Oct 25

Sometimes the truth hurts.

The economic understandings or misunderstandings of our members of government get reflected in our laws and regulations.   And at the end of the day, it is the economic understandings or misunderstandings of our electorate that determine which individuals serve there.    In this past election, in siren-song fashion, Barack Obama convinced a majority of voters to act on misunderstandings of how the economy works and became President.

The repercussions of such economic illiteracy are now being played out.    First there was last February’s massive “stimulus” bill.    Most recently there has been the take-no-prisoners battle to re-make the healthcare portion of our economy.    “Cap and Trade” looms in the not too distant future.   Obama remains determined to re-pay unions via passage of “Card Check”.  Calls for a second stimulus are rising even as majority of the first one’s dollars have not been spent.  The list goes on and on.   Elections do indeed have consequences.

One of the most fundamental fallacies being followed by Washington these days is the belief that in the face of a slumping economy, government must “stimulate demand”.  In the most basic of economic courses, the student is taught that “economic equilibrium” is achieved when demand equals supply, and that markets are always trying to move towards that state.   Many in Congress, and the many voters that put and keep them there, seem to think that demand equaling supply falls under the “Which came first, the chicken or the egg?” category.   They are sadly mistaken.

Who will defend the practice of “demanding” without first “supplying”?   We supply so that we can demand — supply must come first.  This truism renders any attempt to “stimulate demand” not just backwards, but practically immoral.

For example, who “demands” that they have gasoline for their car without first supplying their labor in some fashion in order to have money to pay for the gasoline?      And is it truly the government’s function to provide that job that will then pay for the gasoline?    If so, who supplies the government with that job that can then be dispensed?   Should the government command someone to provide the job by force?    We’re now only a couple steps away from slavery.     Note also that any consumable, such as food, clothing, shelter, or even healthcare, substitutes nicely in this line of reasoning.

“Creating jobs” is not described in the Constitution as a function of government.   Only a tortured interpretation of things like the “General Welfare” or “Commerce” clauses would begin to assign that role to government.    The moment we look to government to create a job, we fall onto a slippery slope:  Who decides what jobs to create?  How are they funded?  How do we evaluate job performance?    As a nation we are now collectively bruised and battered from falling down this slope for several generations.  It’s also worth noting that it is exactly when voters “demand” that the government “create jobs” using its redistributive techniques that we wind up with stimulus programs where the effective cost of those “created jobs” runs into the hundreds of thousands of dollars per job.    Indeed, if the $787 million February stimulus, according to The White House, “creates or saves” 3.5 million jobs (ignoring for now how we’d actually measure that), that works out to nearly $225,000 per job.

What is fundamentally not understood amongst an apparent majority of voters is that entrepreneurs and their financiers, (often being one in the same), create jobs.   They perform the vital discovery mechanism of demand assessment and supply a potential solution, risking their own resources to do so.   It is a truly virtuous circle, in which the entrepreneurs who best understand the needs and desires of their customers — their demands — are rewarded most handsomely.   Likewise, through the vital role of failure, bad assessors of demand are punished, and collectively we can all watch and learn what works and what doesn’t.

A critical point to realize about the above process is that no central orchestrator directs the entrepreneur as to what action to take.    They might do exactly the wrong thing.   They might also supply a solution for which there was no prior demand.   Yet this is precisely how things like the personal computer or iPhone came about.   There was no government program to initiate the demand of having a computer in one’s house, let alone in one’s pocket.

Unfortunately due to a general lack of understanding of this process, we’ve tolerated an increasingly hostile environment towards fostering supply, such as ever-escalating taxes, oppressive regulations and minimum wage laws that prevent employers from putting that first rung on the economic ladder closer to a reaching hand.

Getting back to the election, in the case of Barack Obama, another dynamic was also present:  Many voters became further enamored with the historic possibility of electing the first black President.  Yet with painful irony, these voters ignored Dr. Martin Luther ‘s historic plea to judge instead by the content of one’s character.    Had the philosophies behind Obama’s economic agenda (a major part of his “character” in this case) been more widely understood, a majority of voters would have realized that much of what he wanted to do (and indeed is now trying to do) has been tried before and has failed.   They simply would never have elected him because doing so would cause themselves great economic harm.    And sadly, as prominent economists like Thomas Sowell have noted, it is exactly these failed economic policies that have disproportionately harmed blacks ever since FDR’s New Deal,  accelerating through Johnson’s Great Society to today.   Voters should have rejected these policies in the same way that they reject being told that 2+2=5.  Fortunately our collective mathematical literacy has not yet caused us to re-write that fact (although Congress often makes valiant attempts).

Ironically, economic illiteracy also kept Obama’s opponent, John McCain, from being able to convincingly articulate an alternative to Obama’s vision of a bigger, more activist government.   So perhaps it is fair to say that more economically literate voters had no horse in that race.   But it’s also fair to say that an economically illiterate mainstream media fanned the flames in Obama’s favor, recklessly avoiding any kind of challenge to his audaciously hopeful plans.  As the saying goes, “hope is not a strategy.”

So will 2010 be the year that voters snap out of it and send the likes of Nancy Pelosi, Barney Frank, Maxine Waters, Christopher Dodd and the rest of them packing?   With incumbent reelection rates in the mid-90% range, it would be fair for Congress to think the voters have approved of their actions so far.    To the voters we say,  “we have met the enemy, and it is us.”

71 Responses to “Economic Illiteracy Elected Barack Obama”

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  8. GMLetts says:

    While we complain about the economic illiteracy in electing Obama, realize we would not have been much better off with McCain. We would be getting Health Care Lite, his version of Cap and Trade and the same big government belief that they can fix all our ills.

    • Administrator says:

      Oh I completely agree, and imply as much near the end of the article. The shortcomings of McCain’s approaches could have been a whole other article. The main point, though, is that although both were peddling snake oil to one degree or another, Obama was a much better peddler.

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    • Skeptik says:

      Just wondering where exactly in the original post did you find a “good info” you are referring to?

      • James Hovland says:

        There wasn’t any. They’re probably together. This a Capitalist attack against what they see as a Socialist government. They wage an economic war against us every time we lean left.

        No worries. The propaganda was effective back when TV was high tech, but the world has clearly changed. It’s important to note that the GOP is not the source of propaganda as many believe, but rather a product of it. It wont last much longer. Even the tea party is ready to throw them in the bay.

        It amazing how fast people lean left when they’re shown the divestment attacks being waged against our currency under the guise of “Investor Advocacy”.

  14. Skeptik says:

    Reinforcing unconvincing rhetoric with weak examples doesn’t make up for economic literacy or even for historic accuracy. As it was pointed out by other commentators, the case of gasoline supply/demand doesn’t make a lot of sense. Same goes for an attempt to put supply ahead of the demand by coming up with “We supply so that we can demand — supply must come first.” It is as self-evident and convincing as a quotation attributed to Lenin – “Teachings of Marx are so powerful because they are always correct”.

    Claim that there “was no prior demand …for iPhone and personal computers” is equally laughable. Touchscreen controlled cell phones based on Microsoft and Palm software have been on the market at least since 2002 (my business partner and I started a successful company providing software for these devices). And small-footprint computers did exist before personal computers as we know them, hit the market. Probably, author meant iPod instead of iPhone? Wrong again. Creative Labs was selling pocket MP3 players before Apple came up with iPod. iPod’s success was predicated by the iTunes store with its seamless, affordable and legal way to purchase and own music tracks, demand for which has already been in place for a number of years – does anyone remember Napster? As for the risk, Apple is a publicly traded company. Had iPhone flopped, it is mostly the shareholders that would have suffered the losses in the same way they are now rewarded by the appreciation of Apple’s stock. Did anybody wonder who are the “entrepreneurs and their financiers, (often being one in the same) …who create jobs” in respect to publicly traded companies?

    Ok, maybe Apple is just a bad example altogether. How about TiVo? The company was funded by venture capital, and it did create a brand-new product without any prior demand – the DVR. It should fit the supply-side bill, right? Not exactly. The company was privately funded for a few years, and then sold to the public. At the time of the IPO TiVo was losing money, and it kept doing so for almost eight years in a row. In this case, the profits have been essentially privatized by the investors and founders, while the losses were socialized by the public for many unprofitable years. This is how innovative products are brought to market, and any reasonable businessman would try to use other people’s money before using his own capital – that’s one of the things that makes this person an entrepreneur.

    I am not saying that this is good, or bad, or that somebody who took the risk of introducing the first widget should not be rewarded. What I am saying is that the part concerning the risk in the statement (quote) – “What is fundamentally not understood amongst an apparent majority of voters is that entrepreneurs and their financiers, (often being one in the same), create jobs. They perform the vital discovery mechanism of demand assessment and supply a potential solution, risking their own resources to do so” is fundamentally wrong in case of publicly traded companies, venture fund industry, and for the companies funded by traditional banking capital. All combined, this is the greatest chunk of the economy in this country. I would assume that the statement above could be applied to people like my partner and me, but again, we did and still do our due diligence to manage the risk, and I am not sure that our families would be happy eating the software that we couldn’t sell because the demand for it is not there.

    Entrepreneurs do create jobs, but not out of their good will, but because they are capable of doing so, and because in the overwhelming majority of cases there is a sustained demand for their goods and services, as well as a reasonably priced supply of labor to produce and deliver these goods and services. Otherwise, most of the “entrepreneurs and their financiers” would have gone bankrupt long ago along with our entire economic system. And obviously, supply by itself is meaningless unless the demand is backed by the purchasing power of consumers. Supply side economics looks more like a system of convenient believes that has a lot in common with such phenomenon as the infamous Marxist biology, and the former most likely will end up in the same dumpster as the latter.

  15. Bob Loblaw says:

    I would start a business but then I was like, “Psssh I’d have to pay taxes? That’s communism.” So I didn’t and now there are no new jobs.

    You know, when the basic premise of your great theory for why a choice that you don’t agree with was made is “Everyone else is stupid”, you’re never going to understand anything.

  16. Kara says:

    This isn’t a bad general message. Most people do not understand how the economy works, Obama looks like he is one of them.
    However I have several issues with this rant. First was the description of the cycle of demand and entrepreneur supply as a “virtuous” one. You are using a moral standard for the economy? The economy can be described in may ways, stagnant, raising production of material goods, etc, but the moment you apply a moral standard to a social science then you’ve lost me. The water cycle of evaporation and condensation, is not something that is virtuous (or not virtuous). It is a system. Nothing less, nothing more.

    I agree, “creating jobs” is a loaded term. The American Recovery Act is an example of it being done poorly. Temporary positions fixing some highways that don’t even need to be fixed, causing more traffic and inconvenience to everybody is a good example of where government can be stupid.
    However, a government that is not concerned with the occupations of its citizens is, historically speaking, one that ends up falling. A government that does nothing while people loose jobs en masse in the private sector is one that will eventually be overturned, and the protection of property rights (one of the things that is fundamental to a capitalist society) will go down with it.
    So the government needs to be a lot smarter and work in fusion with the private sector during times of economic duress, and support private job creation rather than make jobs themselves. Funding training programs for sectors that are clearly in demand but lack the skilled labor they require, is a great way of filling that stop gap (think nurses, or the emerging green sector, weatherization, renewable energy source power plant construction and maintenance). These are ways to foster an educated workforce that can be used effectively by those entrepreneurs.

    The economy is not a moral thing, nor is it the end all and be all of life. Economic progress and personal happiness are only positively correlated to the point of ones basic needs being completely met. Economics are just a tool to measure material production and wealth. Economics says nothing about the other things that make us human; justice, community (humans are social beings!), personal improvement.

    • Administrator says:

      It is true morality has no role in the that aspect of “economics” that seeks to measure economic activity. There’s nothing “moral” about counting the number of newly created jobs in some economic sub-sector, or in attempting to project the effects on tax revenue of some proposed legislation. So to your points in that regard, I completely agree with you.

      However, the concept of humans interacting with each other, what Ludwig von Mises described in his classic “economics” book “Human Action”, can certainly be looked at from a moral point of view, mine or yours or whoever’s. The point is, to what extent do you want your “human action” to be judged and legislated upon by those in government, or for that matter, me and my friends in government? It boils down to “who decides?”

      So when I refer to the government “stimulating demand” being practically immoral, I’m referring to the concept of a political process deciding who should get the stimulus, and a political process deciding from where those resources that are supposedly doing the simulating are to be taken from first. This seems to be the point that the likes of Paul Krugman and Robert Reich ignore when they divine that the private sector is performing at something less that its potential, and therefore, government must step in and “fill in the gap”. Who are they to decide what the optimal level of economic activity is, or how it should come about? And why do they flat out ignore the idea that to give someone a dollar, government first has to take the dollar from someone else? Sorry if I’m thumbing my nose at the supposed concept of a “Keynesian multiplier”. I’m doing so because it’s a myth, but one that lives on because it’s tailor made for politicians. It empowers them.

      Truly free trade, therefore, benefits the buyer and the seller because based on their, and only their, respective definitions of morality, it makes each party better off. Trade resulting from an act of third party stimulus injects the morality of the stimulator, at the expense of the involuntary supply of a fourth party’s capital. At the same time, there is certainly a role for government to ensure that these two freely trading partners are not benefiting each other while at the same time trampling the property rights (in every sense of the term) of a third party. I’m arguing for free trade here, not anarchy.

      As for the government being smarter, it needs to be smart enough to realize that it can never be smart enough. For the most part, this means that it needs to simply get out of the way.

  17. Sally says:

    This article is an elaborate diatribe which is not on point!

    Numerous studies have shown, and most thoughtful economists state, that the US economy flourished in great part after WWI and WWII because of a huge growth in consumer credit. Returning servicemen could not afford houses, furniture, appliances, vehicles, etc. because they had not been able to make and save money. (Don”t sneer, I’ll bet you have all of those). The development of consumer credit was a godsend to manufacturers and consumer lenders because it jump started and sustained the US economy. There was, it developed, a market –a rapidly growing market– for basic goods and consumers could afford a few items of furniture, appliances, and an inexpensive car. Business, for its part, flourished. Finance flourished. Manufacturing flourished.

    The hard-working middle class expanded and stabilized the economy.

    Just see what China is doing now with the development of capitalism. They are the world’s third largest economy and own a huge share of US debt (including your debt) which had burgeoned at an unprecedented level and rate under the presidents and congressional reps who followed the Clinton administration’s balanced budget and surplus. The world and our country are not naive enough to be lured into taking ANY economic advice from the crooks and idiots who created the current worldwide depression.

    Give the citizens a chance to create income (work) and jump-start the dying economy. If you have a grain of sense and patriotism you will work toward developing a sturdy consumer credit scenario where the “workers” earn a decent wage, are not bankrupted by health care costs, and can enliven the dead economy. It is not only they who need this to happen. The United States needs this to happen to survive. And you, who blame everything and everyone else for the economic collapse, need this to happen before the Chinese defeat you in the capitalism game.

    • Administrator says:

      Whose point is the article not on? But nevermind that…

      My patriotism is strong enough to believe that if you have the ability to figure out a way to help your neighbor in a way that ultimately benefits yourself. I don’t believe you need to government to make any of those decisions for you, and to whatever extent they are making those decisions for you, it reduces the need for you to do so. Furthermore, if government were a lot smaller, and hence cheaper, you’d have more resources at your disposal to help you with that goal.

      So pool your resources and those of your friends, find a human need or want, provide a solution, build the effort with credit as needed, pay yourself and your workers a “decent wage” as determined by you and your workers (by virtue of you voluntarily working with each other), and make the world a better place. Go for it. You can do it.

      The more you are successful in the above, the more credit other people will want to extend to you to further and grow the process. it will be in your mutual self interest, and we don’t need government to manage it. As you point out, they have a great track record of screwing it up, so why get them involved?

  18. kittyc says:

    You idiots. Your heroic “entrepreneurs” made this mess by selling snake-oil sub-prime mortgages to the entire world, which would now like its money back (understandably).

    It’s cute how every sub-par intellect in the conservative “movement” reads Ayn Rand and thinks “James Galt! That’s me!”

    We could raise taxes on the wealthy back to where they were before Reagan (destroyed the economy,; ran up a huge deficit) and restore education in this country, among other things.
    Then maybe your children won’t be the slack-jawed morons you are.

    • Administrator says:

      Thank you for your reply. You’ve made my point.

    • Omniscient says:

      kitty / pussy cat – whatever: you are a product of government schools, an economic illiterate. enroll into a junior college and take these 2 basic econ courses macro and micro. stop taking art and ceramic courses and take meaningful subjects that are more in tuned with reality.

  19. Self Esteem says:

    Thank you so much, there aren’t enough posts on this… keep up the good work

  20. filc says:

    Idiot below rather.

  21. filc says:

    This is to the idiot above who said that supply comes before demand.
    Your an idiot.

    Humans act because they are compelled to do so due to some sort of felt un-easyness. Thusly demand is established, FIRST.

    If the criteria exists to fullfill his desires he will act, for that he needs a supply.

    You cannot refute this simple act of logic that humans act. Attempting to refute that humans act is self defeating. Human Action is axiomatic. So as I said earlier, your an idiot. If humans did not have demand first they would be in a state of content, there would be no need to manufacture a supply.

    • Administrator says:

      Yes, of course, humans have wants and needs, and demand stems from that. But how should those needs be met? This is a crucial point, which you seem to have missed. It is curious that you capitalize ‘Human Action”, as if making a reference to Ludwig von Mises’ masterwork. He would disagree with you more eloquently than my attempt here…

      Obama and his supporters act as though they believe that government can decide whose needs are to be met, and how. They also believe that they can divine what an appropriate level of “demand” is, and that if they’ve decided it is “too low”, that they can “stimulate” it via government action, which ultimately boils down to redistribution. They take resources from a politically disfavored group and give them to a favored one, as if in the end it’s going to make any difference.

      Supply-siders, by contrast, recognizing that humans do indeed act, based on each individual’s own infinitely complicated incentive structures and valuation schemes, seek to make it easier for individuals to create solutions for themselves and for others. In the case of government policy, that would translate into taking as little as possible (ie, low taxation and regulatory burden) from each person, in order to maximize the resources each person has to invest in the solution at hand.

      “We supply so that we can demand” means that in order to have the resources to fulfill our wants and needs, we supply something of value to someone else FIRST, and then receive compensation with which we can meet our needs. Obama’s supporters have that process exactly backwards.

    • Mikeikon says:

      Demand is different from want/desire. In economics, demand is the actual act of buying something. You can want something, but if the price is too high you won’t buy it and thus it won’t be counted as “demand.”

      What the writer is saying is not that needs and desires are created by supply, but that you can’t demand (buy) something that doesn’t exist (isn’t supplied) or is more expensive than you’re willing to pay for it, and trying to artificially stimulate demand only throws things out of whack by creating unrealistic signals.

    • Jim says:

      “Your an idiot” never, ever ceases to amuse the literate among us.

  22. Nice post. Didn’t know that about federal money.

  23. Ron Wilner says:

    It would seem that in every educational institution of higher learning there exists a dichotomy between the “do-gooders” and the “good-doers”. Generally speaking, the “do-gooders” are steeped in a tradition of helping those less fortunate and the “good-doers” are steamed by a tradition of those helping to lessen their fortunes. Certainly we must be compassionate to those who are definitely at a disadvantage in the marketplace by helping them gain the skills necessary to compete effectively. The old adage about giving a fish comes to mind. Giving fish to misfortunate souls only perpetuates a cycle of dependency. Teaching them to fish breaks the cycle of dependency and develops self-esteem. The government to the contrary is not concerned with breaking this cycle but rather creating generations of dependents on government support. A symbiotic relationship develops between the government and its dependents and raises the control and power of the government over its subjects. The “do-gooders” correctly identify their needs and remind us that the marketplace has failed them and the government must save them. The system fails to be democratic and instead is superseded by elements of socialism.

    The government then deflects controversy by targeting the “good-doers” as the subject of scorn and diverts attention from the root cause of the problem, the government. That is not to suggest that the “Fats Cats” of Wall Street are not without culpability but rather without the silent and tacit approval of government, fortunes would not have been realized (or lost). The cycle is complete.

    Many voters are not sufficiently astute to evaluate the perceived accomplishments of their elected officials. They may lack the intellectual capacity to evaluate real social progress and distinguish it from self-serving political double-talk. The altruism of the “do-gooders” often conflicts with the social reality as evidenced by the incumbent re-election rate. They somehow feel satisfied that their party is overcoming the insidious behavior of the “good-doers” and delight by the government asserting dominance over the wealthy. In this scenario there is no room for a discussion on the principles of economics or its policies. The opposite is true since the underlying belief by the “do-gooders” is that imposing restrictions on a free market serves to thwart the excesses for the rich and benefits the poor. Class warfare is nothing new to the politician.

    Admittedly, both characterizations are an oversimplification that only serves to illustrate how our elected officials use this ploy of status envy to subvert the true nature of the problems. As the size of government grows, problems will only compound and the hope of correcting what ails us will become increasingly more difficult and beyond our control. The solution is not founded in educating our populous with sound economic principles but rather in eliminating the purveyors of false perceptions of the dynamics of our economic system and the overwhelming need for government intervention. This solution involves not only breaking the cycle of the dependents on government but also the dependency on Career Politicians and all Incumbents.

    Join the movement to retire all Incumbents by Throwing All Bums Out of Office. Visit the Taboo Party website at http://www.throwallbumsoutofoffice.com and save our posterity for our future generations and not the Career Politicians posterior.

  24. School construction projects in my county have come in ahead of schedule and underbudget. Our county is selling more binds than normal because once the economy improves, the bonds will be relatively easy to pay off, but construction prices will balloon to their previous levels and few construction firms will be chomping at the bit to work for the public.

    You would have me believe that this dynamic works differently at teh national level and somehow entrepreneurs will make it a smarter move to wait for workers to be in short supply before tax money is spent on teh contracts that MUST eventually be awarded.

    You essay ran afoul with observed events on the ground and I’d be curious how you would explain why borrowing now while labor is cheap doesn’t make sense and we should wait until prices go up again.

    Is your portfolio doing well with this “buy high” strategy you’re advocating?

  25. Phil says:

    I’m not sure the author understands economics. This paragraph seemed particularly nutty:

    “Who will defend the practice of ‘demanding’ without first ‘supplying’? We supply so that we can demand — supply must come first. This truism renders any attempt to “stimulate demand” not just backwards, but practically immoral.”

    Clearly this is ridiculous. Anyone who has read Adam Smith knows that suppliers provide what consumers demand. That’s the beauty of the invisible hand. The market provides what the people want. This makes the suppliers better off, because they sell their goods, and it makes the consumers better off because they have the goods that they desire.

    As to the point about the stimulus, there is no reason why the Federal Government cannot act as a consumer. If the Federal Government spends money, that money moves through the economy–just like the money that wealthy people might save on their taxes when given a tax break.

    Although it would perhaps be ideal to let entrepreneurs create jobs, this is not happening because there is a recession (I’m sure you’ve heard). A recession happens when money stops flowing through markets, and the Federal Government’s goal in creating a stimulus package is to help it to start flowing again. Clearly, this falls within the scope of the Constitution, which seeks to “promote the general welfare.” Further, since the Constitution grants powers to Congress to enact legislation, it is within their power to create a stimulus package.

    I also take serious issue with the last point–while economists often discuss what is or is not moral, determining what is moral is outside of the scope of the field. Economics is a tool to explain and understand what the results of a policy will be. It should not be confused with philosophy or theology, which pose what solutions should be. Economics is best used to analyze whether a policy will yield the solution you are hoping to get. It does not suggest that one solution is better than another, and it certainly has nothing to do with morality.

    Please, if you’re going to give people a lecture about economic literacy, try to be economically literate yourself!

    • Administrator says:

      Phil,

      You’ve missed the point.

      The “invisible hand” is indeed a beautiful thing, as Smith is referring to the way both parties are made better off without Government intervention. But with what resources do the consumers pay for what they demand? Consumers must first be suppliers in order for them to have the means to demand. And no government can divine what the proper supply or demand should be, hence the folly of stimulus. Your reasoning also skips over the part where the government must first take from those who supply in order to give to those who demand. And as for the government overriding the will of entrepreneurs (who in your example are preferring saving over investment), whose role is it to make such lofty decisions? Let’s say you are an entrepreneur Phil, and you decide not to expand your company right now, due to complete uncertainty about future economic policy coming from the government. Would you then be OK with the government taking some of your savings so that they can “create jobs” instead? Note that you now have less resources with which to expand your company once you decide the time is right!

      But ah, the “General Welfare clause”, the mother-of-all-escape-hatches for those justifying bigger and bigger government. It lurks around the corner of every such argument. First of all, the operative word in the Constitution’s text is “provide”, not “promote”. Secondly, the context is one of taxation, in funding the government itself, not some nebulous and arbitrary management and “promotion” of some particular vision for society itself.

      Lastly, people can analyze the expected effects of various economic policies all they want, but to actually implement policies outside the context of morality would be another thing entirely. For example, theft clearly gives the person who demands what they want, while any mainstream set of morals would decry the practice. It is the voters who elect the policy makers who then put various proposals into effect. As many of our policies today amount to legalized theft, it’s high time we start using “morality” and “economics” in the same sentences.

      • Phil says:

        The point of the Invisible Hand is that it functions without intervention, yes. However, that is only the case in a functioning market. I suppose your point is that the ideal equilibrium is determined naturally by the market, which means that clearly the optimal quantity of labor right now leaves millions of people without jobs. Thus, we ought to just let it happen–whatever happens will be fine, because the market will correct itself eventually. I suppose you can make that argument, but I’m not sure that it holds much weight. I guess it just depends on how far you’re willing to let the economy fall. You’re right, the stimulus has to be paid for, and it has to be paid for by future generations, since we have a massive deficit. It’s a big problem and both parties are culpable.

        I know you have your ideas about what the welfare clause should mean, and that’s fine. Still, Congress has the mandate to create legislation, and they created the stimulus package. Thus, it is constitutionally proper that it be enforced. I don’t see how the Constitution has anything to do with it other than that. The Constitution doesn’t say a lot of things that the Government rightly does.

        Again, I think you’ve missed my point on morality. Clearly morality is key in government, and I would not wish to separate it from legislation. What I said was that the role of economics is not to provide a moral framework. If you think it is immoral to intervene in markets, that is fine, but don’t suggest that the field of economics is behind you. Some economists agree, others disagree, but ultimately that is a question for other fields. I don’t have a problem with using morality and economics in the same sentences, because clearly they are related, but to suggest that an economic model can explain what is moral is a fallacy.

        • Mikeikon says:

          “Thus, we ought to just let it happen–whatever happens will be fine, because the market will correct itself eventually. I suppose you can make that argument, but I’m not sure that it holds much weight.”

          Of course it holds weight. Recessions don’t come out of nowhere because people just decide to stop spending money, they come about because resources have been (mis)allocated in unprofitable and unsustainable ways. The only way to fix that is for those resources to re-allocate, and that is the reason why unemployment is currently high. Greenspan and Bernanke did a lot of damage, and a lot of the economy built up around the decisions that they made. Those resources HAVE to move if there’s going to be a sustainable recovery, and that takes some time.

      • jwaalk says:

        Okay, so it’s obvious you have no concept of Keynesian Economics, you’ve established that. I’m really getting tired of hearing Neo-liberalists continue to drone on and on about how the market is the natural state of being, when it is, as has been noted, a specific system developed within a specific set of cultural and political institutions and is therefore not something unchangeable and the natural state of the world.

        It’s been shown that all your no-government, laissez faire economic do is increase poverty while shifting wealth to top based on the rather ridiculous concept that amassing the imaginary concept known as money gives one a right to both ownership and profit over the actual production, a fact which has yet to be reconciled in modern economics, though the long term trend is in that direction.

        Real GDP actually decreases under neo-liberalism, as does unemployment increase, but you see that theory openly flaunts that, saying both are acceptable and necessary and that overall economic growth is worth, while the overall economic growth is neither stable, sustainable, nor shared evenly. The modern system is built on encouraging both over-consumption and over-production. Keynesian emphasizes lower growth and sustainable economies, and there has been a lot of readjustment and improvement of Keynes’ ideas to combat the effects of stagflation which can arise.

        It’s funny you should morality to describe a completely immoral view. What is fair is fair, and human beings deserve an acceptable standard of living, that is a moral view. People control the system, and they have a right to demand that the system help improve their general welfare, economic bottom line be damned. Constant growth is not a good thing, it is something that cannot be sustained. All Alan Greenspan did was constantly inflate new bubbles, leading both to the dot.com burst and the current recession. Really you shouldn’t have economic after your economy has been developed except for the instance that your population is growing. If your population is not growing, there is nothing wrong with stable zero growth, it means your market is at a point where it is stable and producing it’s appropriate share of the global economy.

        I agree with Phil when he says economics is not a moral banner, it’s a framework for understanding and stating your opinions within that system, and you are definitely wrong for declaring your brand of economic opinions the sole banner of that entire system. I’m sure people like Nobel Prize winning Economists Paul Krugman, Joe Stiglitz, and Amartya Sen would all beg to disagree with your views on economics. There is an open debate and it winds up being what personal opinion you hold. One is highly flawed and pessimistic, the other is optimistic and does not place ultimate faith in the ruling powers that be that control the markets in what amounts to a dictatorship of the suppliers if those that serve the demand do not assert their rights.

        You sound disturbingly like Chilean dictator Augusto Pinochet, stating, “We want to be a nation of entrepreneurs, not proletarians.” He proceeded to wreak the countries economy in what neo-liberalists called “the Chilean Miracle” showing once again they didn’t care about a vast increase in unemployment, the doubling of the number of those living in extreme poverty, as long as inflation was stopped and it was a good place to make money. Of course, y the 1982, the complete collapse of that countries economic system which finally brought about the end of Friedman Monetarist policies. Even Sachs’ great “triumph” in Bolivia led to increased unemployment, the decrease of real GDP, and thankfully, the election of socialist President Evo Morales who has undone most of Sachs’ policies to the great benefit of the general population in that country.

        You’re theories collapse when asked to explain the economic success of Scandinavian countries, and most of Europe for that matter, which employs extremely heavy Keynesian mixed economic systems and which has maintained a relatively stable, high quality of living.

        I myself am a Keynesian, with some admiration of Marx’s ideas of equality and social justice and a little bit of a socialist in me always at heart. It really reminds me, strangely enough, of The Little Prince, Saint-Exupery’s great novel. The wandering prince meets a businessman who spends all day counting stars and claims ownership because he counts them on a sheet of paper. He puts the paper in a vault and uses it to buy more stars. The prince angrily declares that to truly own something you have to benefit from it and it has to benefit from you, and leaves thinking, “How strange are these adults.”

        • ryck says:

          As for the comment:”I myself am a Keynesian, with some admiration of Marx’s ideas of equality and social justice and a little bit of a socialist in me always at heart.”

          The notion that socialism or Marxism creates ‘equality’ of any sort is a propaganda statement devoid of truth. In fact, in all Marxist systems the elite who preach paternalism and ‘equality’ for the masses form the top 3-4% of the power structure and squander the assets of those they stole the wealth from. Tell us how well the last 150 Marxist governments in Africa have fared.

          There is no such thing as equality: http://tiny.cc/lZgqh

          California has played this phony game and is busted and the leftists can do more than beg for alms: http://tiny.cc/XvnO9

          Liberalism is just a form of crude parasitism and the only thing they have is other people’s money, which they waste on drugs, sloth and sodomy as in California.

          Hopefully, we will see CA or NY or NJ crash from this foolishness and watch them beg and pander for more unearned wealth. Let them restore their broken societies without capitalism and we can see some exciting theater.

          Marx was right about history being a clash among the classes and the capitalist classes always win.

          Show me a loser and I will show you a loser.

          rycK

        • Kara says:

          I wouldn’t consider myself at all a marxist, but I agree with the notion that at some point economic progress does not equal overall improvement in the human condition!

    • cjkyzer says:

      Who is dumb?? Where is the government going to get the money to flow thru the government.. To pay for the stimilus bills or ALL those gov. workers. How are they going to pay for any thing with out the TAX money flowing into the gov, coffers????

      Or are you one of the lazy ones in a union that thinks they should screw one screw all day and get TOP DOLLAR AND ALL THE BENEFITS HANDED TO THEM. AS LONG AS THEY LISTEN TO THE ONES AT THE TOP OF THE LADDER. the one that calls for a strike ( while sitting on their duffs in their big houses) paid out of the coffers, the workers put in there. While they tell you to go file for unemployment.

  26. Hard Rain says:

    Political Sanity: FDR initiated the largest expansion of government in history. His policies prolonged the effects of the Depression. Government cannot create wealth on a whim. Unemployment in the U.S. was the same after WWII as it was it was in 1929.

    More government and more spending is not the solution.

  27. Many politicians have been elected through false promises. Obama has certainly abandoined many of his. His programs to date have missed the mark and did not add any jobs while increasing our national liability incredibly. I address this more fully on my blog; http://clarityandreality.blogspot.com.

    But our government has shown in the past it can be resilient as FDR ended the Great Depression with the WPA which retrained, clothed, and fed Americans; and created 8 million jobs, many of the instantly. Two generations later, nearly every American community has bridges, schools, and parks built under WPA.

  28. Too many politicians have been elected on false promises because they tell American’s what they want to hear to get the job. None can question that President Obama has abandoned many of his campaign promises, and fallen short on his attempts to “fix the economy”. See my blog: http://clarityandreality.blogspot.com/pjp for a longer commentary on this.

    Historically, FDR ended The Great Depression with his WPA under the New Deal in 1939. This was not socialism but a true national stimulus program. People were fed, educated, and jobs created immediately that grew to 8,000,000 employed under this program. Americans were retrained for new jobs and went from soup lines to the workforce. Two generations later, every community in America had parks, schools, and bridges created by this program.

  29. I found your article interesting. Historically, many politition have been elected on far reaching campaign promises that only fools would have believed could be accomplished. The difference with Obama lies not in the programs his administration initiated but how they did not benefit those needing the help. I address this in more detail on my blog: http://clarityandreality.blogspot.com/.

    Personally, I like the way President FDR used the WPA in 1939 as the largest New Deal Agency which created 8 million jobs and retrained Americans to take them from soup lines to the work force. The results were instant and two generations later almost every American community still has a park, bridge, or school constructed by the agency. Living proof that America can create jobs and improve it’s intrastructure without converting to a Socialist nation.

  30. cash advance says:

    civilsocietytrust.org is very informative. The article is very professionally written. I enjoy reading civilsocietytrust.org every day.

  31. Pants says:

    “We supply so that we can demand — supply must come first.” Really? Nobody told the advertising industry! We are CONSTANTLY being told what we “need” – this has been evermore the case since before WWII. And as for the tone of supply-side purism, get real: would you propose that private industry entrepreneurs would do a fine invisible-hand-job in, say, providing your national defense? Or would that be reserved for their members-in-good-standing? And presumably the free market should decide who gets the best health-care, too? And we should let that free market regulate YOUR air and water quality, too, then? How well did that free hand do in 1929? So why would it be that you would rail against the notion of government nudging the economy in a direction that benefits more than just the Exxon and Halliburton chairmen?

    As for “For example, who ‘demands’ that they have gasoline for their car without first supplying their labor in some fashion in order to have money to pay for the gasoline?” In this ‘explanation’ for those ignorant masses you cluck your tongue about, just one supply/demand chart has gallons of gasoline on the same axis as income? This makes little or no sense – it’s a truly baffling example.

    Whatever attempt at nonpartisanship your case might have been premised with went out the window when you titled this piece “Economic Illiteracy Elected Barack Obama.” Might more accurately have titled it “Right-wing capitalist loon tells you how The Liberals plan to eat your babies.”

    • Joe Money says:

      Pants:

      By your analysis, who would be the original “fool” to produce all the things that those “redistributionists” plan to give away? Socialism has failed everywhere in the history of civilization, save one: Academia. Utopia is once again to be proven as a great theory, however, elusive as a viable entity.

      Good luck with the delusions, please stay away from the sharp objects!

      • Matthew says:

        Yeah well an unregulated market i.e. Ayn Rand, Greenspan, Reagan has been an even greater failure. I have actually lived in Western Europe and yes, it does work, and yes, you WOULD call it Socialism because you don’t have another label for it. The examples in this article are ludicrous.

        We don’t need a Keynesian model (Obama), nor do we need an Objectivist (Reagan, Clinton, Bush) model. We need the government to spend, but to spend in a manner that has oversight and is infrastructure-based. With the amount of money that W. Bush signed into law last November on bailouts – which Obama was forced to continue with the anti-oversight sentiment in the air – we could have been on our way to a highly technological and efficient nation that would save money in the long run.

        If you can find me an example where funding schools from Preschool until Adult Education courses, thereby producing an educated and talented workforce, and investing in cutting-edge infrastructure does NOT work, and does NOT in the LONG-TERM reduce debt and increase GDP you’re a better historical researcher than I. You might think it is ‘socialism’ in your narrow worldview, but it works. This isn’t 1776, we need 2009 solutions.

        • Truth Addict says:

          SERVED!
          Nice work, Matthew 🙂

        • chipdouglas says:

          Yeah, Matt — ever heard of degree inflation? You drop the “this isn’t 1776 platitude” on us, then you go on suggest a 1976 solution: “education,” the panacea. Are you familiar with marginal utility?

          You highlight the problem with the government spending crowd, which finds it difficult to acknowledge that economics is a game not of solutions, but of tradeoffs. I don’t see this tendency to the same degree in advocates of capitalism (i.e., the system which has propelled the US into the biggest economic powerhouse in human history), but it’s ubiquitous in the statist crowd.

          “[Western Europe] does work” is simmering with hidden suggestion. What is the standard for “works”? That a government can successfully confiscate money from one producer and give it to a non-, or lesser-producer? Because that’s what they have in much of Europe to a degree we do not. You believe it “works”; however, the price of making such a system “work” is enough for most Americans to say “it doesn’t work.”

          SERVED! Truth Addict? Please — *what* a blowhard name.

          • Gemini66 says:

            @chipdouglass –

            I suppose you failed to learn about what happened in the generational period following the end of World War II when everyone in the Military got education benefits that allowed them to go to college and get an education, if they chose, or to go to a tech school if college wasn’t for them.

            Education lead to the extensive expansion of the Middle Class. Thousands of businesses opened as a result of those men earning degrees. Families went from scratching for scraps to a level of wealth and leisure that was never before seen in such a large percentage of a single population. Not pure numbers, but percentages.

            That was a redistribution of wealth, in a positive way and education made it possible. It’s a damnable lie to say that education does not lead to a better situation for the majority of those who earn their degrees.

            And, as far as the EU goes, they consider all of us over here, from the left to the far right all Conservatives and Right Wing. For them, and this includes Canada, it is the place of Government to ensure everyone has access to the same levels of health care. And if you think you want more coverage than what the government provides, you can purchase extra insurance out of pocket. They also do a lot more than we do when it comes to education than we do in the USA.

            The socialistic systems in place through much of the EU work very well. They complain about high taxes, but they earn more than we do as well. And everyone complains about taxes. But they wouldn’t trade their health care system for ours at all. They know that they will be taken care of by their health care providers.

            Oh, and those death panels that Palin keeps talking about, what she fails to tell you is that they have existed for a very long time. Every time a person is refused coverage for something by their insurance company that’s the act of a death panel. “Sorry, you failed to list your severe acne in your forms of previous conditions so we’re not going to be able to cover your treatments for that cancer.” That has happened here. Then there is that law in Texas that Bush signed as Governor that allows hospitals to terminate a patient who is unable to pay for their medical treatment. And yes, that has been used to kill at least one very publicly talked about woman, who asked to be given enough time to say good bye to her mother. They pulled the plug on her 48 hours or so before her mother could get there. Death panels, they exist.

  32. Mike says:

    There have been many articles written about Obama and his wrong-headed ideology and policies. This is one of the best I’ve read. It is hard hitting, without being over the top in partisanship, or in its criticism of the president.

    Most important, is that the article uses economic theory to support its premise. The president makes it easy for us to say that his actions are wrong for America, but it is more effective when we can take the high road and back it up with history and theory.

    It is true that our nation is woefully undereducated regarding economics and personal finance. If we were better educated in these matters, Social Security and Medicare would never have been enacted. If we were better educated, these liberty stealing tax and power grabs surely would have been abolished by now.

    President Obama’s agenda is to destroy capitalism, free markets and the principle of self-reliance. He may look like a boob as he flounders along with these “failed” policies, but I believe he is achieving his redistributive agenda by prolonging the crisis, and thereby exploiting the fear and economic illiteracy of our society.

    It will be a tough fight as the president has proven to be nasty with those who disagree with him. The president is anything but a lover of America, its founding principles, its achievements and its potential. He campaigned using deceptive language that made him appear moderate to those who blindly accept what is presented to them, and he continues to do the same now. The unquestioning and the undereducated hold the key to his power, which is sad commentary, but true.

    It will be interesting to see if Americans rise above the hubris and un-presidential tactics of this administration. They keys are the in the belief and continued education in America’s founding principles and its greatness. While we need to firmly reject Obama’s ideology, we can and must do so without lowering ourselves to his level.

    • Gemini66 says:

      It is easy to tell that you’re a Conservative.

      The economics used by the originator are flawed. Well written, but still flawed.

      And I find it very interesting to read you talking about rising above the hubris and such, and then turning around and talking like one of Rush Limbaugh’s puppets. Anyone who listens to Rush, and the Fox News Network exclusively, or subscribes to their idiology (no, I did not misspell that) has been tricked into their hateful thinking. Anyone who is convinced by hate talk has been brainwashed. Hitler did it quite well, and Rush and his friends are using those same tactics. Difference is that instead of the scapegoat being Jews, this time it is the liberals. Hate is hate, period. Fear works best on those who will not take the time to look and see what is really going on.

      Hate, lies, and the Right, there’s nothing right about it.

      • Administrator says:

        Just a polite question: Why is it that Conservatives are always “puppets” of Rush, but Statists, Liberals, Progressives, Krugman-worshipers, Leftists, (insert your own friendly label here) are NOT “puppets” of:

        Barack Obama
        George Soros
        Bill Clinton
        Al Gore
        Howard Dean
        Janeane Garofalo
        Nancy Pelosi
        Harry Reid
        Maxine Waters
        Christopher Dodd
        Barney Frank
        Hillary Clinton
        AFL-CIO
        NEA
        SEIU
        Greenpeace
        PETA
        Sierra Club
        etc
        etc
        etc
        etc
        etc
        ????

        It has absolutely nothing to do with hate, and when you see a lie, feel free to document it with the correction.

  33. avery says:

    This author’s point is a home truth. We may destroy ourselves through sheer ignorance and incompetence. We need a focus in our society on practical skills, principles and sense. And it’s no use bewailing our schools not teaching. You can’t teach what you don’t have. But our society does fine in the areas it is interested in and focused upon. We need an interest in and a focus upon economic literacy. Just as economic illiteracy drags us all down, economic literacy improves all lives.

  34. Ryan Setliff says:

    You know I am inclined to agree that the overwhelming majority of Obama supporters are economically illiterate. But what of Republicans? What is so much better about tax and spend Republicans than tax and spend Democrats. The GOP has their hot buttons where they grovel about the welfare state, and then do cartwheels and standing ovations for the mountains of tax money wasted on the military-industrial complex, and the trillion-dollar plus war in the Middle East with no exit strategy in sight.

  35. […] This post was mentioned on Twitter by Ani , Charles Dickerson. Charles Dickerson said: RT @SkuterP Economic Illiteracy Elected Obama: http://bit.ly/3U2G3s [MUST READ] (via @addthis) #economy #obamanomics #bailouts […]

  36. mlebauer says:

    DD:
    “most college-level economics is oriented toward econometrics rather than economic theory”

    Well, as Econ major I would disagree, both econometrics and theory are required, and theory predominates with 3 required courses vs. 1 for econometrics. However the theory at most colleges makes Keynesianism the standard model of the required theory courses. Adam Smith’s classical economics is presented as a historical artifact supplanted by the more modern and sophisticated Keynesianism. Joseph Schumpeter’s neo-classical thought on economic dynamism MIGHT be presented as a topic in an elective. Milton Friedman’s monetarism gets a bit more attention but as a fringe philosophy. Ayn Rand’s objectivism is taboo. Marxism & socialism are still taught as an elective unto themselves, often in several electives.

    No wonder the masses know nothing when even trained economists are illiterate.

  37. Mark A. Sadowski says:

    If support for Obama indicates economic illiteracy then we must surely include economists.

    A survey last year of 523 economists who were members of the AER indicated they were planning to vote for Obama over McCain by 66-28 percent (powerpoint):

    http://www.dilbert.com/dyn/ppt/Draft-report–9-3-08.ppt

    A survey last year of economists who were members of the NBER indicated that 80% thought Obama had a better grasp of economic issues:

    http://econ4obama.blogspot.com/2008/10/nber-for-obama.html

    And as for the efficacy of stimulus, in November a petition was signed by 387 credentialed economists, including three Nobel prize winners, in support of a discretionary fiscal stimulus:

    http://www.cepr.net/documents/publications/Economists_letter_2008_11_19.pdf

    But in my opinion, if you want to know who is economically illiterate you should start start by looking in the mirror. It is an ancient economic fallacy that supply always equals demand. If it were true then the recession we are experiencing now suggests that either a major technological shift occurred or everybody just simply decided to go on a holiday. Auto companies, house builders and labor have all suddenly “decided” to reduce their supply. Why? What nonsense!

    And its not just economic illiteracy but also innumeracy.

    The $787 is spent over several years. Shouldn’t we want to incorporate how long those jobs would be around? That suggests we should use job-years instead of jobs, to make the numerator and denominator comparable. The Administration estimated the number at 6.8 million. That works out to a cost per job-year of $116 thousand, not a quarter of a million.

    Now that may sound like a lot until you realize that for example in the first quarter of this year there were an average of 133.3 million people employed in the US (payroll) and nominal GDP was $14.1 trillion annually. Thus GDP per job in the first quarter amounted to $106 thousand at an annual rate, or roughly the same amount. That’s because the cost of a job is not just the cost of the labor but the returns to land and capital as well.

    So pound your chest like a frustrated Neanderthal enraged that the world is being taken over by Cro-Magnons. Be self satisfied that you have a superior grasp of economics and that majority of Americans, and even economists, must be idiots.

    • Administrator says:

      Mark,

      Your surveys don’t prove anything. The respondents could be preferring the lesser of two evils, for example. Secondly, “Economists for Obama” as a source? C’mon, man. Krugman’s also a Nobel Prize winner. ‘nuf said.

      Returning from the mirror, I noticed I wrote the following: “the student is taught that “economic equilibrium” is achieved when demand equals supply, and that markets are always trying to move towards that state. ”

      You’re completely correct that “It is an ancient economic fallacy that supply always equals demand. ” I’m also correct that that’s not what I wrote, or implied. Again, I said that “markets are always TRYING to move towards that state”. Demand not being supplied is the very definition of opportunity, is it not?

      But your comments about innumeracy further prove that you’re missing my point, namely, who should decide where these billions are to be spent? Or again, whose job is it to discover and address the demands not being supplied? It’s entirely possible that people are contracting their demand out of self-protection, resulting from of a self-evaluation of their own circumstances. Should the government redistribute a bunch of wealth to get these people to change their minds?

      Government manipulation of the demand side is the road to tyranny. By stark contrast, making it easy for people to supply their skills to solve their neighbor’s problem, according to every individual’s infinitely complex and varying valuation systems which no government is capable of knowing, is by stark contrast, the road to freedom.

      Lastly It’s quite a leap to say I’m calling the majority of Americans, whether or not they’re economists, idiots. I contend that one does not need to be an economist to see the bigger picture I’m writing about here — indeed, it might even be a hindrance.

      • Matthew says:

        Let this road to tyranny bullshit slide.

        How can you say in one breath that Obama and his supporters are economically-illiterate and out of the other side of your mouth say that when a majority of the world’s best economists support him they’re wrong and that doesn’t prove anything?

        Typical meat-head ‘libertarian’ internet nonsense.

  38. juandos says:

    Hmmm, a real beaut of a commentary…

    Personally I find this commentary to be totally on target…

    I graduated from a Catholic high school in ’69 in south Texas when economics was a mandated part of the school curriculum in both private and public schools there…

    “What is fundamentally not understood amongst an apparent majority of voters is that entrepreneurs and their financiers, (often being one in the same), create jobs”…

    Back then it wasn’t called “supply side economics,” it was called common sense…

    Thanks for posting this…

  39. DeeBee9 says:

    Excellent article, hitting the very important point that Americans are woefully ignorant of basic economics. No part of our public school curriculum is devoted to it and most college-level economics is oriented toward econometrics rather than economic theory. It will be a long slog to overcome this ignorance. It sure would be helpful if the media would once again help educate the populace instead of “dumbing them down.”

  40. DD says:

    Americans have had it too easy. They think the life they’ve led up until now is “normal” for people all over the world. What they fail to realize is we could be any country, such as Russia at times, who have employees who work for nothing but hoping for a pay check. For pensioners who don’t receive checks. They think it’s all “free.” It amazes me how they want to expand government and destroy businesses, and yet fail to realize it’s those taxes from business which pay the Federal employee, provide social security to the elderly, and so forth. If they destroy they goose, where do they think the golden egg will come from? Thinking: they don’t. It’s scary to be living in America with a bunch of unrealistic, probably-don’t-even-care as long as it’s given to them “free”, wanting something for nothing, individuals. There really is no such thing as a free lunch.

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