The Obama Cabinet is shaping up fast and, similar to Clinton's experience in 1992, the left wing of the Democratic Party is screaming "betrayal."
It was largely this element of the Party that gave Obama his initial break. In 1992, they backed Clinton, only to find him moving toward the center following his election. Not wanting a repeat of 1992, they led the initial Obama surge to "Stop Hillary," on her way to her coronation as the Party standard bearer.
To some degree, our political party system guarantees this type of result for both Democrats and Republicans. McCain experienced a similar falling out of the Republican Party base, prior to his pick of Sara Palin.
Both Democratic and Republican Party activists tend toward the extremes of the political spectrum. Party work is, for the most part, built around volunteers who work for free (excluding the leadership) and it is difficult to motivate them with realistic political policies that have the support of the majority middle. A President that attempts to "govern" from the base is usually doomed to failure - i.e. George W. Bush.
The Left should not be terribly surprised; Obama emphasized during the latter part of the campaign that he intended to govern from the center and, thus far, his appointments seem to reinforce his campaign message. This, despite the likes of Fox's Hannity, Newt Gingrich, Dick Morris, et. al. who see a five percent increase in upper bracket taxes and a potential 10-15 percent increase in the capital gains tax as "socialism" or worse.
A word or two on the appointments to date.
Geithner as Secretary of Treasury. As President of the New York Federal Reserve Bank, he has been close to Wall Street, without being part of Wall Street. And, presumably, he had a voice in allowing Lehman Brothers to fail. I suspect the Obama economic policies, aside from tax specifics, will be oriented toward increased regulation and oversight and a backing away from the march to globalization, without completely abandoning that goal. The Obama job goals and stress on "rebuilding the economy from the bottom up" and the resuscitation of the middle class, indicate to me that he will be moving away from an economy based on fees to one based on actual products. Although I haven't researched Geithner, it seems a good pick.
Daschle as Health and Human Services. I was initially skeptical about this one. I never considered Daschle as strong as he might have been in the Senate, as Minority Leader. Also, he has ties to the private health industry. But, after some thought, he makes sense. Obama's health plan builds on the distribution of health services through private industry, with essentially a mandate for universal coverage and assistance for those who cannot afford the premiums. Daschle's ties to the industry may actually be helpful.
Richardson as Commerce Secretary. At first glance this looks like a "downgrade" for Richardson, who is qualified for a more important cabinet position (such as Secretary of State or Energy). I was an early Richardson for President supporter before turning to Obama. The fact that he accepted the position may indicate one of two things (or both): he desperately wants to get back to Washington and/or Obama plans to elevate the importance of the Commerce Secretary position - particularly in trade negotiations, potential tariffs and new at home energy jobs - as he rebuilds a solid U.S. economy.
Clinton as Secretary of State - I wanted Richardson for this position, but it may be a smart Obama political move. Constitutionally, this position is the number three position in the cabinet, behind the President and Vice President. Prior to the constitutional amendment regarding presidential succession, the Secretary of State was second in line for the Presidency, should something happen to both the President and Vice President (today, that line runs directly to Congress, with the Speaker of the House in 3rd place). It also keeps Hillary (and presumably Bill) out of the country for much of the time and relatively removed from a domestic political base of their own; in the Senate, without much seniority, she would have ample time to build her 2012 or 2016 presidential campaign. Although she was most known for her own efforts in health care, Secretary of HHR is better suited for Daschle and the importance of Secretary of State befitting for someone who today is Democrat #2. I also presume that Obama intends to be his own Secretary of State, in regard to policy, which is his prerogative.
Gates at Defense - This one is rumored, but not called. It would not be a bad pick. Gates is a pragmatist and not an ideologue. One of Obama's goals is to return U.S. foreign and defense policy to one with bi-partisan support, which the country enjoyed for most of the Cold War. Another two years with Gates wouldn't be a bad choice.
Napolitano as Secretary of Homeland Security - Don't know much about her, other than she has apparently had a lot of success in controlling illegal immigration in Arizona, through both a border shutdown and employer responsibility approach. Homeland Security begins with border control and goes inward in terms of tracking legal immigrants, etc.
Eric Holder as Attorney General - Holder was Clinton's #2 at Justice when Janet Reno was Attorney General. Presume that major areas of concern for the new AG will be prosecution of terrorists, both the ones at Gitmo and the ones on Wall Street. If he works well with Clinton at State, Gates at Defense, and Geithner at Treasury he should be OK. And, where better to put another African-American than in the position of the nation's Top Cop.
More later.
Saturday, November 22, 2008
Thursday, November 13, 2008
Summary of a Theory
The President (George Bush Jr...remember him?) spoke today on the economy prior to the opening of a global meeting on the global economic crisis, which he is hosting.
On this one, he's a reluctant host. Sort of like the 9/11 Commission; first he was against such a meeting, now he's for it. What changed his mind? French President Zarcozy and the European Union President's visit of approximately one month ago. As word got around that Bush basically didn't want to do anything and wanted to let the next Administration handle the crisis (beyond what has already been done in terms of bailouts for U.S. financial institutions), the Europeans hopped on a plane for a 3 hour dinner meeting with Bush in Washington. In arrival remarks, Zarcozy publicly pointed out that a global meeting should be called by the U.S. in November. Shortly thereafter, Bush "changed" his mind (or whatever it is he calls a mind).
Today's Bush remarks, however, were an indication that he remains unconvinced of the magnitude of the changes the global community is likely to bring with them this weekend. He is still - true to the bitter end - a reluctant economic leader, preferring to wait for the invisible hand of long dead Adam Smith, to act via free markets with minimal, if any, oversight. And, Wall Street, which has largely grown to ignore him, responded accordingly (up 400+ points on the DOW), proofing that the markets follow the fundamentals when it suits them and are equally capable of ignoring them when they do not.
They may be temporarily clinging to faint hope. I believe that the type of capitalism that has ruled since Reagan is dead, which leads to the theory.
My theory is based on Eccles view on the causes of the Great Depression, wherein he noted that democratic capitalism depends in large measure on a more or less wide dispersion of wealth. If wealth becomes overly concentrated among a few, basically no one else has the money (or credit) to purchase things and the economy tanks.
I believe this is basically what is occurring today. The sub prime mortgage mess was merely "the trip wire" that began the unraveling of the "phony economy." If Eccles' observation is correct, falling or stagnate wages among the majority, with increasing concentration of wealth, was masked by easy credit and over-valued assets. Higher than normal foreclosures (virtually guaranteed by mortgage providers) led to falling real estate, which in turn has led to real estate investors to walk away from property worth less than their investment, leading to more foreclosures, etc., etc. [Note: the head of Bank America's mortgage loan division testified before Congress this week that the great bulk of those "walking away" from properties were not residents of the properties, but investors.]
All of this was further aggravated by an unregulated market, lousy risk management models, with a touch of greed, corruption and incompetence.
Considering that we are all in one segment of the "labor market" or another...be in on a GM assembly line or as manger of a trillion dollar hedge fund, I believe rebuilding the economy has to begin at the bottom. Pouring money into the financial institutions without substantial changes in those institutions will at best simply perpetuate the house of cards and add another layer; at worst it will do nothing more than add to the national debt, further undermining the house of cards.
Continuing with the theory expressed in earlier posts, I am coming to believe that between Reagan economics (or the Milton Friedman ideas upon which it was based -meaning totally free markets, minimal government interference, trickle down theories, etc.) and Keynesian economics, meaning government intervention, pump-priming via government spending and higher taxation, the economic "truth" lies somewhere in between, depending upon the times.
If times are stable the economic situation of the middle class sound (meaning a general increase in wages consistent with productivity and GDP growth), and sufficient oversight and regulation to ensure a minimal amount of fraud and thievery, then Reaganomics may be the best path.
However, it is largely a balancing act. If wages do not rise, through open borders or the exportation of good paying jobs, and the middle class begins to disappear, then government must step in and do for its citizens what the free markets could not accomplish...create jobs. Better paying jobs reduce welfare and put more people on the tax roles, thus spreading the tax burden.
At the moment, my impression is that no one really knows what to do. A government policy that forces a return to loose credit markets does not really resolve the problem; it merely continues it. Financial institutions are largely caught in the middle (not that they do not bear the burden of responsibility for the present mess). They are condemned for loss credit on one hand, but encouraged to provide it on the other.
I am not sure there is any "fix" without substantial more pain. It will take time to create meaningful jobs that cannot be easily moved overseas at lower labor costs. A tax increase for the wealthy of a few percentage points (say five on capital gains and upper income brackets) does not seem to be too harsh a "penalty" to impose on those basically responsible for the present mess (how many investors complained about ridiculous NINJA loans, but invested in them at the same time...it was as if the left hand didn't know what the right hand was doing). If used intelligently, nominal tax increases won't drive many into bankruptcy and may help to restore neglected infrastructure and create energy independence. The Republican clamor against tax increases strikes me as largely impractical for the times and largely ideologically based, to the degree of cutting off one's nose to spite their face.
In the recent Presidential campaign, Biden was chided for saying "paying taxes is patriotic." It is unbelievable that at a time of global economic crisis, record deficits and fighting two wars abroad that Republican pundits made fun of his statement, by arguing the exact opposite...i.e. along the lines of "we believe paying less taxes is patriotic!" Are these people crazy? Do they really understand what is going on? Did they think the country could pursue wars abroad and free markets without regulation and oversight, while lowering taxes, without a serious economic crisis?
Biden was right. Paying taxes in time of war is patriotic. Bush lowered taxes and skimped on our military.
While the Democrats are certainly not without blame (Fannie May; Freddie Mac; Wall Street connections; Bob Rubin, etc.), Republicans have been largely deluding themselves since 9/11 in abandoning fiscal discipline, ensuring genuinely free markets, and standing behind a foreign policy that suggested doubling or tripling military and homeland security outlays, rather than cutting taxes. If Democrats made the "Guns and Butter" mistake with LBJ and Vietnam, Republicans have now done the same.
Bluntly, cutting taxes in time of war is unpatriotic and very, very un-American.
[There is a book to be written on this subject and one might compare what we have tried to do in the middle east to the imperial wars of Great Britain, counting on a relatively small professional army, with superior weapons to "control" foreign colonies. One could argue that they, in fact, tried this on us, leading to our own revolution. Ironically, Mad King George was the British monarch at the time.]
Were it not for the McCain campaign, we could blame this on the abberation of George Bush. Yet McCain offered no substantial changes in either the Bush foreign or domestic policies. I do not recall him ever mentioning bringing war or foreign policy goals in line with financial resources. He seemed to think that if he could ban earmarks all would be well ($18B in annual earmarks versus some $150B in annual Iraqi and Afghan war costs).
Perhaps the major problem with the Republican hierarchy is that they drank the Kool Aid - i.e. began believing the sales pitch. And, as no less a conservative than David Frum has recently pointed out, until the party turns its attention to the middle class of America, they are doomed to failure. [Frum also noted that Joe the Plumber is probably not the answer...Republicans lost substantial vote among white, well educated males.]
The problems facing us today are often compared to the challenges Roosevelt faced in 1933. Obama's challenges may actually be greater. Roosevelt had an economic advantage in bringing the United States out of an economic crisis by mobilizing for war. Obama has to do the same economically, while extracting us from war. To accomplish both will not be easy for either a Democrat or Republican.
More next time on where I think Obama will take us and the need for a new Republican economic philosophy.
On this one, he's a reluctant host. Sort of like the 9/11 Commission; first he was against such a meeting, now he's for it. What changed his mind? French President Zarcozy and the European Union President's visit of approximately one month ago. As word got around that Bush basically didn't want to do anything and wanted to let the next Administration handle the crisis (beyond what has already been done in terms of bailouts for U.S. financial institutions), the Europeans hopped on a plane for a 3 hour dinner meeting with Bush in Washington. In arrival remarks, Zarcozy publicly pointed out that a global meeting should be called by the U.S. in November. Shortly thereafter, Bush "changed" his mind (or whatever it is he calls a mind).
Today's Bush remarks, however, were an indication that he remains unconvinced of the magnitude of the changes the global community is likely to bring with them this weekend. He is still - true to the bitter end - a reluctant economic leader, preferring to wait for the invisible hand of long dead Adam Smith, to act via free markets with minimal, if any, oversight. And, Wall Street, which has largely grown to ignore him, responded accordingly (up 400+ points on the DOW), proofing that the markets follow the fundamentals when it suits them and are equally capable of ignoring them when they do not.
They may be temporarily clinging to faint hope. I believe that the type of capitalism that has ruled since Reagan is dead, which leads to the theory.
My theory is based on Eccles view on the causes of the Great Depression, wherein he noted that democratic capitalism depends in large measure on a more or less wide dispersion of wealth. If wealth becomes overly concentrated among a few, basically no one else has the money (or credit) to purchase things and the economy tanks.
I believe this is basically what is occurring today. The sub prime mortgage mess was merely "the trip wire" that began the unraveling of the "phony economy." If Eccles' observation is correct, falling or stagnate wages among the majority, with increasing concentration of wealth, was masked by easy credit and over-valued assets. Higher than normal foreclosures (virtually guaranteed by mortgage providers) led to falling real estate, which in turn has led to real estate investors to walk away from property worth less than their investment, leading to more foreclosures, etc., etc. [Note: the head of Bank America's mortgage loan division testified before Congress this week that the great bulk of those "walking away" from properties were not residents of the properties, but investors.]
All of this was further aggravated by an unregulated market, lousy risk management models, with a touch of greed, corruption and incompetence.
Considering that we are all in one segment of the "labor market" or another...be in on a GM assembly line or as manger of a trillion dollar hedge fund, I believe rebuilding the economy has to begin at the bottom. Pouring money into the financial institutions without substantial changes in those institutions will at best simply perpetuate the house of cards and add another layer; at worst it will do nothing more than add to the national debt, further undermining the house of cards.
Continuing with the theory expressed in earlier posts, I am coming to believe that between Reagan economics (or the Milton Friedman ideas upon which it was based -meaning totally free markets, minimal government interference, trickle down theories, etc.) and Keynesian economics, meaning government intervention, pump-priming via government spending and higher taxation, the economic "truth" lies somewhere in between, depending upon the times.
If times are stable the economic situation of the middle class sound (meaning a general increase in wages consistent with productivity and GDP growth), and sufficient oversight and regulation to ensure a minimal amount of fraud and thievery, then Reaganomics may be the best path.
However, it is largely a balancing act. If wages do not rise, through open borders or the exportation of good paying jobs, and the middle class begins to disappear, then government must step in and do for its citizens what the free markets could not accomplish...create jobs. Better paying jobs reduce welfare and put more people on the tax roles, thus spreading the tax burden.
At the moment, my impression is that no one really knows what to do. A government policy that forces a return to loose credit markets does not really resolve the problem; it merely continues it. Financial institutions are largely caught in the middle (not that they do not bear the burden of responsibility for the present mess). They are condemned for loss credit on one hand, but encouraged to provide it on the other.
I am not sure there is any "fix" without substantial more pain. It will take time to create meaningful jobs that cannot be easily moved overseas at lower labor costs. A tax increase for the wealthy of a few percentage points (say five on capital gains and upper income brackets) does not seem to be too harsh a "penalty" to impose on those basically responsible for the present mess (how many investors complained about ridiculous NINJA loans, but invested in them at the same time...it was as if the left hand didn't know what the right hand was doing). If used intelligently, nominal tax increases won't drive many into bankruptcy and may help to restore neglected infrastructure and create energy independence. The Republican clamor against tax increases strikes me as largely impractical for the times and largely ideologically based, to the degree of cutting off one's nose to spite their face.
In the recent Presidential campaign, Biden was chided for saying "paying taxes is patriotic." It is unbelievable that at a time of global economic crisis, record deficits and fighting two wars abroad that Republican pundits made fun of his statement, by arguing the exact opposite...i.e. along the lines of "we believe paying less taxes is patriotic!" Are these people crazy? Do they really understand what is going on? Did they think the country could pursue wars abroad and free markets without regulation and oversight, while lowering taxes, without a serious economic crisis?
Biden was right. Paying taxes in time of war is patriotic. Bush lowered taxes and skimped on our military.
While the Democrats are certainly not without blame (Fannie May; Freddie Mac; Wall Street connections; Bob Rubin, etc.), Republicans have been largely deluding themselves since 9/11 in abandoning fiscal discipline, ensuring genuinely free markets, and standing behind a foreign policy that suggested doubling or tripling military and homeland security outlays, rather than cutting taxes. If Democrats made the "Guns and Butter" mistake with LBJ and Vietnam, Republicans have now done the same.
Bluntly, cutting taxes in time of war is unpatriotic and very, very un-American.
[There is a book to be written on this subject and one might compare what we have tried to do in the middle east to the imperial wars of Great Britain, counting on a relatively small professional army, with superior weapons to "control" foreign colonies. One could argue that they, in fact, tried this on us, leading to our own revolution. Ironically, Mad King George was the British monarch at the time.]
Were it not for the McCain campaign, we could blame this on the abberation of George Bush. Yet McCain offered no substantial changes in either the Bush foreign or domestic policies. I do not recall him ever mentioning bringing war or foreign policy goals in line with financial resources. He seemed to think that if he could ban earmarks all would be well ($18B in annual earmarks versus some $150B in annual Iraqi and Afghan war costs).
Perhaps the major problem with the Republican hierarchy is that they drank the Kool Aid - i.e. began believing the sales pitch. And, as no less a conservative than David Frum has recently pointed out, until the party turns its attention to the middle class of America, they are doomed to failure. [Frum also noted that Joe the Plumber is probably not the answer...Republicans lost substantial vote among white, well educated males.]
The problems facing us today are often compared to the challenges Roosevelt faced in 1933. Obama's challenges may actually be greater. Roosevelt had an economic advantage in bringing the United States out of an economic crisis by mobilizing for war. Obama has to do the same economically, while extracting us from war. To accomplish both will not be easy for either a Democrat or Republican.
More next time on where I think Obama will take us and the need for a new Republican economic philosophy.
Saturday, November 01, 2008
The Election
Prior to continuing with specific steps that may be taken to rebuild the American economy, a post on Tuesday's election and why I have decided to vote for Obama.
Throwing out the charges of both the extreme left and right and after following the campaigns of both Obama and McCain for almost two years, I am reasonably confident that both men, from different philosophies and perspectives, have the best interests of the country at heart. I do not question the patriotism or dedication of either. The question in my mind is one of policies and qualifications, the latter in terms of both experience and intelligence.
The pace of change in American society is today so swift, that it is doubtful that either man knows what crises lie ahead. In this sense, intelligence in the ability to adjust to new situations and demands outweighs, in my mind, experience, although the latter is not an insignificant factor. Equally important is the ability to understand the world as it is and project a strategic vision for the future, which should coincide, of course, with my personal perspective regarding the best interests of the country.
Regarding these matters, I find Obama the better choice. I also find the charge that McCain is simply "more of Bush" to possess a great deal of truth, excluding small differences in tactics. To me, Obama appears to be the strategic thinker, while McCain is the tactician.
Obama has laid out both a strategic vision and plan for the achievement of goals compatible with my own perspective, while McCain continues, in my opinion, to wrestle with the tactical changes needed to implement Bush's basic strategic goals.
McCain had the opportunity to address both foreign policy and domestic policy goals and provide redirection. He did neither, and instead allowed his campaign to degenerate into a negative approach that spent more time attacking his opponent, than in laying out his own vision and strategy for the future. This may have been a dilberate campaign tactic anticipating a bad year for Republicans, but I believe it was a disservice to the voter. Foremost, I look to the candidates to explain what they are for more than what they are against.
In the realm of foreign policy, McCain has never questioned the President's decision to invade Iraq, which I view as an unnecessary war of choice. Obama, on the other hand, took tremendous political risk in condemning the invasion as "the wrong war, in the wrong place, at the wrong time," before public opinion turned against the invasion. [A political risk at least as great as McCain's risk on his surge position.] It is not enough for McCain to hide behind the Bush excuses of "we were all fooled" or to adopt the post invasion multiple causation reasons. The Bush Administration has never renounced its own Doctrine regarding the right to pre-emptive war and McCain has never questioned it. McCain has merely stated that he will correct Bush's errors. This sounds as if he views the "errors" as solely military tactics. There is no broader view. While Obama may also be charged with failing to lay out a comprehensive picture of changes to the Bush Doctrine, he still edges out McCain on this point.
Obama's statements on his willingness to talk to perceived enemies without pre-conditions is strategic and intelligent diplomacy, regardless of what he may actually do as President. McCain's insistence on pre-conditions, similar to Bush's, strikes me as a school boy attempt to gain a tactical negotiating advantage. If we must always leave military force as an opition on the table, it is also wise never to shut the door on diplomacy.
Domestically, although neither candidate appears to have much of an economic background, McCain appeared ready to leap before looking (suspending his campaign, threatening to cancel the first debate and rushing to Washington to "take charge" of the economic crisis). Nor does he seem to have any appreciation for the failure of Reagonomics that I've discussed in previous posts. As argued earlier, I believe that we are now in a position wherein a dose of Keynesian economics is essential for economic recovery. I have seen nothing that indicates McCain understands this, or the depth of the economic problems the country now faces and its implications for our future global position.
In fact, in both foreign and domestic policies, the McCain proposals do not, to me, seem to signify an awareness of just how bad the problems are that the country faces. In foreign policy it seems McCain is all about "winning" and knowing how to be militarily tough, without defining what winning means and what is actually necessary to rebuild our armed forces. Again, he seems stuck in past, with tactical changes to problems requiring strategic changes. He seems not only to admire Ronald Reagan, but also fails to understand the real changes in the world, since Reagan, that have led to our present situation: two unresolved wars abroad and a domestic economy on the verge of collapse.
On the other hand, Obama's position on rebuilding the military lacks force. Barney Frank's comment about cutting defense spending by 25% worries me, although he may be referring simply to eliminating the costs of the wars in Iraq and Afghanistan. I would agree with those cuts, provided that overall defense spending increase, excluding the savings from Iraq and Afghanistan. This point is also tied to my forthcoming "how to fix it" post and using increased defense spending to improve the U.S. economy. But, overall, I give Obama the edge on foreign policy, while considering defense spending a part of that policy.
I do not see pursuit of some undefined victory abroad and the extension of the Bush tax cuts at home as "keys" to improving our foreign policy or our economy. In a phrase, McCain appears concentrated on the past, equating the War on Terror and the threat of Islamic Fundementalism to the Cold War and communism. Obama's position looks more to the future and decouples that future from the Cold War, communism and the Vietnam experience.
As of last month, and the $700 billion + bailout package, it would appear that through mismanagement, corruption, the lack of oversight and an antiquated economic philosophy, we have blown the $700 billion Bush tax cuts and are repeating the mistake. Someone once wrote that insanity is doing the same thing over and over again and expecting different results. Or, as they say in Texas, you don't pour money down a dry well. The present economic crises is probably due to one of three things and most likely a combination of all three: incompetence, corruption, and the pursuit of the wrong economic philosophy. Bush blamed it on incompetence ("Wall Street got drunk."; McCain seems to think it was all due to corruption "I'll clean-up Wall Street" and Republicans, in general, seem to refuse to acknowledge that it might just be, at least in part, the economic philosophy itself.
Obama seems to acknowledge all three possibilities with a tax plan to "spread the money around" (OK...not ideal, until one realizes that the alternative is more loose credit) and redirecting capital, via tax increases toward jobs, new infrastructure and new technology. While McCain agrees with similar "goals," his approach is apparently almost entirely through reliance on the "free market" with additional tax cuts. Having just experienced a failure of the free market, it's a "sale" he can't make with me. My own view is that the best way to cure the free market's excesses is to temporarily take away some of their Monoply Money and scare the hell out of them. Tax increases may cause them to beg for a return to regulation. Let's face it; in good times, no one asks: How will this investment help the country? They look solely at their rate of return. Tougher investor questions may have prevented the current mess, which is a different way of supporting additional regulation. I don't exclude myself from investor blindness. As long as things were going great, I had minimal interest in economic theory.
On health care, there were three practical choices: Clinton's, Obama's and McCain's (which came late). Obama's plan is the least disruptive of the three, basically filling in the gaps of the present system and extending coverage by mandating coverage. McCain's plan would seem to me to lead to an increasing number of companies doing away with employee health plans and employees turning to McCain's $5000 tax credit to "fund" all of their health care needs; a plan virtually assuring that the result will be less universal coverage. Although I would prefer a genuine universal health care plan (which I assume would relieve American companies of the burden), I favor Obama's plan over McCain's.
McCain's ideas on freezing government spending and balancing the budget in four years have been discussed in earlier posts...in the vein of "if you believe that, I have a bridge to sell you." Banning earmarks sounds noble and good, but is only approximately $18 billion out of a $2.7 trillion budget. Worse, one could argue that doing away with earmarks encroaches on Congressional prerogatives and almost ensures a Democratic Congress and Republican Executive Branch confrontation. While it is certainly true that earmarks are most often not in the country's best interests as a whole, appropriation bills originate in the House (the people's branch of direct representation, and short-two year terms). If the people of Alaska really want to build a bridge to nowhere and their representatives are able to finagle an earmark to do it, well, that's part of the price of democracy...making sure that one person does not have entire control over how money is spent. Rather than "banning" earmarks, my preferred approach is through transparency, requiring more public exposure. Given the magnitude of the budget and deficit, in addition to massive bailouts, earmarks fall in the category of "chump change."
It also bothers me that McCain has not supported veteran programs and hasn't really bothered to answer the charge, saying only, "that's nonsense; veteran's know me." But, then, there are a lot of answers of that sort from McCain. There is a lot of "trust me," in his campaign. A curious message for a Republican in this election year. It is not that I believe McCain's "trust me" approach hides deceit, but rather than it covers inadequate preparation. Sort of: "I know what's right and will do the right think when we get around to it." Conversely, I believe, in general Obama has been more detailed and informed.
Finally, good, old trustworthy John has flip-flopped on enough issues to make John Kerry look remarkably consistent. I understand that this was the only way a moderate, "maverick" Republican could obtain the nomination in a radical right dominated Party, but one occasionally wishes he'd been more consistent on issues other than the Iraqi surge.
Obama has also made "running changes," but they seem to be less significant than McCain's 180 degree shifts (e.g. the Bush tax cuts).
In sum, I believe it is going to require a lot more than shoot-from-the-hip, knee jerk reactions to get us out of our present problems; it is going to require a lot of thought and reflection to decide where we want to be in that future and to strategize on how best to get there. In this, I believe Obama to be the better choice as evidenced by his own past history and the organization of his campaign. Obama impresses me as the strategic thinker, who could listen to the ideas of the Reverand Wright and William Ayers and take the good and leave the bad; who could and would sit down and talk reasonably to unreasonable people without feeling he was giving them some sort of recognition or endangering his own position; a person that is not afraid of alternative ideas, whether or not he accepts them. My own opinion is that this attitude must be our approach in coping with our future in everything from Islamic Fundamentalism (less actual terrorists) to social security and the regulation of Wall Street. What I do not want is a President who will exclude potential solutions because of an ideological filter.
Vote Obama!
Throwing out the charges of both the extreme left and right and after following the campaigns of both Obama and McCain for almost two years, I am reasonably confident that both men, from different philosophies and perspectives, have the best interests of the country at heart. I do not question the patriotism or dedication of either. The question in my mind is one of policies and qualifications, the latter in terms of both experience and intelligence.
The pace of change in American society is today so swift, that it is doubtful that either man knows what crises lie ahead. In this sense, intelligence in the ability to adjust to new situations and demands outweighs, in my mind, experience, although the latter is not an insignificant factor. Equally important is the ability to understand the world as it is and project a strategic vision for the future, which should coincide, of course, with my personal perspective regarding the best interests of the country.
Regarding these matters, I find Obama the better choice. I also find the charge that McCain is simply "more of Bush" to possess a great deal of truth, excluding small differences in tactics. To me, Obama appears to be the strategic thinker, while McCain is the tactician.
Obama has laid out both a strategic vision and plan for the achievement of goals compatible with my own perspective, while McCain continues, in my opinion, to wrestle with the tactical changes needed to implement Bush's basic strategic goals.
McCain had the opportunity to address both foreign policy and domestic policy goals and provide redirection. He did neither, and instead allowed his campaign to degenerate into a negative approach that spent more time attacking his opponent, than in laying out his own vision and strategy for the future. This may have been a dilberate campaign tactic anticipating a bad year for Republicans, but I believe it was a disservice to the voter. Foremost, I look to the candidates to explain what they are for more than what they are against.
In the realm of foreign policy, McCain has never questioned the President's decision to invade Iraq, which I view as an unnecessary war of choice. Obama, on the other hand, took tremendous political risk in condemning the invasion as "the wrong war, in the wrong place, at the wrong time," before public opinion turned against the invasion. [A political risk at least as great as McCain's risk on his surge position.] It is not enough for McCain to hide behind the Bush excuses of "we were all fooled" or to adopt the post invasion multiple causation reasons. The Bush Administration has never renounced its own Doctrine regarding the right to pre-emptive war and McCain has never questioned it. McCain has merely stated that he will correct Bush's errors. This sounds as if he views the "errors" as solely military tactics. There is no broader view. While Obama may also be charged with failing to lay out a comprehensive picture of changes to the Bush Doctrine, he still edges out McCain on this point.
Obama's statements on his willingness to talk to perceived enemies without pre-conditions is strategic and intelligent diplomacy, regardless of what he may actually do as President. McCain's insistence on pre-conditions, similar to Bush's, strikes me as a school boy attempt to gain a tactical negotiating advantage. If we must always leave military force as an opition on the table, it is also wise never to shut the door on diplomacy.
Domestically, although neither candidate appears to have much of an economic background, McCain appeared ready to leap before looking (suspending his campaign, threatening to cancel the first debate and rushing to Washington to "take charge" of the economic crisis). Nor does he seem to have any appreciation for the failure of Reagonomics that I've discussed in previous posts. As argued earlier, I believe that we are now in a position wherein a dose of Keynesian economics is essential for economic recovery. I have seen nothing that indicates McCain understands this, or the depth of the economic problems the country now faces and its implications for our future global position.
In fact, in both foreign and domestic policies, the McCain proposals do not, to me, seem to signify an awareness of just how bad the problems are that the country faces. In foreign policy it seems McCain is all about "winning" and knowing how to be militarily tough, without defining what winning means and what is actually necessary to rebuild our armed forces. Again, he seems stuck in past, with tactical changes to problems requiring strategic changes. He seems not only to admire Ronald Reagan, but also fails to understand the real changes in the world, since Reagan, that have led to our present situation: two unresolved wars abroad and a domestic economy on the verge of collapse.
On the other hand, Obama's position on rebuilding the military lacks force. Barney Frank's comment about cutting defense spending by 25% worries me, although he may be referring simply to eliminating the costs of the wars in Iraq and Afghanistan. I would agree with those cuts, provided that overall defense spending increase, excluding the savings from Iraq and Afghanistan. This point is also tied to my forthcoming "how to fix it" post and using increased defense spending to improve the U.S. economy. But, overall, I give Obama the edge on foreign policy, while considering defense spending a part of that policy.
I do not see pursuit of some undefined victory abroad and the extension of the Bush tax cuts at home as "keys" to improving our foreign policy or our economy. In a phrase, McCain appears concentrated on the past, equating the War on Terror and the threat of Islamic Fundementalism to the Cold War and communism. Obama's position looks more to the future and decouples that future from the Cold War, communism and the Vietnam experience.
As of last month, and the $700 billion + bailout package, it would appear that through mismanagement, corruption, the lack of oversight and an antiquated economic philosophy, we have blown the $700 billion Bush tax cuts and are repeating the mistake. Someone once wrote that insanity is doing the same thing over and over again and expecting different results. Or, as they say in Texas, you don't pour money down a dry well. The present economic crises is probably due to one of three things and most likely a combination of all three: incompetence, corruption, and the pursuit of the wrong economic philosophy. Bush blamed it on incompetence ("Wall Street got drunk."; McCain seems to think it was all due to corruption "I'll clean-up Wall Street" and Republicans, in general, seem to refuse to acknowledge that it might just be, at least in part, the economic philosophy itself.
Obama seems to acknowledge all three possibilities with a tax plan to "spread the money around" (OK...not ideal, until one realizes that the alternative is more loose credit) and redirecting capital, via tax increases toward jobs, new infrastructure and new technology. While McCain agrees with similar "goals," his approach is apparently almost entirely through reliance on the "free market" with additional tax cuts. Having just experienced a failure of the free market, it's a "sale" he can't make with me. My own view is that the best way to cure the free market's excesses is to temporarily take away some of their Monoply Money and scare the hell out of them. Tax increases may cause them to beg for a return to regulation. Let's face it; in good times, no one asks: How will this investment help the country? They look solely at their rate of return. Tougher investor questions may have prevented the current mess, which is a different way of supporting additional regulation. I don't exclude myself from investor blindness. As long as things were going great, I had minimal interest in economic theory.
On health care, there were three practical choices: Clinton's, Obama's and McCain's (which came late). Obama's plan is the least disruptive of the three, basically filling in the gaps of the present system and extending coverage by mandating coverage. McCain's plan would seem to me to lead to an increasing number of companies doing away with employee health plans and employees turning to McCain's $5000 tax credit to "fund" all of their health care needs; a plan virtually assuring that the result will be less universal coverage. Although I would prefer a genuine universal health care plan (which I assume would relieve American companies of the burden), I favor Obama's plan over McCain's.
McCain's ideas on freezing government spending and balancing the budget in four years have been discussed in earlier posts...in the vein of "if you believe that, I have a bridge to sell you." Banning earmarks sounds noble and good, but is only approximately $18 billion out of a $2.7 trillion budget. Worse, one could argue that doing away with earmarks encroaches on Congressional prerogatives and almost ensures a Democratic Congress and Republican Executive Branch confrontation. While it is certainly true that earmarks are most often not in the country's best interests as a whole, appropriation bills originate in the House (the people's branch of direct representation, and short-two year terms). If the people of Alaska really want to build a bridge to nowhere and their representatives are able to finagle an earmark to do it, well, that's part of the price of democracy...making sure that one person does not have entire control over how money is spent. Rather than "banning" earmarks, my preferred approach is through transparency, requiring more public exposure. Given the magnitude of the budget and deficit, in addition to massive bailouts, earmarks fall in the category of "chump change."
It also bothers me that McCain has not supported veteran programs and hasn't really bothered to answer the charge, saying only, "that's nonsense; veteran's know me." But, then, there are a lot of answers of that sort from McCain. There is a lot of "trust me," in his campaign. A curious message for a Republican in this election year. It is not that I believe McCain's "trust me" approach hides deceit, but rather than it covers inadequate preparation. Sort of: "I know what's right and will do the right think when we get around to it." Conversely, I believe, in general Obama has been more detailed and informed.
Finally, good, old trustworthy John has flip-flopped on enough issues to make John Kerry look remarkably consistent. I understand that this was the only way a moderate, "maverick" Republican could obtain the nomination in a radical right dominated Party, but one occasionally wishes he'd been more consistent on issues other than the Iraqi surge.
Obama has also made "running changes," but they seem to be less significant than McCain's 180 degree shifts (e.g. the Bush tax cuts).
In sum, I believe it is going to require a lot more than shoot-from-the-hip, knee jerk reactions to get us out of our present problems; it is going to require a lot of thought and reflection to decide where we want to be in that future and to strategize on how best to get there. In this, I believe Obama to be the better choice as evidenced by his own past history and the organization of his campaign. Obama impresses me as the strategic thinker, who could listen to the ideas of the Reverand Wright and William Ayers and take the good and leave the bad; who could and would sit down and talk reasonably to unreasonable people without feeling he was giving them some sort of recognition or endangering his own position; a person that is not afraid of alternative ideas, whether or not he accepts them. My own opinion is that this attitude must be our approach in coping with our future in everything from Islamic Fundamentalism (less actual terrorists) to social security and the regulation of Wall Street. What I do not want is a President who will exclude potential solutions because of an ideological filter.
Vote Obama!
The Perfect Storm
The movie, by the same name, concerned an actual once in a hundred years weather event in the North Atlantic, wherein three different storms, from three different directions suddenly and unexpectedly converged. The movie is the story of the fishing boat that failed to make port and went down with all hands in the "Perfect Storm."
Economically, I see three converging forces occurring in the last year or so to produce the present economic crisis: unregulated financial instruments; rapidly rising energy costs; and the sub-prime mortgage failures.
Greed and incompetence plays a large part, but it should be remembered that "demand" was genuine with all three elements. If there were any factors that set the environment that allowed the three storms to develop it was a failed Bush foreign policy (creating enormous distrust in the United States; particularly in Russia and the Middle East) and the rapid transfer of wealth back into the U.S. from abroad.
It is difficult to determine which of the storms was the first to arrive. I suspect the first to arrive was the rising price of oil, which may have been partially in retaliation for U.S. foreign policies and partially due to growing awareness of declining Saudi reserves. Rising oil prices, in turn, may have accelerated the growth in foreign demand for new U.S. financial instruments, based largely on sub-prime mortgages, which in theory would have been more liquid than the actual purchase of real estate. This, in turn, accelerated the demand for additional sub-prime mortgages, which eventually began scrapping the bottom of the barrel with no-doc loans, packaged and repackaged according to risk management software that was little understood and tended to neglect down-side data (i.e. models that did not properly weight the possibility of above average foreclosures and falling real estate values).
As this first storm began gathering strength, the second arrived - this was the beginning of the foreclosures, further fueled through over-valuing real estate leading to overbuilding and the situation of more supply than demand, i.e. there were far more buyers of "packaged" instruments than actual buyers of real estate. Once real estate market tipped, investment shifted rapidly out of that sector and fled to commodities, further aggravating speculation in rising oil prices.
All three then converged. Unregulated financial instruments composed of unregulated (or ignored) sub-prime mortgages, with an unregulated commodity market. Since it is today still difficult to obtain reliable information concerning any of these markets, it is almost impossible to determine how each fed on the other and influenced the other. What is known is that it was apparently a toxic mix...a Perfect Storm, which has exposed the house-of-cards U.S. financial system, the pitfalls of deregulation, the incompetent or corrupt use of untested risk management models, our foreign oil dependency, etc.
It will be a long time before global confidence in the U.S. economy is restored. One means of that restoration is to move toward a more European/socialistic financial system (notwithstanding McCain's fear of redistributing the wealth and equating a progressive tax system with socialism).
In other words, restoration of global confidence in our economic system may demand abandoning Reaganomics, which anyhow has not improved the lot of the American middle class.
The extent of foreign investment in basically sub-prime mortgage packages shows that whereas much of the world is accustomed to working within their own more regulated and conservative banking systems, they weren't above making an extra Pound, Mark, Franc or Euro or two by investing in the high-risk, Cowboy Capitalism of George Bush's United States. But once burned, shame on you; twice burned shame on me. I suspect the U.S. has taken a very serious hit on its ability to guide future global financial rules and that global GDP growth will slow significantly until we return to square one, with new rules, going forward.
Notwithstanding Chris Dodd's Countrywide VIP mortgage, or Barney Frank's pre-crisis support of Fannie Mae and Freddie Mac, the Obama economic team, composed of people such as Paul Volker and Warren Buffet will probably appear abroad as considerably stronger than the McCain team of Jack Kemp and a handful of lobbyists and conservative think tank people (assuming that Phil Gram and Carly Fiorina are actually gone and not just hiding in the wings).
Two hundred and thirty two years ago, on July 4th, 1776 our founding fathers gathered in Philadelphia and declared our independence from Great Britain. While "taxation without representation" was a prime cause in that declaration, I believe the broader cause was an understanding that as long as they remained under colonial rule, the country could not reach its full potential. Failure to achieve independence would constrict growth both in population, geography and industry and subject the American colonies to the intra-European concerns and squabbles of Great Britain. Today, the phenomena, not of colonialism, but of globalization, may be having the same effect.
As long as we pursue economic policies that place a globalized economy ahead of the interests of our own people, we risk returning to basically colonial status. It is time Republicans abandoned the destructive economics of an outmoded theory and recalled the closing words of the men in Philadelphia: ""And for the support of this Declaration, with a firm reliance on the Protection of Divine Providence, we mutually pledge to each other our lives, our Fortunes and our sacred Honor."
Unless we are ready to accept a continued decline toward the status of a Third World Country, we must begin rebuilding an economy based on meaningful and well paying employment for all; an economy not only strong for the 10% at the top, now paying their disproportional share of taxes, but for all. In my next post, a few ideas on beginning this process.
Economically, I see three converging forces occurring in the last year or so to produce the present economic crisis: unregulated financial instruments; rapidly rising energy costs; and the sub-prime mortgage failures.
Greed and incompetence plays a large part, but it should be remembered that "demand" was genuine with all three elements. If there were any factors that set the environment that allowed the three storms to develop it was a failed Bush foreign policy (creating enormous distrust in the United States; particularly in Russia and the Middle East) and the rapid transfer of wealth back into the U.S. from abroad.
It is difficult to determine which of the storms was the first to arrive. I suspect the first to arrive was the rising price of oil, which may have been partially in retaliation for U.S. foreign policies and partially due to growing awareness of declining Saudi reserves. Rising oil prices, in turn, may have accelerated the growth in foreign demand for new U.S. financial instruments, based largely on sub-prime mortgages, which in theory would have been more liquid than the actual purchase of real estate. This, in turn, accelerated the demand for additional sub-prime mortgages, which eventually began scrapping the bottom of the barrel with no-doc loans, packaged and repackaged according to risk management software that was little understood and tended to neglect down-side data (i.e. models that did not properly weight the possibility of above average foreclosures and falling real estate values).
As this first storm began gathering strength, the second arrived - this was the beginning of the foreclosures, further fueled through over-valuing real estate leading to overbuilding and the situation of more supply than demand, i.e. there were far more buyers of "packaged" instruments than actual buyers of real estate. Once real estate market tipped, investment shifted rapidly out of that sector and fled to commodities, further aggravating speculation in rising oil prices.
All three then converged. Unregulated financial instruments composed of unregulated (or ignored) sub-prime mortgages, with an unregulated commodity market. Since it is today still difficult to obtain reliable information concerning any of these markets, it is almost impossible to determine how each fed on the other and influenced the other. What is known is that it was apparently a toxic mix...a Perfect Storm, which has exposed the house-of-cards U.S. financial system, the pitfalls of deregulation, the incompetent or corrupt use of untested risk management models, our foreign oil dependency, etc.
It will be a long time before global confidence in the U.S. economy is restored. One means of that restoration is to move toward a more European/socialistic financial system (notwithstanding McCain's fear of redistributing the wealth and equating a progressive tax system with socialism).
In other words, restoration of global confidence in our economic system may demand abandoning Reaganomics, which anyhow has not improved the lot of the American middle class.
The extent of foreign investment in basically sub-prime mortgage packages shows that whereas much of the world is accustomed to working within their own more regulated and conservative banking systems, they weren't above making an extra Pound, Mark, Franc or Euro or two by investing in the high-risk, Cowboy Capitalism of George Bush's United States. But once burned, shame on you; twice burned shame on me. I suspect the U.S. has taken a very serious hit on its ability to guide future global financial rules and that global GDP growth will slow significantly until we return to square one, with new rules, going forward.
Notwithstanding Chris Dodd's Countrywide VIP mortgage, or Barney Frank's pre-crisis support of Fannie Mae and Freddie Mac, the Obama economic team, composed of people such as Paul Volker and Warren Buffet will probably appear abroad as considerably stronger than the McCain team of Jack Kemp and a handful of lobbyists and conservative think tank people (assuming that Phil Gram and Carly Fiorina are actually gone and not just hiding in the wings).
Two hundred and thirty two years ago, on July 4th, 1776 our founding fathers gathered in Philadelphia and declared our independence from Great Britain. While "taxation without representation" was a prime cause in that declaration, I believe the broader cause was an understanding that as long as they remained under colonial rule, the country could not reach its full potential. Failure to achieve independence would constrict growth both in population, geography and industry and subject the American colonies to the intra-European concerns and squabbles of Great Britain. Today, the phenomena, not of colonialism, but of globalization, may be having the same effect.
As long as we pursue economic policies that place a globalized economy ahead of the interests of our own people, we risk returning to basically colonial status. It is time Republicans abandoned the destructive economics of an outmoded theory and recalled the closing words of the men in Philadelphia: ""And for the support of this Declaration, with a firm reliance on the Protection of Divine Providence, we mutually pledge to each other our lives, our Fortunes and our sacred Honor."
Unless we are ready to accept a continued decline toward the status of a Third World Country, we must begin rebuilding an economy based on meaningful and well paying employment for all; an economy not only strong for the 10% at the top, now paying their disproportional share of taxes, but for all. In my next post, a few ideas on beginning this process.
The Economy - Part VI
Given a progressive tax system and an economy losing its middle class, with stagnant or falling wages, it is not surprising that the upper two brackets pay more taxes than the rest. The "rest" don't make enough money to pay taxes. The means for rectifying this situation is not to cut the taxes of the wealthy, but to increase their taxes and use the money to do what the wealthy have largely failed to do over the past 20-30 years: invest in better paying U.S. jobs and thereby spread the tax burden more equitably over time (hopefully returning to a situation wherein all taxes may safely be reduced, on the basis of a sound economy).
The reason this isn't understood, is that Republicans (and, to a lessor degree, Democrats) fail to acknowledge that whereas Reganomics may now work globally, it has failed to work nationally. The reason for this failure is simple and has been stated time and time again herein: investors don't invest to create jobs; they invest to make money. If a company is able to produce a better return on investment than its competitors, by shifting production off-shore to take advantage of low labor costs, then that's where investment capital will flow. Forget free trade theory and trickle down economics. Labor (including costs associated with labor) is THE reason we've lost most of our manufacturing base over the last 30 years.
Again, I'll repeat my earlier comments about George Eccles' observations regarding the Great Depression. Eccles pointed out that a democratic-capitalist country, based on exports and mass consumption, functions best for everybody with a reasonably equal distribution of wealth, because then more people have sufficient money to buy more product.
Easy credit and cheap imports today obscure Eccles observation. But high-end products are (or have been until recently) surging. More expensive cars; more expensive yachts; more expensive homes; all meeting a demand that reflects the greatest concentration of wealth since 1929. What ultimately seems to have brought an end to this is the failure of credit at the bottom of the economic system, rapidly transmitted up the economy to include our major banks.
A housing foreclosure is essentially a failure of credit. Obama is correct. Additional tax cuts (or continuing with the temporary Bush cuts) for the wealthy will do nothing to improve an economy without a solid basis. The only way to do that is to rebuild the economy from the bottom up, by creating new infrastructure-related jobs (that can't be moved overseas) and restructuring the tax code to provide for incentive for investment capital to be kept inside the country.
This will be an enormous task that requires the suspension, if not completely scrapping, Reagonomics, which today seems to work primarily for the developing world. Clinton essentially continued Reaganomics via NAFTA, coupled to overvalued dot.coms and 401K accounts. Bush hid economic realities with phony growth based on the financial services, real estate and construction industries, stimulated through easy credit and cheap money.
I believe, the magnitude of the current economic crisis requires a strategic movement, via government, back to Keynesian economics and that the policies of Obama better reflect this movement. On the other hand, the McCain economic plan appears to me to be little more than a series of tactical moves designed to prop-up failed Reaganomics.
Before determining where we go from here, it is important to look at how we came to this point with more specificity, which I'll try and do in the next post, entitled "The Perfect Storm."
The reason this isn't understood, is that Republicans (and, to a lessor degree, Democrats) fail to acknowledge that whereas Reganomics may now work globally, it has failed to work nationally. The reason for this failure is simple and has been stated time and time again herein: investors don't invest to create jobs; they invest to make money. If a company is able to produce a better return on investment than its competitors, by shifting production off-shore to take advantage of low labor costs, then that's where investment capital will flow. Forget free trade theory and trickle down economics. Labor (including costs associated with labor) is THE reason we've lost most of our manufacturing base over the last 30 years.
Again, I'll repeat my earlier comments about George Eccles' observations regarding the Great Depression. Eccles pointed out that a democratic-capitalist country, based on exports and mass consumption, functions best for everybody with a reasonably equal distribution of wealth, because then more people have sufficient money to buy more product.
Easy credit and cheap imports today obscure Eccles observation. But high-end products are (or have been until recently) surging. More expensive cars; more expensive yachts; more expensive homes; all meeting a demand that reflects the greatest concentration of wealth since 1929. What ultimately seems to have brought an end to this is the failure of credit at the bottom of the economic system, rapidly transmitted up the economy to include our major banks.
A housing foreclosure is essentially a failure of credit. Obama is correct. Additional tax cuts (or continuing with the temporary Bush cuts) for the wealthy will do nothing to improve an economy without a solid basis. The only way to do that is to rebuild the economy from the bottom up, by creating new infrastructure-related jobs (that can't be moved overseas) and restructuring the tax code to provide for incentive for investment capital to be kept inside the country.
This will be an enormous task that requires the suspension, if not completely scrapping, Reagonomics, which today seems to work primarily for the developing world. Clinton essentially continued Reaganomics via NAFTA, coupled to overvalued dot.coms and 401K accounts. Bush hid economic realities with phony growth based on the financial services, real estate and construction industries, stimulated through easy credit and cheap money.
I believe, the magnitude of the current economic crisis requires a strategic movement, via government, back to Keynesian economics and that the policies of Obama better reflect this movement. On the other hand, the McCain economic plan appears to me to be little more than a series of tactical moves designed to prop-up failed Reaganomics.
Before determining where we go from here, it is important to look at how we came to this point with more specificity, which I'll try and do in the next post, entitled "The Perfect Storm."
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