jazz, blues, country, hip-hop).

For people concerned with my (imprecise) comment:

"There's a lot of innovation happening among the top half of the income (or consumption) distribution. The bottom 5% may be contributing to this innovation not at all."

I don't mean retirees and teenagers here. Including people like them is part of the problem with categorizing them by income - they may in fact be very wealthy and high consumption, but have low income. And a hedge fund manager or entrepreneur make $100MM one year, but have negative income the next (consider someone with no regular wage income but massive wealth tied up in shares of a company she founded, recognized as income with occasional stock sales). She may be in the bottom 5% in income terms this year - she's not who I'm talking about.

When I talk about the bottom 5% I'm talking about very very low productivity people. The incarcerated (around 1%), the chronically criminal and formerly incarcerated, the mentally ill, the portion of people living on public assistance and incapable of getting off (which, of course, is only a portion of them).

The criminally insane mass murderer is a very low productivity member of society. But, unless he is executed, his consumption isn't zero or negative.

His consumption (food, housing, healthcare) is probably higher than it is for average people in some poorer countries. And his consumption is much higher (quality of food, housing, healthcare) than someone in his position would have had 100 years ago.

It's higher because of positive externalities (innovation, public resources) created by people more productive than he is. Their consumption is higher than his. But his consumption is also higher because of them.

"So what do retired people do, anyway?"

Hamburger: "I dunno. Call ambulances, mainly."

Cool - more fodder for you Ezra Klein interview. You can ask him what role, if any, Journolist played in fostering or maintaining inequality. Or if that's too strong, what it was supposed to maintain?

You can ask - but I suspect even now EK is soliciting "what questions should I answer" feedback from his circle ...

Cheater detection is generally an essential ingredient for the evolution of cooperation. Do concentrations of talent develop social norms facilitating more effective cheater-detection? (e.g. Trust but verify; Enforceable contracts; Well designed financial accounting systems; Etc.)

"Organizing a high school band brings a modest boost in quality entertainment, but forming the Beatles or Rolling Stones a much much larger gain, again in both absolute and percentage terms. So if it is easier to organize bands of all sorts, income inequality likely will rise."

There aren't any more of those. The ecosystem for them failed. Between ClearChannel, piracy ( to some epsilon ) and the rise of branding in earnest, what's left is much more akin to a million high school bands.

Never mind that high school bands can be shown to be useful in terms of people who go on to more prominent musical things.

In this sense Houellebecq is the most consistent critic of liberalism as he is opposed to unconstrained liberal cooperation in both the economy and socio-cultural life as well as being willing to give up many of the gains of fast growth in exchange for a more stable society.

The rest of us must pick -- arbitrarily and in that sense, more humanely -- where we wish to pay a price in terms of greater control and lower boosts to GDP.

That model obviously has a lot of built in assumptions that are doing most of the work. It is a simple fact that the most talented people engage in all kinds of cooperation (e.g. with friends and families) which does not result in the kinds of inequality mentioned here. The *kind* and purpose of cooperation makes all the difference in the world and cooperation aimed at overcoming gross and unjustified inequalities is a kind seemingly not being considered by these models.

Bizarre! I just thought about this for the first time on the way home. If applied rationality gave people a 3% increase in their income over their lifetime, then that would be a huge effect in 100 years. Countries that solve coordination problems and thence are able to solve MORE coordination problems will continuously pull ahead of countries who haven't.

"Countries that solve coordination problems and thence are able to solve MORE coordination problems will continuously pull ahead of countries who haven't."

Possibly, but the coordination problems will continue to get more difficult over time and it will always be harder at the margin. Thus allowing other countries to catch up by copying what the pioneering countries do.

As usual, (for TC) cooperation is an ambiguous term with no clear meaning. Do slaves "cooperate" with their controllers? (there are slaves, but I'd argue there are no "masters"...) Do (opposing) armies 'cooperate' before or during a battle? Was the purchase of Manhattan for some beads "cooperative"? I think a reasonable definition of cooperation would be an interaction which is win-win. But what is won may and most often does vary with the winner. I see little value in framing history in terms of cooperation. I see no value in arguing that we "used to wish for more and better cooperation". Also TC is not old enough to speak about what "we" wanted in the '60's. Although, to be fair, being nearly completely ignorant on a subject rarely stops me from having an opinion on it either.

Yes, my comment was going to along the same lines: Tyler seems to be using "cooperation" in an idiosyncratic, and opaque, manner.

His examples include exports, forming rock and roll groups, super-firms, and high-tech growth cities. Those indeed can, and probably have, led to more inequality. But they seem like good old-fashioned examples of economics at work, I don't see where cooperation enters into things.

Tyler writes: "Or maybe you saw the recent stories “90 percent of growth in high-tech jobs happened in just 5 metro areas.” That too is an instance of greater cooperation, and it has led to more income inequality, with the biggest gains coming in New York City and the Bay Area and a few other places."

The link that Tyler includes indicates that New York City is NOT one of the regions that has gained high-tech jobs. The five winners are: SF, San Jose, San Diego, Boston, and Seattle. According to the map, New York is one of the biggest losers of high-tech jobs.

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