We Think We Are Free

June 30, 2011

Would you feel comfortable going to a doctor or a dentist whose training consisted of “120 hours [three weeks] of classroom and on-the-job training.” Would you hire an accountant or engineer whose training was similar? Would you consider anyone a professional if they had only three weeks of training?

Have you noticed that after every TSA outrage, government spokespeople and their media apologists maintain that the TSA agents involved were just doing their job in a professional manner? Consider this recent incident—after subjecting a frail 95 year old woman suffering from leukemia to an hour long search in which she had to remove her adult diaper a TSA spokesperson insisted TSA officers work “with passengers to resolve security alarms in a respectful and sensitive manner.” The spokeswomen concluded “We have reviewed the circumstances involving this screening and determined that our officers acted professionally.…”

Not only were they acting professionally but the TSA spokesperson maintained that their common-sense defying actions were necessary “because we know from intelligence that there are terrorists out there that would then exploit that vulnerability.” Presumably, on the grounds of “national security,” the “intelligence” that al-Qaeda is recruiting 95 year old American women to hide explosives in the diapers was not produced.

In no sense of the word are TSA officers professionals. The use of the word professional when describing them is deliberate propaganda designed to get the public to submit to coercion.  A professional is a term reserved forhighly educated, mostly salaried workers, who enjoy considerable work autonomy, a comfortable salary, and are commonly engaged in creative and intellectually challenging work.”

OK, it is clear that the minimally trained TSA officers have little or no autonomy to use common sense in doing their job. However, it is equally true that those calling TSA security personnel perverts and criminals are also missing the point. As you walk through TSA security, the ordinariness of TSA personnel is palpable. By and by, they are simply our fellow human beings trying to make their way in the world and earning a living in the best way they know how. They are a modern example of what social philosopher Hannah Arendt called the “banality of evil.”

In her book Eichmann in Jerusalem: A Report on the Banality of Evil, Arendt reports on the lack of anti-Semitism or psychological damage in Eichmann. Then you may ask, “How could he have committed such heinous crimes?” Arendt reports that Eichmann had limited intelligence, was unable to complete high school, was unable to think for himself, and had a strong desire to get ahead. Having been a witness to the rank-and-file of German civil service endorsing the “final solution,” he believed his moral responsibility was absolved.

In his book They Thought They Were Free, Milton Mayer tells the story of how decent Germans became Nazis. Consider policemen Willy Hofmeister. Mayer relates the story of how in 1938, Hofmeister was assigned the job of rounding up Jewish males in Kronenberg “for their own protection.” Hofmeister was no Nazi thug; he was polite and respectful as he did his dastardly deeds.

During one of his stops, Hofmeister explained to a Jewish man that he was taking into custody why the town synagogue was blown up that day: “They blew it up as a safety measure.”

No, American totalitarianism is unlikely to look like German fascism. Yet, if you read Arendt and Mayer, the parallels will chill you. No, most TSA personnel are not Eichmann’s in training; but then again, nor were most Germans. Most Germans who enabled the Nazi machine and most TSA personnel are more like Willy Hofmeister—just doing their jobs.

Many Americans support and defend unconstitutional and useless searches on the grounds that they are “respectfully” done and necessary for our safety. The media acts as propaganda outlets to promote these unconstitutional acts; judges rubber stamp unconstitutional laws. Many Germans thought they were free and that their behavior was normal. The spirit of Willy Hofmeister is alive and well in America. We think we are free. Are we?

The Inner-Work of Freedom

June 7, 2011

Last week while touring the East Coast on her “One Nation” bus tour, Sarah Palin visited Boston where she uttered this gibberish about Paul Revere: “He who warned the British that they weren’t gonna be taking away our arms by ringing those bells and by making sure that as he’s riding his horse through town to send those warning shots and bells that we were gonna be secure and we were gonna be free and we were gonna be armed.”

Of course, there is nothing new here. Palin, like many politicians, is ignorant about many things, including history. But, what about our own ignorance? We may know the basic facts of Revere’s ride, but what if the context in which we have placed the ride is flawed in a basic way?

Paul Revere, we have been taught, is one of those essential men or women without whose actions history would have been fundamentally different. Can this really be true? Does our fate hang so precariously on the actions of single individuals? Are we really passive bystanders to the great play being enacted in front of us?

History, as taught in most schools, is a tedious compilation of discrete events with emphasis given to the actions of the great people. The theory holds that significant changes in history are caused primarily by the actions of these individuals who stood out as different from others of their time and place. For example, in American history textbooks, every president is featured, no matter how ordinary they were; special emphasis is given to those who had the biggest ambitions.

Henry Wadsworth Longfellow chose to immortalize Paul Revere—but just as easily, he could have immortalized William Dawes or Israel Bissell. Dawes rode the same route as Revere, and both were later joined by Dr. Samuel Prescott who was the only one of the three to complete his route.  Bissell rode for over four days covering over 345 miles between Boston and Philadelphia. Along his route he shouted “To arms, to arms, the war has begun,” and the message he carried from General Joseph Palmer was copied at each of his stops.

The struggle for freedom is an age-old struggle, and the American colonists were receptive to this transcendent idea. Revere, Dawes, Bissell and Prescott responded to what was needed on the night of April 18, 1775. A warning was needed, and they were inspired to act. Others also acted as they were called to do. All were part of a social fabric that was ripe for a freedom-based revolution. The essential element in the American Revolution was the receptivity of the population towards the ideas behind the revolution. Paul Revere’s ride was no more or less essential to the American Revolution than the millions of other individual acts that made the revolution possible.

There is an important lesson to be learned here. Most Americans think the essential battles in 2012 will be in the presidential primaries and then in the November presidential election. They are wrong. The essential battle is taking place in the mind of every citizen—today, tomorrow and every day. We should all be asking ourselves questions: What role should government play in society? Should the Federal Reserve be tinkering with interest rates? Should the federal government subsidize ethanol and nuclear power? Should the government be continuing its war on drugs? Should government force others to subsidize my standard of living? Should we be secure in our own homes against the coercive power of government? My list could go on and on.

If we’re unable to answer questions such as these—and as importantly, if we are unable to articulate the principles that inform our responses—than no matter who we support, we are part of the problem.  If we are unprincipled, the next president of the United States will continue to espouse policies that will erode our freedoms and prosperity. That next president will not be to blame for the misery caused by his or her policies; instead, our ignorance will be the cause.

The politicians we elect reflect our collective national inward condition. There is little fundamental difference between the Sarah Palins and Barack Obamas of the world. Neither recognizes or understands that the President of the United States was never intended to be a great man doing great things. Instead, the president was to be steward of the principles that would allow others to do great things.

Economics professor Don Boudreaux makes this observation: “Society progresses only through the countless decencies, creative acts, honest exchanges, and faithfulness to responsibilities performed daily by millions of persons, nearly all of whom will be forgotten within a few decades of their deaths.”

Many in America no longer understand the basic truth in Boudreaux’s words. They are waiting for a political savior, and they will be sadly disappointed again. There are no political saviors. Only when the average American is willing to do the hard work that comes from studying and reflecting on the principles that support prosperity and freedom will candidates that support these policies be electable.

Studying these timeless principles is not enough. We can study an idea but not be willing to live by an idea. Other beliefs, often invisible to us, seemingly hijack our behavior. We can advocate free-markets, but then seek subsidies for our organization or industry on the grounds that we are somehow special. Or, on the grounds of the false belief that we are special, we can seek freedom for ourselves but then seek to restrict the freedom of others. Do we expect others to live by principles that we fail to live by ourselves? Is it not necessary for each of us, as individuals, to go through an inner process—a process that uncovers our own false beliefs that are undermining freedom? If so, there is an inner-work of freedom. Since we as a nation are fixated on events going on outside ourselves, we have much work to do.

Without being grounded in timeless principles to guide our actions, fear grows in the minds of people. Until we choose timeless principles over fear, look for increased political polarization as candidates emerge to feed off our fears.

Looking for Victims

April 28, 2011

Would you give up your washing machine in order to create jobs? Most people would be puzzled by such a silly question. Prior to the invention of the washing machine, women and children spent several days a week on household laundry. But think about it, if the washing machine was banned, teenagers who are having trouble finding summer jobs could find work doing their neighbors’ laundry by hand. Similarly, adults who have found economic conditions tough could begin hand laundry businesses. Yes, banning the washing machine might create jobs; but does anybody think we would be better off for doing so?

Some politicians might. Recently, on the floor of Congress, Rep. Jesse Jackson, Jr. said:

A few short weeks ago I came to the House floor after having purchased an iPad and said that I happened to believe, Mr. Speaker, that at some point in time this new device, which is now probably responsible for eliminating thousands of American jobs. Now Borders is closing stores because, why do you need to go to Borders anymore? Why do you need to go to Barnes & Noble? Buy an iPad and download your newspaper, download your book, download your magazine.

Please listen to Jackson’s speech here as he attacks both technological advancement and China. Jackson claims that Steve Jobs and the Chinese (where the iPad is assembled) are doing well, while others are suffering because of the iPad. Incidentally most of the iPad parts are not manufactured in China, but the final assembly takes place in China. So what would Jackson propose? Ban the iPad? Tax iPad users? Ban Chinese imports? Subsidize Borders? Of course, in Jackson’s world, it could be any or all of the above. Listening to Jackson, one is struck with the elegance and assuredness with which he utters his inanities.

Jackson asked, “What becomes of the jobs associated with paper?” Answering his own question, he declares, “In the not-too-distant future such jobs will simply not exist.” All new technologies create disruptions. In the 1800s there were many individuals employed by firms who annually harvested millions of tons ice for refrigeration. An ice harvester in 1893 earned approximately a $1.75 a day for his difficult labor. In the 20th century, widespread use of refrigeration ended the careers of ice harvesters. No doubt most simply found employment in new emerging industries, often at a higher pay.  The children and grandchildren of ice harvesters, if they too worked as manual laborers, found their income had increased many fold as a result of technological progress. Regardless of whether or not they went to college, they enjoyed a standard of living that their father or grandfather could not have dreamed of.

To be sure, some workers having specialized skills may have trouble making a transition after technological changes disrupt their livelihood. By the late 1920s Hollywood was transiting from silent movies to talkies. Francesca Miller observes that: “There were many silent directors who, after attempts at talkies, couldn’t or wouldn’t make the adjustment, D.W. Griffith being the most notable but there were others: Rex Ingram, actor/directors like Charlie Chaplin and Buster Keaton and Victor Sjöström being the most notable cases.”

At the time there was no Congressman Jackson railing against talkies, looking for victims instead of focusing on progress. Of course, the choice to channel ignorance is bipartisan. Donald Trump has been threatening to impose a 25% tariff on Chinese imports if they don’t meet his conditions. In late March, appearing on O’Reilly Factor on Fox News, Trump said: “If I decide to run, we are not going to have the kinds of problems we have now because I won’t be taken advantage of by the rest of the world…Twenty-five percent tax on China, unless they behave.”

Appearing with Poppy Harlow on CNN Money, Trump opined that China is stealing all our jobs. Listen to Trump as he belligerently threatens China “as an abuser of the United States.”

Imagine a small town in the United States in 1893; a town perhaps in which ice harvesters lived. Your shopping is limited to the few merchants in the town. Suddenly there is a 532-page catalog from Sears and Roebuck featuring a virtual cornucopia of products at prices you never dreamed of. No doubt that Sears and Roebuck put many a local merchant out of business and seemingly cost the small town economy jobs.

But Sears and Roebuck, like the iPad, created wealth and did not destroy wealth. By making available a wide variety of goods at lower prices, Sears and Roebuck effectively made a given level of income go farther. Now a household could save more, spend more on education, and spend more on other goods of value. This process both increased current wealth and future wealth.

Of course, what was immediately visible was that the local merchant struggled to compete with Sears and Roebuck. The money saved, the money invested, the jobs created because of shifting spending patterns were not as immediately visible.

Would America be better off if iPads were assembled in the United States? Would American workers be driven to suicide by these tedious factory jobs as have many Chinese workers at the Foxconn plant that assembles the iPad? Or, are we better off pursuing careers to develop the technology and software behind the iPad?

Unfortunately, in the days to come, populist rhetoric like we are hearing from Trump and Jackson will become more commonplace. The policies they advocate are dangerous, as they are filled with hate and ignorance.

Mobilized Against Impermanence

April 12, 2011

Seventeen years ago when my wife was pregnant, she craved grapefruit. We tried to buy organic foods whenever possible, and finding a steady supply of organic grapefruit that was fresh and reasonably priced was not easy!

We were lucky to find Scott Nash selling organic produce out of a small warehouse storage facility in Rockville, Maryland.  The warehouse site was an upgrade; while in high school, Scott had begun selling organic produce out of his parent’s house. Each week I drove to Rockville to buy his produce and the case of organic grapefruit he set aside for me. The price was much cheaper than Whole Foods or my local natural foods store, the product was fresher, and the shopping experience was enjoyable. If you can imagine calling Whole Foods to special order a case of organic grapefruit, you can understand the problem that Scott solved for me.

Scott grew his little produce warehouse into his first store My Organic Market (MOM’s). Recently, he announced the opening of his seventh store in Timonium, Maryland; it’ll be his first in the Baltimore area. In over 30 years of natural food shopping, I have found MOM’s to be unequaled for price, selection, and quality. Over the years, Scott’s entrepreneurial drive has not only saved my family thousands of food dollars, but has made natural food shopping an event. We continued to shop at our local natural foods store in Baltimore; but when we visited the Washington D.C. area, a stop at MOM’s was a must.

MOM’s is a success story. Yet, when Mom’s opens in Timonium, other merchants will be directly impacted. A former next-door neighbor owns a natural foods store less than a mile away from MOM’s new location. Their sales could fall precipitously; another close-by natural foods store in Towson might also see a drop in business.

Whether or not the other natural food stores in the area continue to thrive by finding new ways to serve their customers, I can’t say. That is a decision consumers will make in the future, after MOM’s opens. Competition helps consumers discover who among these honorable competitors can serve them best.

I can imagine a outcome where MOM’s bigger selection and lower prices makes it hard for these older, established stores to compete. Is that it unfair? MOM’s has lower prices because Scott is willing to accept a lower margin, but also because he now has buying power that the smaller stores do not have. Yet, the path Scott Nash followed was open to anyone—he had no special connections.

It is safe to predict that MOM’s will grow the overall market for natural foods in the Baltimore area. The current plan is for the Timonium store to hire fifty people; the number of individuals employed in the natural foods industry in Baltimore will certainly increase.

If you sat down with Scott and the owners of the other natural food stores in the Timonium/Towson area you would find them all very likable and hard-working.  If you met the staff at any of these stores you would find almost all of them to be dedicated employees. Those who own and work at the incumbent businesses may have their livelihood disrupted; it would be natural to feel compassion for them. Yet, very few would think there’s a public policy issue here—impermanence is part of life. There are no guarantees in business.

So far you might think this is a rather unremarkable story. Someone builds a better mousetrap every day; businesses grow and businesses shrink in response to who best gauges the most urgent needs of the consuming public.

Yet, this story is remarkable when we consider how much of today’s society is mobilized against impermanence. Much of society believes that the government can prevent night from following day and winter from following summer.

This magical thinking has its origin in the beliefs that conditions should always get better and that there is an entity called government which is responsible for preventing suffering.

In his insightful essay: “A Tale of Two Economies” Oliver DeMille observes:

Using government power to transfer money and wealth from the middle classes to the upper class is aristocracy, pure and simple. Aristocratic conservatives and aristocratic liberals have greatly benefitted from this trend, and they keep the rest of the nation from doing anything about it by arguing among themselves. Conservative and liberal aristocrats point fingers at each other, accuse and call names, and tell us to send more money to one side or the other.

If the DeMille is correct, and I believe he is, the question arises, Why are many Americans seemingly asleep at the wheel as wealth is transferred out of their pockets? There are many possible answers; economic illiteracy is one that comes to mind. Another is ignorance of the transcendent founding principles of this country and how those principles generate wealth and freedom. Yet another possible answer is that political lobbyists, with their ability to steer campaign contributions, are more powerful than the general public.

Yet, I believe there is an even more deeply buried belief at work. Aristocrats have a sense of entitlement and privilege. Aristocrats believe things have always been a certain way and that they are entitled to keep their inherited privileges. Impermanence is for everyone else, but not for those with aristocratic privileges.

We are left with the uncomfortable truth that Americans in sufficiently large numbers do not oppose the transfer of wealth that is going on because too many of them already have, or aspire to have, aristocratic type privileges.

Public employee unions, the banking and financial services industry, the nuclear power industry, the ethanol industry, defense contractors, and the list goes on, are largely refusing to surrender a penny of the privileges and subsidies that government has already granted them.

Consider Americans who refuse to pay attention to even rudimentary principles of good diet and exercise. Yet, there is often a sense of entitlement to health care.

Consider college students whose partying time crowds out their studying time. Yet, there is sense of entitlement to a good job after they graduate.

Consider homeowners who had a sense of entitlement to perpetually rising housing prices.

Or consider corn farmers who have a sense of entitlement to subsidies while conventional farming practices help to destroy the environment in the Midwest and cheap corn fuels the destructive feedlot beef industry and the energy consuming (not energy producing) ethanol industry.

Here, too, the list of the privileged can go on.

Much of American society is mobilized against impermanence. Of course, impermanence is more powerful; in the end all of these privileges are impermanent. Yet, mobilizing against impermanence, we are destroying the economy and destroying America’s future.

Nuclear Politicians

March 24, 2011

Yesterday my wife and I were out for lunch, and she was enthusiastically telling me about the fine work her marketing students are doing. Her students are examining many companies that have an entrepreneurial culture. In every case, these companies have found consumer needs that were going unfilled; and they built their company by satisfying those needs.

The conversation turned to business people who instead of satisfying needs turn to government for subsidies. My wife responded, “I don’t call those individuals businessmen, I call them politicians. If a business does not have to meet the test of the marketplace, those who run the business are not businessmen.”

I thought of nuclear power. One of the biggest misconceptions in contemporary America is that nuclear power is a safe, cost-efficient form of energy that would flourish in the free market if it were not hampered by environmentalists and overzealous government regulators. Nothing could be further from the truth. In the absence of government regulations and subsidies, the nuclear power industry would not exist at all.  My 1984 Cato Institute study explains why.

The Price-Anderson Act places a cap on damages that a nuclear power plant operator will incur should the plant have an accident. In other words, for over fifty years the government has introduced the same type of systemic risk into the nuclear power industry that we have seen in financial industry. The industry gets the rewards; the rest of us absorb the risks.

The single best judge of the safety of nuclear power plants is the insurance industry. The insurance industry has an incentive to properly assess risks as they determine appropriate premiums. If they overestimate the risk involved in an activity, their premiums will be too high; a competing company will take their underwriting business away. If they underestimate the risk, they make their shareholders vulnerable to huge losses. Thus, when determining the risk of nuclear power, insurers have an incentive to listen to all voices and all scientists on all sides of the issue.

The bottom line is that the insurance industry says that nuclear power is unsafe. This is demonstrated through their unwillingness to sell operators of nuclear power plants anything more than a small fraction of the insurance they would need in the event of a major accident. Absent adequate insurance, the financial markets would simply not accept the risk of holding the stocks or bonds of a nuclear power utility.  In its wisdom, the marketplace has judged nuclear power to be unsafe.

My Cato Institute study explains why the proponents of nuclear power, who understood this, sought the protection of the Price-Anderson act all the way back in the 1950s:

Consider the following statements from the 1956 and 1957 hearings on the then-proposed Price-Anderson amendment.

A vice president of Westinghouse, Charles Weaver, stated: “Obviously we cannot risk the financial stability of our company for a relatively small project no matter how important it is to the country’s reactor development effort, if could result in a major liability in relation to our assets.”

In further testimony Weaver indicated that even Westinghouse’s suppliers were unwilling to go ahead with the contract unless Westinghouse agreed to indemnify them against risks. General Electric also indicated during the hearings it was prepared to halt its work in the nuclear industry should a limitation on liability not be passed. Suppliers of reactor shields also indicated their unwillingness “to undertake contracts in this field without being relieved of uninsurable liability in some way.”

There are of course other reasons why nuclear power would not exist without the umbrella of government. We are seeing in Japan that the storage problem of spent fuel rods has never been properly addressed. The same spent fuel rod problem exists in the United States too, with, according to the Los Angles Times, “about 65,000 tons of the material spread from the East Coast to the West Coast and from the northern woods to Mexican-border states.”

General Electric designed the Fukushima Daiichi nuclear plant.  According to the New York Times “G.E. began making the Mark 1 boiling-water reactors in the 1960s, marketing them as cheaper and easier to build — in part because they used a comparatively smaller and less expensive containment structure.” Early on the risks were clear: “In 1972, Stephen H. Hanauer, then a safety official with the Atomic Energy Commission, recommended that the Mark 1 system be discontinued because it presented unacceptable safety risks.”

So who are the nuclear politicians? They include all those who believe they are smarter than the collective wisdom of the marketplace. In his State of the Union address in 2010, President Obama called for “building a new generation of safe, clean nuclear power plants in this country.” Despite their professed claims of support for the free market, Republican politicians join him in their own pro-nuclear madness. Presidential hopeful Newt Gingrich advocates, “We should also create a streamlined regulatory and tax regime for the creation of more nuclear power plants.” 2012 Front runner Mitt Romney wrote, “I confess that I don’t understand why some environmental activists still consider nuclear power such a bogeyman.” House Speaker John Boehner maintains, “Nuclear energy in the 21st Century is the safest, cleanest source of energy you can find.”

But, it is also important to list the nuclear politicians that may not be so obvious. For decades, the leadership at General Electric has acted on the belief that it is important for General Electric to earn profits by selling nuclear reactors. General Electric’s legendary CEO Jack Welch, lionized by many, led the way for approximately two decades. Fortune magazine named Welch “manager of the century” in 1999.

In a free market—pursuing and earning profits is necessary for the good of both the firm and its consumers. In a free market, earned profits are a signal that a firm is utilizing resources in a way that satisfies the most urgent needs of its customers. Thus in a free market, firms and consumers happily share the same interests.

Of course, markets are often not free. When a firm or an industry seeks privileges and subsidies from government, they are operating outside of a free market—their interests and the interests of the consumers are divorced. Instead of having an entrepreneurial culture that stands the market test by serving its customers, the firm thrives by having a political culture where success is measured by the latest government subsidy.

One way to put an end to this destructive behavior is for the public to see that true business leaders are entrepreneurial heroes; they are not mere politicians. Why lionize someone like Jack Welch? Isn’t it better to shun or ignore those who choose to harm rather than to serve?

Perhaps you think those are harsh words. Jack Welch and other nuclear politicians may never have dreamt that in a first-world capitalist society, like Japan, a nuclear accident would be so catastrophic.  Perhaps so, but they consciously chose to override the wisdom of the marketplace by their support of government interventions like the Price-Anderson Act. They chose to earn profits by using the coercive power of government against consumers. Ask the people in Japan about the consequences of their conduct.

Destruction is Not Profitable

March 15, 2011

You might recall the scene in The Social Network where the Winklevoss brothers take their case against Mark Zuckerberg to then Harvard president Larry Summers. In the scene, Summers is rude, arrogant, and dismissive, which by all accounts is exactly how he is in real life. Summers, who has also been Secretary of the Treasury under Clinton and Obama’s Director of the White House National Economic Council, is known for his confidence in his own great intellectual prowess.  In a recent interview on CNBC, Summers claimed that the devastation in Japan could actually temporarily boost the economy as rebuilding takes place.

Other economists have argued that the destruction will provide a long-term benefits:  “This is a Keynesian stimulus program that nobody can argue with: just rebuilding the city of Sendai,” said Marcus Noland, deputy director of the Peterson Institute for International Economics in Washington.” The Wall Street Journal reports that: “Some economists [unnamed] have argued that a quake could actually lift the economy in the long run.”

I find these predictions offensive. The suffering of the Japanese population is far beyond the experience of most of us. I wonder if Summers and Noland would consent to having their homes and hometowns destroyed in the name of stimulating the economy.

Last night I asked my 15-year-old children, sophomores in high school, whether they thought destruction could stimulate the economy? My daughter was puzzled, “Why would you even ask such a question?”

“How could it?” my son challenged. He correctly explained that resources going into rebuilding towns that were once perfectly usable are resources that would no longer be able to satisfy other needs. My son gets an A in my economics course; Summers and Noland earn Fs.

Of course, official GDP data may indeed show the stimulating effect of government spending; but this is simply how GDP is counted. Any money government spends is counted dollar for dollar in GDP. If government hires workers to dig holes and then fill the holes again, GDP may increase. But surely no one would argue that the economy has improved by such a measure. Having workers dig holes and fill them up again is not contributing anything to satisfy the urgent needs of consumers.

Currently in Japan, “evacuation centers have half a million people in centers and schools that don’t have water, electricity and oil”. Government efforts to resupply the population are of course necessary. Those efforts will cost more than the displaced population would ordinarily spend on their own food and shelter. GDP will thus increase, but in no real sense has the economy grown.

Similarly, government cleanup efforts in the failed nuclear reactors will cost far more than energy companies would’ve spent generating power. Again GDP may increase, but that is simply a problem with how this statistic is calculated.

In 1848, the great French economist Frédéric Bastiat first published his essay “What Is Seen and What Is Not Seen.” Bastiat distinguishes for us the bad economist from the good economist: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Next, Bastiat dismantles what has come to be known as the “broken-window fallacy”:

Have you ever been witness to the fury of that solid citizen, James Goodfellow, when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?”

Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.

Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs’ worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.

But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.

Let us next consider industry in general. The window having been broken, the glass industry gets six francs’ worth of encouragement; that is what is seen.

If the window had not been broken, the shoe industry (or some other) would have received six francs’ worth of encouragement; that is what is not seen.

And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.

Now let us consider James Goodfellow.

On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.

On the second, that in which the accident did not happen, he would have spent six francs for new shoes and would have had the enjoyment of a pair of shoes as well as of a window.

Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window.

From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: “Destruction is not profitable.”

“Destruction is not profitable.” What can be simpler to understand? Apparently it takes a keen intellect to think otherwise. But, by behaving badly, Larry Summers is doing us a great service. Through his prediction he is exposing the utter intellectual and moral vacuity that is behind Keynesian economics. In his world, governments need not be concerned about the effects of its policies on individual citizens or, for that matter, the real impact on the economy. All government needs to do is spend and say it has increased GDP. If the understanding of Summers and others like him is limited to measurable but problematic statistics, their understanding is shallow indeed.

The Regime Has Fallen, But Will Anything Change?

February 15, 2011

About every six months my aunt overthrows her government. My aunt, 87, is in a nursing home; and she is certain she is a victim of nursing homes and a family that won’t give her the help she needs. Due to her morbid obesity and weak physical condition, she is almost immobile. She requires, in nursing home parlance, “maximum assist” which means it takes two or three staffers to get her out of bed or transfer her to the toilet.

Since she entered the nursing home system over two years ago, she has insisted over and over that her goal is to return home. Yet, physical therapists in three different nursing homes have told us that she offers minimal cooperation and makes little if any progress in physical therapy. In almost daily phone conversations with us, she rails against her plight and what she perceives as unfair treatment. Her refrain is often: “Why aren’t they helping me?” And so, full of blame, she transfers to a new nursing home; where the story begins again.

My wife and I have been deeply troubled by my aunt’s condition. We try gently to shift her thinking by exploring with her different ways to perceive what she is experiencing. Almost all days though, my aunt is interested only in having an audience for her story of victimization. When we ask her if telling these unhappy stories is helpful to her, she tells us she doesn’t feel like herself if she doesn’t keep the story going: “I don’t know who I am, if I don’t have my grievances,” she explains to us.

As you might expect, when she changes nursing homes, or even changes therapists within a nursing home, nothing changes. After a few days of transition, her story of victimization becomes front and center again. All that has changed is the name of the home and the name of the therapist. My aunt is close to the end of her life—my wife and I hope she experiences a change of heart before she passes.

Like my aunt, citizens of Egypt have a problematical existence. Poverty and repression is the plight of the ordinary Egyptian. Unfortunately, the current revolution in Egypt is about as likely to produce a liberal democracy, as changing nursing homes is likely to produce a change in my aunt’s circumstances.

Before I go further, let me define liberal democracy. A liberal democracy is a democracy where individual rights are protected and there are strict limitations on the role of government. Without guarantees of individual rights, and without limitations on the role of government, a democracy is unlikely to result in a free society. Walter Williams has observed, “Democracy and majority rule give an aura of legitimacy to acts that would otherwise be deemed tyranny. The founders of our nation held a deep abhorrence for democracy and majority rule.”

In Federalist paper #10, James Madison wrote, “Measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority.” In other words, Madison understood that a democracy is no guarantee of liberty.

Germany provides a case in point. Although in free elections Hitler was never supported by a majority of the German population, Hitler was legally appointed Chancellor; and Hitler assumed dictatorial powers by an overwhelming vote of the Reichstag.

In his classic book The Rise and Fall of the Third Reich, William Shirer observed that in the years after Hitler assumed total power:

The overwhelming majority of Germans did not seem to mind that their personal freedom had been taken away, that so much of culture had been destroyed and replaced with a mindless barbarism, or that their life and work had become regimented to a degree never before experienced even by a people accustomed for generations to a great deal of regimentation…. The Nazi terror in the early years affected the lives of relatively few Germans and a newly arrived observer was somewhat surprised to see that the people of this country did not seem to feel that they were being cowed…. On the contrary, they supported it with genuine enthusiasm. Somehow it imbued them with a new hope and a new confidence and an astonishing faith in the future of their country.

In other words, the barbarism that a minority of the population was experienced was of no concern to majority and was not even experienced as tyranny.

What lessons can we draw? My aunt suffers because she fails to appreciate the internal conditions that would lead to lasting change in her experience of life. Egyptians suffered, not because of Hosni Mubarak, but because they have not had sufficient understanding of the conditions that produce freedom and prosperity—Hosni Mubarak is an outcome of this ignorance and not a cause. Their economy is heavily regimented, their Coptic Christian minority has been persecuted, and widespread anti-Semitism exists.

Regarding their heavily regimented economy, Egypt’s government employs 35% of the population. As Daniel Henninger observes in The Wall Street Journal, Egypt as well as other Middle Eastern countries  have “used public works as a form of social security and a tool of political stability.” He adds:

Their universities fed graduates into a nonproductive but high-benefit public economy. Many Tunisian rioters were unemployed college graduates.

The argument being made here is that past some tipping point of a population employed by the state, an economy starts to choke. Egypt is far past that point. In Tahrir Square you are watching the economic and psychological dislocation caused by this misallocation of national energy. This isn’t just about a new government. It is a sit-down strike for a better economy.

In her classic book The Discovery of Freedom, Rose Wilder Lane writes, “Every human being, by his nature, is free; he controls himself.” Yet the “Old World” belief is that some Authority needs to control men. Lane points out, “They cannot make their energy work by any such belief, because the belief is false. But they do not question the belief, because when they submit to a living Authority’s control, and cannot get food, they can always blame that Authority.”

Lane goes on to explain that as long as that false belief—that some Authority should control the energy of mankind—remains intact, revolutions change nothing.

Back to Germany, but this time in the present day. In her book The Art of Choosing Sheena Iyengar reports on her research about societal attitudes in East Germany. She observes,

Even 20 years after its reunification, in many ways Berlin still feels like two cities, divided by a barrier of ideas as powerful as the Wall itself. In my conversations with people from East program, I’ve observed that rather than being grateful for the increasing number of opportunities, choices, and options that they have available to them in the marketplace, they are suspicious of this new way of life which they increasingly perceive as unfair… A remarkable 97% of East Germans reported being dissatisfied with German democracy and more than 90% believed socialism was a good idea in principle, one that had just been poorly implemented in the past.

In short, like my aunt changing nursing homes, knocking down the Berlin Wall has done little to change attitudes.

But let’s not be too eager to point our finger. Consider our own election cycle. Every four years in the presidential campaigns, we have a charade of candidates promising change, the result being larger budget deficits and more ruinous foreign adventures. Like my aunt, we expect that merely changing the cast of characters in front of us will somehow result in change. We want our problems fixed, but we don’t want to change. We want to keep intact our story that government is the source of our prosperity and the source of innovation.

Unfortunately, a better economy in Egypt or in the United States, like improved conditions for my aunt, is easier said than done. Before anything fundamentally changes in external circumstances, internal beliefs have to change. This is the hardest change of all.

The War on Drugs and on Airline Passengers

November 23, 2010

Yesterday on his radio show Rush Limbaugh offered an indignant protest of TSA groping: “Keep your hands off my teabag, Mr. President,” and then he asked, “Whatever happened to hands off our bodies?”

The answer to Limbaugh’s question is look in the mirror. The TSA’s outrageous assault on constitutional rights has indeed left many conservatives and liberals wondering how could this be happening in America? But for years, both conservatives and liberals have supported outrageous assaults on constitutional rights. They thought it would never come back to haunt them, as they supported assaults on only the rights they didn’t favor. In other words, if an ox of a group that they didn’t like was being gored, they were all for it.

The ignorance of both liberals and conservatives has been breathtaking, as they failed to understand one of the first principles of a free society—your own rights are secured only as you support the rights of others. In other words, if societal rights are not available to all, they’ll ultimately not be available to any. If government can strip some individuals of some of their rights, they can strip anyone of any rights.

Consider Limbaugh’s long standing support on the war on drugs. Over the years, Limbaugh has offered his opinion on drugs. For example:

There’s nothing good about drug use. We know it. It destroys individuals. It destroys families. Drug use destroys societies. Drug use, some might say, is destroying this country. And we have laws against selling drugs, pushing drugs, using drugs, importing drugs. And the laws are good because we know what happens to people in societies and neighborhoods which become consumed by them. And so if people are violating the law by doing drugs, they ought to be accused and they ought to be convicted and they ought to be sent up.

A staggering 60% of federal prisoners are in prison because of drug offenses. Throw in state prisons and you have well over a million human beings in prison because of drug offenses. Some are in prison merely for personal drug use, but Limbaugh would send them to jail too. When Limbaugh asks, “Whatever happened to hands off our bodies?” he should know. He has advocated for government to have its hands on our bodies for years.

And what about innocent bystanders in the war on drugs? SWAT teams have broken into homes, unannounced, on false tips of drug dealing. Innocent citizens in those homes have been shot dead as they tried to defend themselves against who they thought were criminals, but instead were policemen who did not identify themselves.

In those raids, we see the genesis of the violation of our rights at the airport. Most of us stayed silent or in the case of Limbaugh led cheers for our drug policy, while our fellow Americans lost their lives to the war on drugs. Those who spoke out against the SWAT team raids were told the raids were the price we must pay to keep drugs off the streets. Is it surprising that today we are told another absurd fiction that minimally trained TSA agents must grope our genitals in order for us to fly safely?

Perhaps it is piling on to point out Limbaugh’s hypocrisy is compounded by the facts that he was in rehab for abusing strong opioid pain killers and was booked on the charge of prescription fraud.

And what about alcohol? In 2007 Rush Limbaugh “bragged about surviving the wild night-before and his imbibing of ‘adult beverages’ (his euphemism for alcohol).” Yet the British medical journal Lancet reported recently that alcohol is the most damaging addictive substance even more damaging than heroin, crack cocaine, and methamphetamines. This conclusion is based upon criteria of how “addictive a drug is and how it harms the human body, in addition to other criteria like environmental damage caused by the drug, its role in breaking up families and its economic costs, such as health care, social services, and prison.”

So conservatives, like Limbaugh, want to throw drug users in the prison while complaining that their own rights are violated at the airport. Some liberals, on the other hand, want the right to use drugs, while violating the rights of law-abiding gun owners, and then complaining their own rights are violated at the airport.

Who set the stage for the TSA’s abuses? Not Bush. Not Obama. We did—by our own ignorance and hypocrisy.

The American Traveler Dignity Act

November 17, 2010

On Wednesday Congressman Ron Paul introduced HR 6416, the American Traveler Dignity Act:

Mr. Speaker, today I introduce legislation to protect Americans from physical and emotional abuse by federal Transportation Security Administration employees conducting screenings at the nation’s airports. We have seen the videos of terrified children being grabbed and probed by airport screeners. We have read the stories of Americans being subjected to humiliating body imaging machines and/or forced to have the most intimate parts of their bodies poked and fondled. We do not know the potentially harmful effects of the radiation emitted by the new millimeter wave machines.

In one recent well-publicized case, a TSA official is recorded during an attempted body search saying, “By buying your ticket you gave up a lot of rights.” I strongly disagree and am sure I am not alone in believing that we Americans should never give up our rights in order to travel. As our Declaration of Independence states, our rights are inalienable. This TSA version of our rights looks more like the “rights” granted in the old Soviet Constitutions, where freedoms were granted to Soviet citizens — right up to the moment the state decided to remove those freedoms.

The incident of the so-called “underwear bomber” last Christmas is given as justification for the billions of dollars the federal government is spending on the new full-body imaging machines, but a Government Accountability Office study earlier this year concluded that had these scanners been in use they may not have detected the explosive material that was allegedly brought onto the airplane. Additionally, there have been recent press reports calling into question the accuracy and adequacy of these potentially dangerous machines.

My legislation is simple. It establishes that airport security screeners are not immune from any US law regarding physical contact with another person, making images of another person, or causing physical harm through the use of radiation-emitting machinery on another person. It means they are subject to the same laws as the rest of us.

Imagine if the political elites in our country were forced to endure the same conditions at the airport as business travelers, families, senior citizens, and the rest of us. Perhaps this problem could be quickly resolved if every cabinet secretary, every member of Congress, and every department head in the Obama administration were forced to submit to the same degrading screening process as the people who pay their salaries.

I warned at the time of the creation of the TSA that an unaccountable government entity in control of airport security would provide neither security nor defend our basic freedom to travel. Yet the vast majority of both Republicans and Democrats then in Congress willingly voted to create another unaccountable, bullying agency– in a simple-minded and unprincipled attempt to appease public passion in the wake of 9-11.  Sadly, as we see with the steady TSA encroachment on our freedom and dignity, my fears in 2001 were justified.

The solution to the need for security at US airports is not a government bureaucracy. The solution is to allow the private sector, preferably the airlines themselves, to provide for the security of their property. As a recent article in Forbes magazine eloquently stated, “The airlines have enormous sums of money riding on passenger safety, and the notion that a government bureaucracy has better incentives to provide safe travels than airlines with billions of dollars worth of capital and goodwill on the line strains credibility.” In the meantime, I hope we can pass this legislation and protect Americans from harm and humiliation when they choose to travel.

The Forbes essay that Ron Paul refers to may be found here.

The TSA doesn’t have the power to suspend the Constitution at airports. TSA agents are not above the law. Make the political elites go through the same screening process. Can anything be clearer than that?

Update: From the New York Times:

Representative John A. Boehner, soon to be the Speaker of the House, has pledged to fly commercial airlines back to his home district in Ohio. But that does not mean that he will be subjected to the hassles of ordinary passengers, including the controversial security pat-downs.

As he left Washington on Friday, Mr. Boehner headed across the Potomac River to Reagan National Airport, which was bustling with afternoon travelers. But there was no waiting in line for Mr. Boehner, who was escorted around the metal detectors and body scanners, and taken directly to the gate.

What You Need to Know About TSA Airport Screening

November 14, 2010

In recent weeks, I have gone from despair to optimism as I’ve watched growing outrage from a public that had seemed willing to accept the new TSA scanners and “enhanced pat-downs.”

Initially, the media played their typical role—providing supportive coverage for government programs that cripple our civil and economic liberties. They filmed smiling passengers reciting inanities such as, “Whatever they need to do to ensure our security, I’m fine with.” The media told us how TSA agents were “trained professionals,” and they trotted out “experts” to tell us that the radiation beamed at us from the new scanners was completely safe and of no concern.

Despite the propaganda, the American people are awakening; growing numbers are outraged. Here is what you need to know:

TSA agents are NOT professionals. The term professional “commonly describes highly educated, mostly salaried workers, who enjoy considerable work autonomy, a comfortable salary, and are commonly engaged in creative and intellectually challenging work.” In contrast, TSA agents are minimally trained and have little autonomy to react appropriately to different circumstances. As one observer put it, “If you express any sort of concern [to a TSA agent], or do not IMMEDIATELY comply, it throws them off; and they are either flabbergasted and confused, or angry and combative.”

I worked at a postal sorting facility at JFK airport when I was 16. My observations are that TSA agents are very much like postal employees. They have little autonomy, they do not think for themselves, and they operate in a strict command and control hierarchy. TSA agents are not professionals, and they are not qualified to handle your genitals or those of your children.

The new scanners are NOT safe. Concerned scientists, including members of the National Academy of Sciences and nationally known cancer and imaging experts, have been speaking out and warning of the dangers of the new x-ray scanners. In a letter to Pres. Obama’s science adviser, scientists from the University of California have warned specifically of dangers from these new scanners to those who are  who are over 65, women who are prone to breast cancer, HIV and cancer patients, children and adolescents, and pregnant women. They have warned that the new machines may cause sperm mutagenesis. In addition, they have raised concerns about the impact on the cornea and thymus. In other words, these scanners are a source of health concerns for everyone.

The well-connected benefit, while your health is harmed. The new scanners are being promoted by well-connected lobbyists. This whole fiasco is a textbook example of why politicians will spend millions of dollars to be elected to jobs for which their pay is nominally a fraction of their campaign budget. They expect to, and often do, make their fortune through “public service.” A recent column by Timothy Carney detailed just a few of those who will make money off the scanners:

If you’ve seen one of these scanners at an airport, there’s a good chance it was made by L-3 Communications, a major contractor with the Department of Homeland Security. L-3 employs three different lobbying firms including Park Strategies, where former Sen. Al D’Amato, R-N.Y., plumps on the company’s behalf. Back in 1989, President George H.W. Bush appointed D’Amato to the President’s Commission on Aviation Security and Terrorism following the bombing of Pan Am Flight 103. Also on Park’s L-3 account is former Appropriations staffer Kraig Siracuse.

The scanner contract, issued four days after the Christmas Day bomb attempt last year, is worth $165 million to L-3.

Rapiscan got the other naked-scanner contract from the TSA, worth $173 million. Rapiscan’s lobbyists include Susan Carr, a former senior legislative aide to Rep. David Price, D-N.C., chairman of the Homeland Security Subcommittee. When Defense Daily reported on Price’s appropriations bill last winter, the publication noted “Price likes the budget for its emphasis on filling gaps in aviation security, in particular the whole body imaging systems.”

An early TSA contractor for full-body scanners was the American Science and Engineering company. AS&E’s lobbying team is impressive, including Tom Blank, a former deputy administrator for the TSA. Fellow AS&E lobbyist Chad Wolf was an assistant administrator at TSA and an aide to Sen. Kay Bailey Hutchison, who sits on the Transportation and Defense subcommittees of Appropriations. Finally, Democratic former Rep. Bud Cramer is also an AS&E lobbyist — he sat on the Defense and Transportation subcommittees of the Appropriations Committee.

Do you remember Michael Chertoff? He was Secretary of Homeland Security under President Bush. According to the Boston Globe: “Michael Chertoff has given dozens of media interviews touting the need for the federal government to buy more full-body scanners for airports. What he has made little mention of is that the Chertoff Group, his security consulting agency, includes a client that manufactures the machines.”

The new security measures do NOT make us safer from terrorism. Writing in the Chicago Tribune Steven Chapman observes:

The federal Government Accountability Office has said it “remains unclear” if the scanners would have detected the explosives carried by the would-be Christmas Day bomber.

They would also be useless against a terrorist who inserts a bomb in his rectum — like the al-Qaida operative who blew himself up last year in an attempt to kill a Saudi prince. Full-body scanning will sorely chafe many innocent travelers, while creating only a minor inconvenience to bloodthirsty fanatics.

Vahid Motevalli, the co-founder of the Aviation Institute at George Washington University and now a professor at Purdue University, has said, “Most of these security features are for public consumption.  In many cases, if you don’t catch these issues well in advance of the airport, it’s too late.”

According to the Vancouver Sun:

A leading Israeli airport security expert says the Canadian government has wasted millions of dollars to install “useless” imaging machines at airports across the country.

“I don’t know why everybody is running to buy these expensive and useless machines. I can overcome the body scanners with enough explosives to bring down a Boeing 747,” Rafi Sela told parliamentarians probing the state of aviation safety in Canada.

“That’s why we haven’t put them in our airport,” Sela said, referring to Tel Aviv’s Ben Gurion International Airport, which has some of the toughest security in the world.

Sela, former chief security officer of the Israel Airport Authority and a 30-year veteran in airport security and defense technology, helped design the security at Ben Gurion.

Amazingly, most cargo coming into the country from overseas flights are not screened.  USA Today reported this month that “Only about 20% of the 9 billion pounds of air cargo that comes to the United States from overseas each year is physically checked for bombs.”

Of course, the large and immobile crowds queued up for TSA security scans are themselves a security risk. They represent the kind of soft target that many security experts have been concerned terrorists may choose to strike.

The new measures do NOT reflect a conspiracy. Lew Rockwell has written that the real reasons for the new TSA measures are “to control, humiliate, intimidate, and condition us to abject obedience.” Lew may be correct in describing the motivation of some, but the real reasons for the new measures are much more mundane and can be summed up by a line from a famous children’s book: “If you give a mouse a cookie, he’s going to ask for a glass of milk.”

Allow me to translate that universal message for you. If you give anyone a monopoly they are going to ask you for more and more and give you less and less. Claire Wolfe would get an A+ from me for her analysis:

Economists will explain that the TSA is a monopoly, and monopolies always raise the price and lower the quality of goods and services. Raising the price means slower scans and longer lines. But it also means that the TSA will have a perfect excuse to demand larger budgets and more workers to deal with the intolerable lines they create once the porno scanners are in widespread use. It’s a perfectly understandable, rational decision for a tax-feeding bureaucracy immune to competition.

The TSA is just a mouse. Yes, right now they have a very large megaphone backed by the government’s power of coercion. They are ready to do violence against you if you disobey their unconstitutional and repulsive orders. Yet, the good news is that the American people are collectively far more powerful. A recent news story illustrates why:

We have received hundreds of e-mails and phone calls from travelers vowing to stop flying,” said Geoff Freeman, an executive vice president of the U.S. Travel Association, which set up the meeting with the Obama administration officials.

“You can’t talk on the one hand about creating jobs in this country and getting this economy back on track and on the other hand discourage millions of Americans from flying, which is the gateway to commerce,” he said.

Of course, a larger issue is at work here—this is much more that a reaction against harm done to the travel industry. Americans are beginning to realize just how many of their freedoms have been eroded. Here is what I recommend:

  1. Stay informed. If you do share your views, via this essay or in other ways, respect others who disagree. No one will change their mind in an argument.
  2. If you are considering canceling or postponing a vacation or other trip, send an e-mail or letter to the airline that you would’ve used and to the resort or hotel that you would’ve stayed in. Let them know that the TSA is hurting their bottom line. Personally, I can’t imagine traveling with my children under current circumstances.
  3. If you must travel, you have no leverage at the security line. Respect the TSA agent and get through the line with minimal disruption. Personally, I will be opting out of the new scanners. I dread the thought of being molested, but I prefer that to harming my health in the x-ray scanner.
  4. Allow this issue to renew your respect for the principles that govern a free society. If you are not doing so already, on a regular basis, make a point to study books and articles that enhance your understanding of the essential role you play in maintaining a free society.

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