The American Prospect

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What Marijuana Legalization Won't Be in 2016

If you're an advocate of marijuana legalization, you've had nothing but good news for some time now, and more keeps coming. Today at that snappy new Vox thing the hip kids put together, there's an article pointing out that although many people predicted a spike in crime once pot became legal in Colorado, statistics from Denver show that crime has actually declined a bit over the last few months compared to the same period in 2013. It's a small period of time, to be sure, but it doesn't look as though there has been an explosion of robberies or any other kind of crime.

And with the rapid movement of public opinion in favor of legalization, it would be easy to predict that politicians are going to be changing their positions very soon, or as the Atlantic puts it in an article today, "Weed Is the Sleeper Issue of 2016." OK, so we can put that headline down to an overzealous editor; the article itself, which runs through the positions of a number of potential presidential candidates, shows that none of them have actually changed their minds. (And a note of warning: if you see a reference to Rick Perry and "decriminalization," don't be confused. Though he has used the word himself out of what may be confusion, what he actually wants is for the cops to arrest you for possession and then send you to rehab instead of to jail. Which is better than going to jail, but not as good as just not being arrested in the first place.)

There's no question that the political profile of this issue is changing fast. But I doubt we're going to see much change from presidential candidates about it. This is where the analogy with same-sex marriage doesn't hold.

As we all know, public opinion on marriage equality shifted rapidly, and politicians shifted in response. In 2008, for instance, all the contending Democratic presidential candidate supported civil unions, but none supported full marriage rights. In the next presidential primary, all the Democrats will support marriage equality, and most if not all of the Republicans will probably be in favor of some form of civil unions.

Public opinion on marijuana legalization is very similar to that of marriage equality, both in the pattern of change and the correlation with age. Here are two graphs from the Pew Research Center that make it clear:

Just looking at that, you might predict that Democratic politicians would already be stampeding over each other to come out for legalization. But the ones with national ambitions aren't yet, and they may not for some time. The reason is that neither they nor voters see pot as nearly the kind of profound moral question that marriage equality is. Putting aside for the moment the awful consequences of the drug war, what we're mostly talking about when we talk about full legalization is whether people can use pot recreationally without breaking the law, which is great for those who enjoy it, but doesn't rise to a question of their fundamental dignity as human beings.

So it's hard to see cannabis legalization becoming a non-negotiable litmus-test issue for Democrats in the way marriage equality has become. A Democrat today who doesn't support marriage equality will be told that he has fundamentally different values from liberal voters. A Democrat who doesn't support legalization? Well, he may be out step a bit, or behind the times, or cowardly for worrying he'll be called soft on crime, or a general stick-in-the-mud. But not too many people are going to say that he can't honestly call himself a liberal.

That might change if the Colorado and Washington experiments are successful and legalization spreads to other states. And legalization might still be a powerful tool to get young voters to the polls wherever it gets put on the ballot. But I think we'll have to wait an election or two before the effects rise all the way up to the presidential candidates.

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Food Stamps Don’t Keep Wal-Mart’s Prices Low, They Keep Its Profits High

The same company that brings in the most food stamp dollars in revenue—an estimated $13 billion last year—also likely has the most employees using food stamps.”

The name of the mammoth food stamp-reliant company is no secret: Wal-Mart.

As journalist Krissy Clark notes in Marketplace’s valuable new series “The Secret Life of the Food Stamp,” Wal-Mart benefits from food stamps in multiple ways, as taxpayers both underwrite the company’s food sales and also subsidize its payroll costs.

There is no doubt that food stamps (and a host of other public subsidies from Medicaid to home heating assistance to the Earned Income Tax Credit and beyond) reduce Wal-Mart’s employment costs substantially. A study released last year by staff of the U.S. House Committee on Education and the Workforce found that a single 300-employee Wal-Mart Supercenter may cost taxpayers anywhere from $904,542 to nearly $1.75 million per year.

Consider that the working people who turn to food stamps to supplement inadequate wages are demonized as society’s lazy “takers”—a young Wal-Mart employee who enrolled in food stamps to help support his pregnant partner told Marketplace that previously “I'd always considered people who use food stamps as just taking advantage of the government.” Yet the company itself continues to be seen as a paragon of free enterprise, notwithstanding the tens of billions of dollars in subsidies through the same program.

Marketplace has done a great service by shining light on a key public misperception, illuminating the low-wage employers who benefit most from programs like food stamps. Yet an important part of the story still gets missed. It’s probably intended to be a rhetorical question when part II of the food stamp series asks: “Are Wal-Mart’s prices so low because its employees are on food stamps?” But the answer is no.

In reality, it’s not Wal-Mart’s low prices that taxpayers are subsidizing—it’s the company’s mammoth profits.

Wal-Mart made $17 billion in profit in 2013, and spent $7.6 billion buying back shares of its own stock—further consolidating the company’s ownership in the hands of the Walton heirs, already among the wealthiest people on the face of the earth. As my colleague Catherine Ruestchlin and I explain in our 2013 study, these stock buybacks did nothing to boost Wal-Mart’s productivity or bottom line. They contributed zilch to cutting consumer prices or keeping those prices low. But if, for example, funds from this financial maneuvering were redirected to Wal-Mart’s low-paid employees, workers would each see a raise of $5.83 an hour. As a result, the overwhelming majority of Wal-Mart workers would no longer need to turn to food stamps to supplement their wages. Other observers have found additional ways the company could substantially boost pay (and reduce reliance on food stamps) without increasing prices. Yet Wal-Mart has made a decision to continue its dependence on food stamps and other public subsidies.

It’s no surprise that Wal-Mart itself works to obscure the pivotal role of its corporate decision making. David Tovar, Wal-Mart’s vice president of communications, told Marketplace that since Wal-Mart is the nation’s largest employer “its work force is bound to reflect the country’s current economic realities, including growing rates of food stamp use.” This statement passes the buck impressively, overlooking the role that Wal-Mart has played in shaping the country’s current economic realities—in creating an America where millions of people who get up and go to work each day are nevertheless paid too little to feed themselves.

The truth is that Wal-Mart and all the other large and profitable retailersfast food companies, and other corporations that fatten their bottom line by letting the public feed their employees have made a business decision to shrink their payroll on the taxpayer’s dime. It’s up to us to decide whether to continue allowing them to do it.

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Workers on the Edge

One of the most significant contributing causes of the widening inequality and insecurity in the American workforce is the accelerating shift to what economists call contingent employment. That means any form of employment that is not a standard payroll job with a regular paycheck. It can take the form of temps, contract workers, part time jobs, or jobs with irregular hours. A study by the GAO found that fully one-third of the U.S. workforce, or 42.6 million workers, was contingent, meaning in a work arrangement that is “not long-term, year-round, full-time employment with a single employer. “

It is a common myth that the shift to precarious, irregular employment reflects either the structure of the new, digital economy or the preferences of workers themselves. But in reality, most contingent work is the result of efforts by employers to undermine wages, job protections and worker bargaining power. Work that could be (and once was) standard payroll employment is turned into substandard jobs, because corporations prefer it that way. And much of this shift  is illegal, even though the laws are weakly enforced.

A leading scholar of this phenomenon, Prof. Arne Kalleberg of the University of North Carolina, says that the rise of contingent work has led to “Pervasive job insecurity, the growth of dual-earner families, and 24/7 work schedules for many workers….These changes in work have, in turn, magnified social problems such as poverty, work-family conflicts, political polarization, and disparities by race, ethnicity, and gender.”

At heart of contingent work is the misclassification of regular workers as  independent contractors, a practices that deprives workers of income, benefits such as workers compensation, and rights to form bargaining units--and deprives government of tax revenues. While some contractors are truly independent high-paid professionals, working in Silicon Valley, Hollywood, and the New York financial industry while enjoying the flexibility of their various relationships with the companies that give them assignments, many more are low-paid workers who are misclassified. A Fiscal Policy Institute study of the New York state workforce in 2005 found that 10.6% of the private sector workforce was misclassified.  Similarly, a study done for the U.S. Department of Labor in 2000 reported that as many as thirty per cent of employers misclassified some of their employees.

Some of the employers who misclassify their employees as contractors do so in error, which is perhaps not surprising, given the vagueness of the statutes defining employment and the complexity of the case law.  However, in Senate testimony in 2010, Deputy Secretary of Labor Seth Harris charged that “much worker misclassification is intentional.”  Employers do this, he continued, in order to reduce labor costs (by about 30%), in part by not making required contributions to unemployment insurance and worker compensation funds.  By doing so, lawbreakers gain an unfair competitive advantage over honest employers.  Harris concluded:

Misclassification as independent contractors also increases the opportunities for tax evasion, and some take advantage of those opportunities, with a resulting loss of Federal and state revenue. Too many workers are being deprived of overtime premiums and minimum wages, forced to pay taxes their employers are legally obligated to pay and are left with no recourse if they are injured or discriminated against in the workplace. Misclassification is no mere technical violation. It is a serious threat to workers and the fair application of the laws Congress has enacted to assure workers have good, safe jobs.

 

Port Trucking

Port trucking is rife with misclassification.  Ironically, passage of the deregulation law that opened the way for independent contracting in the trucking industry, the Federal Motor Carrier Act of 1980, was hailed by liberals and the business community alike as a triumph of policy reform.  Senator Edward Kennedy and Ralph Nader led the reformers who charged that trucking regulation produced high rates for consumers and monopoly profits for businesses.  Large shippers lobbied Congress for an end to the rate setting and route planning which limited competition and drove up the cost of freight transport.   Civil rights organizations argued that deregulation would lower the barriers that impeded African-Americans from gaining decent trucking jobs.  Despite these high hopes, deregulation wrecked the drayage industry.

Before 1980, trucking companies had to get a license from the Interstate Commerce Commission to haul freight to and from the ports.  The ICC limited the number of trucks to assure stability; the resulting rate structure was sufficient for companies to make stable profits while providing workers with decent incomes with benefits.   The International Brotherhood of Teamsters organized and bargained for most of the port truckers, who received wage and benefit packages comparable to those of autoworkers, steelworkers, and over-the-road truckers. 

Deregulation changed this.  New companies entered the industry, hiring their drivers non-union.    Established companies faltered; some went non-union, others out of business.  The surviving firms  adopted a new business model.  They sold all or most of their trucks to the drivers, then contracted with them on a per-haul basis.  The emerging model meant trucking companies had few fixed costs, had no responsibility for workers’ compensation or unemployment insurance fund contributions, paid no social security taxes, and were able to obtain drivers’ services without paying for health care costs or pension plans.  

Thirty-four years after deregulation, ten surveys of drivers at seven ports reveal that 82% of workers in the industry which hauls containers from ports to warehouses are misclassified as independent contractors.  According to National Employment Law Project’s report, “The Big Rig,”

Industry analysts identify independent contracting as the industry’s dominant business model which sets standards for all port drivers. Few other industries rely on anywhere near this proportion of independent contractors. Through independent contracting agreements, leases, and other employment arrangements, trucking companies make drivers responsible for all truck-related expenses including purchase, fuel, taxes, insurance, maintenance, and repair costs.  Port truck drivers work long hours for poverty-level wages. Among surveyed drivers, the average work week was 59 hours.   

Furthermore, my own survey of truckers at the ports of New York and New Jersey revealed that drivers were able to work for only one trucking company and were prohibited from making deliveries for other firms.  In many cases, the drivers were assisted in leasing their trucks by the trucking companies, which then kept the leases in their own possession.  The trucking companies obtained insurance for the drivers and billed them for it on their weekly pay checks, but in many cases, firm owners did not actually enroll the drivers in an insurance program until after they had an accident. In everything but name, these workers were regular employees, and should have been classified and paid as such.

In California, the courts have found five port trucking companies guilty of misclassification.  In 2008, Attorney General Jerry Brown filed a lawsuit against Pacifica Truck, a port trucking company at the ports of Los Angeles and Long Beach, charging the firm with “unlawfully classifying its workers as 'independent contractors,' circumventing state employment taxes and ignoring labor laws that guarantee workers’ compensation and disability benefits.”  In February 2010, Governor Brown announced, at a news conference celebrating the suit’s vindication in Federal court, that 

We’re sending a clear message that if you cheat your workers, we’re coming after you. Pacifica Trucks claimed that its workers were independent contractors in order to avoid paying the Social Security, Medicare and workers’ compensation benefits to which they are entitled under state law. This judgment validates our continuing effort to ensure that all employees are protected.

The latest victory over misclassification in port trucking came on March 20, 2014, when the Teamsters union settled with a Los Angeles trucking company that had fired drivers working as independent contractors when they complained of low earnings and wage theft.  Under the settlement, which was brokered by the regional office of the National Labor Relations Board, the company agreed to post signs in the workplace informing drivers that they have a right to form a union.  This is significant because if the drivers were actually independent contractors, they would be barred from organizing a union.

 

Package Delivery

Another industry where misclassification is a critical issue is package delivery where United Parcel Service treats its workers as employees, while its competitor, FedEx Ground, treats its 27,000 delivery drivers as independent contractors.  Numerous lawsuits in various jurisdictions have found Fed Ex guilty, while others have exonerated the company. One result is that Fed Ex keeps changing its rules for deploying parcel delivery drivers to make them appear to conform to state regulations and laws.  Despite these changes, the most recent court ruling in this series of cases, issued in Massachusetts in July, 2013 upheld the suit’s contention that

(n)otwithstanding their vital work and the fact that FedEx trained and supervised the deliverers and wrote the policies they had to follow, the company deemed them independent contractors and required them to purchase or lease their trucks as well as buy their own gasoline and uniform.”  

The court issued  a summary judgment that Fed Ex was guilty of misclassifying its delivery drivers as independent contractors.

 

The Construction Industry

Misclassification is most common in the construction industry.  According to the Fiscal Policy Institute study, 14.8% of construction workers in New York were misclassified as independent contractors in the years 2002-5   In 2009, Patricia Smith, then New York State’s Commissioner of Labor, and now the federal Labor Department’s Solicitor of Labor, reported  that 

 One of the most common violations we see, particularly on upstate construction sweeps, are multi-layered “subcontracting” in trades such as drywalling, roofing, masonry and painting.  The prime contractor on a project will subcontract work to a company that is registered for UI and Workers’ Compensation.  That company supervises and controls all of the work in a particular trade.  However, the subcontractor will then hire crews of workers either on a permanent or a temporary basis and designate the foreman of the crew as a second-tier subcontractor.  The subcontractors on these cases and the crews they hire are often from out-of-state which makes the process of recovering underpayments more difficult.  The workers on these crews are rarely on the books for tax or benefit purposes.  They are also subject to labor standards violations, such as unpaid wages, overtime violations, and deductions for items like food and hotel rooms. 

A 2004 study of construction in Massachusetts, issued by Harvard’s Construction Policy Research Center, produced strikingly similar results as the New York investigation—both found about one in seven construction workers misclassified - but it added a historical dimension, namely that “(t)he prevalence of misclassification has increased over the years since 1995 and so has the severity of impact.”   Furthermore, a federal Labor Department study, conducted in 2000, found that from 1984-2000, the percentage of misclassified construction workers had increased from 15 percent to 30 percent.

A recent article by Jim Efstathiou in Bloomberg News quoted George Perry, a 57 year-old construction worker in Dayton, Ohio, who accepted misclassification as an independent contractor while building a homeless shelter because “I felt my back was up against the wall. I have a family. My fiancée was in school. I’m the only bread winner.”

Cathy Ruckelshaus, of the National Employment Law Project, told a U.S. Senate Committee last November that misclassification occurs frequently in day labor, janitorial and building services, home health care, agriculture, poultry and meat processing, home-based work and the public sectors.   The list of industries is probably even longer.   When David Socolow, then New Jersey’s Commissioner of Labor and Workforce Development, testified on misclassification before the U.S. House of Representatives in 2007, he reported that there was a “significant pattern of violation in food processing plants, courier services, dental assistants, waitresses, nail salons, nurses, secretaries and landscaping.” .     

 

Impacts on Workers

To be a misclassified independent contractor is to live in “precarity,” which means, Arne Kalleberg  said in his presidential address to the American Sociological Association, “a life that is uncertain,  unpredictable, and risky from the point of view of the worker.” In line with Kalleberg’s definition, misclassified workers earn low incomes and they experience economic insecurity.  In addition, they are vulnerable to on-the-job injuries and employment-related health impacts.  The International Labor Organization characterizes precarious workers as part of a “growing number of workers whose employment relationship is unclear and who are consequently outside the scope of the protection normally associated with the employment relationship.”  The ILO also points to the fact that contingent workers tend to get far less training than regular workers, denying them opportunities for advancement and exposing them to greater risks of accidents.   

Take the case of port truckers.  According to a survey I did with a colleague, Yael Bromberg, in 2008, the median wage of misclassified independent contractors at the ports of New York and New Jersey was $28,000 per year, without health insurance or pension benefits.  That amounts to a shade less than $10 per hour.  If the median independent contractor’s household of three people tried to live on the driver’s income, the family would be living below what The Poverty Research Institute of Legal Services of New Jersey defines as the “true poverty threshold” for New Jersey, $32,484.  Nearly three-quarters of the independent contractors’ families were without health insurance.  One quarter of their families received no medical care at all because they could not afford it.

Many drivers (35 percent) reported that they are forced to drive with unsafe chassis, exposing their trucks and themselves to on-road accidents.  Injured drivers are not entitled to workers’ compensation benefits, because as independent contractors they do not quality.  Moreover, drivers reported receiving no compensation from their companies when they were injured.  Drivers reported that they suffered from high levels of stress, high blood pressure and  asthma, as well as work-related chronic health conditions and injuries.   Many could afford to lease only old trucks that released high levels of pollutants into the truck cabs and the surrounding environment.  The most dangerous element of diesel engine emissions is the fine particle measuring 2.5 microns or less in diameter. These fine particles are coated with over 40 dangerous substances, and when passed into the bloodstream through the lungs, cause asthma, lung cancer, and heart disease.  Health studies indicate that the truckers’ heart and lung conditions result in elevated mortality rates. 

The Fiscal Policy Institute’s 2007 examination of the construction industry in New York City found that misclassified  workers “are paid very low wages, are denied the protections of universal social insurance programs (workers’ compensation, unemployment insurance, disability), do not have health coverage or retirement benefits, are not able to join a union, and rarely are they entitled to paid sick leave, holidays or vacations. Working in the underground construction economy is like working in the 19th century when it comes to labor rights, protections and employment standards.” The study also found that misclassified building tradesmen working for small, non-union companies that provided little safety training suffered from very high rates of work-related fatalities.   

 

Lost Government Revenues

 In addition to harming millions of workers, misclassification also starves government treasuries of revenue in “unpaid and uncollectible income taxes, payroll taxes, and unemployment insurance and workers’ compensation premiums,“ according to  Cathy Ruckelshaus of NELP. One study she cites, by the Government Accountability Office, estimated that the Federal Treasury lost $2.72 billion in 2006 alone.  Studies on revenue loss by the states of Massachusetts, New York, and California revealed that each of these states suffered significant drains on their income tax receipts as well  their unemployment insurance and workers’ compensation funds.   For example, the New York State Joint Enforcement Task Force in 2012 “discovered over $282.5 million in unreported wages; and assessed over $9.7 million in unemployment insurance taxes,” Ruckelshaus testified.     

Over the past fifteen years, state and federal agencies have tried to improve employment law enforcement, partly in response to  unions which have mounted political and legal campaigns to enhance enforcement so as to raise work standards and enable misclassified workers  to join unions.   In Massachusetts, Mark Erlich, of United Brotherhood of Carpenters Local 40, played a key role in spurring legislative action.  In California, it was the Teamsters Union, backed by Change to Win and a coalition of community, faith-based and environmental groups, that prodded Jerry Brown to  investigate misclassification and to file charges against cheating employers. 

In other states, enforcement efforts have been responses not to substandard work conditions but to government revenue shortfalls.  State reforms fall into three categories.  First, several states, most recently New York in January 2014, have passed laws that create the presumption that a worker is an employee rather than an independent contractor unless the employer can overcome that presumption by demonstrating that the worker is truly independent . Second, there are laws confined to the construction industry that codify uniform standards for employment. Third, there are laws creating a state commission or task force to coordinate enforcement by several agencies.  The New York Joint Task Force, cited earlier, is a prominent example.

In addition to these legislative efforts, the Office of the Attorney General in California has been prominent in bringing lawsuits against companies that misclassify.  Under Jerry Brown, the Office won five cases against port trucking companies.  After Brown was elected Governor in 2010, California’s legislature enacted a statute designed to root out misclassification.   Passage of this legislation stimulated a flurry of lawsuits claiming back wages and other remedies.   More than 400 drivers have filed complaints with the California Division of Labor Standards and Enforcement.  Of these, 19 have been resolved, resulting in payments averaging more than $66,000 per driver.

 

Federal Reform

Prior to 2009, the Federal Department of Labor did not target cases of misclassification per se.  Instead, the Department, pleading limited resources, attempted to identify workers who were denied their due wages.  Nowhere in the Department’s records was the term “misclassification” used, and specific industries that misclassified were not categorized as such.  At a Joint Hearing on The Misclassification of Workers as Independent Contractors, before two House of Representatives subcommittees, in 2007. Labor Department officials were grilled about the meager results of their enforcement efforts.  Several Representatives demanded that the Department prioritize misclassification and coordinate enforcement activities with the IRS and other agencies.

In 2009, enforcement became a priority of the Vice President’s  Department of Labor Misclassification Initiative, a program of his Task Force on the Middle Class.   Under President Obama’s first Secretary of Labor, Hilda Solis, the Department signed a Memorandum of Understanding with the IRS. The agencies agreed to “work together and share information to reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal labor laws.”  The next step was for the Department’s agencies to sign Memoranda of Understanding with state Labor Commissioners.  Fifteen states have signed such agreements.

At first, enforcement lagged for lack of resources .  From 2011 to 2013, the DOL reported “the collection of 97 percent of back wages or over $18 million for almost 20 thousand misclassified employees.”  However, the long-delayed Senate confirmation of Thomas Perez to be Secretary of Labor in the summer of 2013 suggested to most observers that the Department’s enforcement would intensify.    This belief was based on Perez’ record as Secretary of Labor of Maryland, where he aggressively pursued employers who misclassified.   

The business community opposed Perez, and its resistance caused Senate Republicans to hold up his confirmation for two years.  After he was finally confirmed in July, 2013, Perez declared that misclassification constitutes workplace fraud, and he vowed to make combating the practice a priority.  Two months later, when President Obama nominated David Weil, a pioneer in strategic labor law enforcement, to be administrator of the Department of Labor’s Wage and Hour Division, a post that had been vacant since Obama assumed the Presidency, Republicans once again mounted opposition.   Weil, a Professor at Boston University and co-director of The Transparency Policy Project at Harvard University’s John F. Kennedy School of Government, has advised the Wage and Labor Division for years, and was a prime mover of Massachusetts’ campaign to enforce labor laws in the construction industry.  He defended himself at his Senate confirmation hearings by asserting his commitment to creating a level playing field for honest employers.  Apparently, this did not impress  business spokesmen who charged that Weil was biased against employers.   A  Wall Street Journal columnist characterized him as a “union lackey [who] dislikes certain industries, including retailers, homebuilders, janitorial services and fast-food outlets.”   Republican Senators continue to block Weil’s confirmation.     

Recently, the campaign against misclassification has renamed its target “payroll fraud.”  When Sen. Robert Casey ( D Pa.)  introduced a bill on misclassification last November, he titled it “The Payroll Fraud Prevention Act.”  The Senate has not taken up the bill, and it won’t any time soon.

Misclassification is not solely an American phenomenon.  The International Labor Organization, a tri-partite body, has recognized it as a global problem, and has recommended  that new regulations and enforcement regimes be established.  Its efforts have been thwarted by business opposition. 

The bottom line is that the standard employment relationship is being undermined.   Throughout the world, labor laws and regulations have become outdated and inadequate.  Workers find themselves in an ill-defined borderland, a grey zone, where confusion reigns, standards are shifting, decreasing or disappearing, and abuse is rampant.  While the increasing flexibility of work is creating new opportunities for innovation and entrepreneurship, the result for most workers is a retreat to conditions prevailing before regulation began, a jungle of insecurity and exploitation.  Meanwhile, efforts to redefine the employment relationship and to establish labor standards consistent with technological developments and emerging norms and values are in their infancy.    

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Beyond Corruption

There was a time in our history, thankfully long past now, when bribery was common and money's slithery movement through the passages of American government was all but invisible, save for the occasional scandal that would burst forth into public consciousness. Today, we know much more about who's getting what from whom. Members of Congress have to declare their assets, lobbyists have to register and disclose their activities, and contributions are reported and tracked. Whatever you think about the current campaign finance system, it's much more transparent than it once was.

But if outright bribery is rare, should we say that the system is good enough? It's a question we have to answer as we move into a new phase of the debate over money in politics. In the wake of last week's Supreme Court decision in McCutcheon v. F.E.C., many liberals are nervous that the Court's conservative majority is poised to remove all limits on how much can be donated to candidates and parties. For their part, conservatives seem to be preparing to open a new front in this seemingly endless battle, this time on the disclosure requirements that allow us to track who's spending money to get their favored candidates elected. But those of us who worry about money's distorting effects on the process would do well to acknowledge that the combination of more transparency and more money—much, much more money—has created a new reality with dangers that aren't well described by the traditional conception of "corruption."

Over the last few decades of campaign finance history, the immediate arguments have changed many times. Sometimes we argued over "soft money" contributions to political parties, sometimes we argued over phony "issue ads," or 527 organizations and 501(c)(4) organizations, or corporate contributions and aggregate contributions. The specific locus of controversy keeps changing because political money always seems to find its way around whatever obstacles are placed in its path. And the fundamental divide that runs through all these arguments is, just as it has always been, that liberals want to reduce money's influence over politics while conservatives want to increase it.

Conservatives might protest that that's not really true; they just care deeply about freedom. But no one buys that for a minute. Their position on the issue is both practical and ideological. They know that if the super-wealthy are allowed to put as much of their money as they want into elections, Republicans will benefit more than Democrats. It's no wonder that Republican party chair Reince Priebus called the McCutcheon decision a "very big victory for the RNC." And they genuinely believe that's as it should be; both the poor person and the rich person have the same right to donate large amounts of money to candidates, and if in practice it's a right only the rich person can exercise, well that's the way of the world.

And exercise it they do, with candidates, parties, and independent groups the grateful recipients of that civic-minded largesse growing larger with each passing election. But if your idea of "corruption" is only that which is illegal under bribery laws, that isn't a problem that demands a solution. In the McCutcheon decision, Justice Roberts was quite clear in his belief that "Any regulation must…target what we have called "quid pro quo" corruption or its appearance…a direct exchange of an official act for money." Large donations meant to gain the donor access or mere influence over lawmakers, he argued, aren't enough. In his dissent, Justice Breyer took issue with this rather pinched view, saying "we can and should understand campaign finance laws as resting upon a broader and more significant constitutional rationale than the plurality's limited definition of 'corruption' suggest."

So maybe what we have here is in part a problem of nomenclature. If you don't want to call it "corruption," call it "distortion"—the creation of a system that is warped far beyond what it would be under any reasonable conception of democracy, even if nobody's breaking any laws.

There is a meaningful difference. Most of the benefits big money looks for these days are spread beyond an individual, sometimes to an entire industry (like banks or oil companies) and sometimes to an even larger group of people and entities who have a common interest, like wealthy people who want to keep taxes on investment income lower than taxes on wage income. If someone like the Koch brothers succeeds in getting their favored candidates elected and their favored policies enacted, many billionaires and corporations will smile in appreciation. They won't be doing it just for themselves.

There's an important caveat, which is that money can have a great influence on the arcane details of legislation, where the public neither knows nor particularly cares what's going on. Lobbyists still give plenty of money to members of Congress, and they do so to ensure the access that allows them to nibble at the nation's laws for their clients' benefit. In and of itself, money may not be able to buy a big, visible policy change—a reduction in the top tax rate or the killing of a minimum wage bill, for instance. But it can still buy an obscure provision in the nation's banking laws, one that could be worth billions to some very interested parties but makes no front-page news.

Even disclosure of all campaign contributions to every type of independent group would probably have just a small impact in reducing the distortion money imposes on the system, in part because citizens can't be expected to expend the effort to follow its every tendril. When a voter sees an ad casting aspersions on Senator Smiley's opponent and hears "Americans for an American America is responsible for the content of this advertising," what can she conclude? Not much, unless she happens to also read an article informing her that AfaAA is a creation of Oswald Greedyhands, whom some consider a heroic job-creator and others consider a nefarious exploiter of working people. Then she's going to have to think about Oswald's relationship with Senator Smiley, and learn about the Senator's legislative record to see what favors he might have done for Greedyhands Industries. It's a lot to expect of a citizen who has her own life to lead.

So even if the information is out there somewhere, and activists sound the alarms, so long as the money keeps pouring in, the system will bend inexorably toward the interests of those who fund it. A plutocratic system of government of, by, and for the wealthy isn't necessarily "corrupt," in the sense of being awash in specific, explicit bribes. But it isn't particularly democratic, either.

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Daily Meme: Must. Kill. Obamacare.

  • Despite the invincible conviction on the right that Obamacare is a disaster and that Americans are losing their health insurance, a newly released Gallup poll shows the number of people without insurance has declined to 15.6 percent—its lowest level since 2008. The rate of uninsured dropped among all age groups, but the Affordable Care Act has made a significant dent in the number of poor and minority Americans without insurance.
  • As Joan McCarter at Daily Kos points out, the Gallup numbers are key to undermining the Republican talking point that most of those signing up on the insurance exchanges already had health insurance. 
  • The GOP's response? Must. Kill. Obamacare—also the party's strategy for winning the midterms.
  • Fox News contributor Juan Williams says while that may have worked in 2010, it's no surefire bet this time—and Republicans have no Plan B.
  • The question, writes The New Republic's Jonathan Cohn, is not whether Obamacare is making a difference. "The question is how big a difference the law is making. And it's going to be a while before anyone knows. " 
  • Are some Republicans growing soft in their opposition? 
  • Not if the Drudge Report has anything to do with it.
  • Even if the health-care law is clear in its success, says Washington Monthly's Ed Kilgore, Republicans will shift gears from assailing the efficacy of the law to pointing out how it's increased Americans' reliance on government.
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A Rough Week for Democracy

  • Once, long ago, lawmakers from both parties worked together to pass campaign finance reform legislation. It was a simpler time, albeit with terrorist attacks and wars in the Middle East and a presidential administration bent on giving tax breaks to the wealthiest Americans, and in 2002, Democratic Senator Russ Feingold Republican Senator John McCain (remember him?) saw their efforts to decrease the role of money in politics turned into law, adding to an overall campaign finance regulations.
  • But since the U.S. Supreme Court’s 2010 Citizens United v. FEC decision, which allowed corporations to spend unlimited amounts on independent political advertising, and the rise of super PACS, the whole system has been wobbling.
  • On Wednesday, another vestige of the system fell to First Amendment claims. McCutcheon v. FEC knocked down the total limits on individual campaign donations. While there are still caps on how much donors can give to a campaign or party, they can now give to as many campaigns or parties as they like. There’s already a book out about the decision, because apparently some people write fast.
  • People in the reform world promptly freaked out.
  • Some say the opinion is actually bad news for rich people. Conservatives, however, appeared pretty pleased with the news. Shaun McCutcheon, the plaintiff in the case, explained he was your average freedom fighter. “As an American engineer in the land of the free,” he wrote, “I wanted to understand just exactly why my First Amendment rights were being limited.”
  • At any rate, the opinion isn’t immediately apocalyptic—the number of people who want to give away hundreds of thousands of bucks to campaigns isn’t exactly high—but reformers worry in a “death by a thousand cuts” scenario, this is cut number 999.
  • Because the decision explicitly states that Congress can only regulate contributions to prevent quid-pro-quo bribery, rather than more nebulous kinds of political favoritism, the door is wide open for more lawsuits to bring down what’s left of the system.
  • For instance a case moving to strike down campaign contribution limits themselves may soon appear, which would leave the wealthy free to give as much as they want to as many campaigns as they want. Yale Professor of Law Heather Gerken worries public financing programs could be also at risk of a successful lawsuit.
  • Meanwhile Congress remains committed to doing nothing and the Republican members of the Federal Elections Commission seem eager to follow the same model.
  • So what’s left for reformers to propose? Well, Gherkin, along with Yale Law student Webb Lyons and Wade Gibson of Connecticut Voices for Children, say at the very least groups that don’t have to disclose donors should be required to state that fact. “That could help voters figure out how much trust to put in the ad,” they write.
  • But at Salon, Alex Pareene has a more effective ideaJust take away money from rich people. The “socialist” in the White House has yet to comment on the proposal.
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How Should Liberals Feel About the Mozilla CEO Getting Pushed Out Over Marriage Equality?

By now you may have heard the story of Brendan Eich, who was named the CEO of the Mozilla corporation, which runs the Firefox web browser, then resigned ten days later after it was revealed that he donated $1,000 to the campaign for California's Proposition 8, which outlawed same-sex marriage in the state and was later overturned. Eich's resignation came after the company came under pressure from many directions, including the dating site OKCupid, which put a message on its site asking its users not to use Firefox. This is something of a dilemma for liberals: on one hand, we support marriage equality, but on the other, we also support freedom of thought and don't generally think people should be hounded from their jobs because of their beliefs on contentious issues. So where should you come down?

In order to decide, there are a few questions you need to ask, some of which are easier to answer than others:

What kind of an employee was Brendan Eich? This question, which may be the most important one (as we'll see) cuts against Eich. The rules should be different for someone who's at the top of the organization and someone who is somewhere farther down the chain. Not only is the guy who works in the mailroom much more economically vulnerable—losing his job could mean not being able to pay his rent—but the farther down you go, the less likely it is that his personal beliefs are going to have any relevance to his job (there are exceptions, of course). But the CEO of a tech company is economically insulated, and acts as a public spokesman and representation of the organization in every way—its products, its employees, and, if you will, its spirit. It seems reasonable that the company should seek a leader who embodies its values about open-source software, about the way employees are treated, and even about civil rights.

Should a company be able to push you out for your personal beliefs? Legally speaking, they have the right to fire you for something you believe (legal protections against job discrimination only apply to a few specific areas, like race, sex, religion, and age), but that doesn't mean they should. But let's take this example to an extreme. What if the company found out that its CEO was a neo-Nazi, or organized Klan rallies his spare time. If he said, "That has nothing to do with how I do my job," the company would probably say, "Well...maybe. But we still want you out." The point isn't that that being against marriage equality is comparable to those things, only that there are certainly some personal beliefs that could reasonably get you fired. That being the case, the question is where the line is between beliefs that are not that big a deal, and beliefs that are so problematic that they can't be overlooked. So the next question is...

Is marriage equality the kind of issue over which a CEO should get pushed out? And here's where it gets more tricky. The question is, what kind of belief is this one? Is it just political, or is it more fundamental than that? Is it so far outside what we could reasonably expect this person to believe that by its very extremism it makes it impossible to do his job?

The answer to that last question is almost certainly no. Conor Friedersdorf asks, "Does anyone doubt that had a business fired a CEO six years ago for making a political donation against Prop 8, liberals silent during this controversy (or supportive of the resignation) would've argued that contributions have nothing to do with a CEO's ability to do his job?" He's probably right about that (Andrew Sullivan also expressed outrage at Eich being pushed out). That being said, the question of what the CEO in particular is supposed to embody may trump the other considerations.

As Will Oremus argues, in a place (Silicon Valley) where there are lots of gay employees, morale is critical, and competition for talented workers is fierce, having a CEO who doesn't support full rights for gay people could put the company at a competitive disadvantage. So Mozilla could argue that it's not just a question of whether Eich is the kind of person they want to hang out with, but whether his beliefs on this issue could have a detrimental effect on the company's bottom line. And if corporations can have free speech rights (and maybe even religious beliefs), it's certainly possible for a company to have values about things like equality, values that it demands that its leadership share.

In sum, I think there's some merit to both sides of this debate. It's probably not a good thing to have crowd-sourced oppo research campaigns done on every new CEO of a prominent company to see if there is anything in their past or biography that can be used to put pressure on the company. On the other hand, there are some positions where some beliefs matter more than they might in other contexts, and this appears to be one of them.

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Hurray for Global Warming!

Flickr/chiz2008

The take-away from the latest U.N. Intergovernmental Panel on Climate Change (IPCC) report could hardly be more stark: The globe is warming, and it’s already impacting every continent and the oceans. In order to avoid widespread food and water insecurity, waves of human migration, more frequent civil war, ocean acidification, and a severe global economic contraction, governments must act quickly to reduce greenhouse gas emissions and invest in a things like barriers to protect from rising seal levels and storm surges to setting up insurance schemes to cover agricultural losses during severe drought. 

“No matter what we do,” says Christopher B. Field, a professor of interdisciplinary environmental studies at Stanford University and one of the report’s authors, “we are already going to have impacts that we need to adjust to.”

Among the more surprising findings of the IPCC report, which took into account more than 12,000 scientific papers and received upwards of 50,000 comments on draft versions, is the degree to which it is not just failed states or poor countries that are getting hit by climate shocks. “In previous assessments there was a lot of emphasis put on vulnerability in the poorest parts of the world,” says Field. “What the new report concludes is that we see vulnerability around the world in rich countries, as well as poor, and in areas that you would think of as well defended.” 

The same day the IPCC released its report, the Nongovernmental International Panel on Climate Change (NIPCC) at the Heartland Institute—which has long denied global warming—published its own findings on climate change. Global warming may be happening, the report’s authors write, but it’s a good thing. “Terrestrial ecosystems have thrived throughout the world as a result of warming temperatures and rising levels of atmospheric CO2,” the Institute report says, and the human population will most likely see a “net reduction in human mortality from temperature-related events.” 

Read the rest of the story here.

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How Our Campaign Finance System Compares to Other Countries

With the Supreme Court's decision in the McCutcheon case, some people think we're heading for the complete removal of contribution limits from campaigns. Jeffrey Toobin, for instance, argues that the way Justice Roberts defines corruption—basically, nothing short of outright bribery qualifies—means that he could well be teeing things up to eliminate contribution limits entirely in some future case. Which got me thinking: if we really are headed for that eventual outcome, how would that place us compared to other countries? For instance, if you're a Monsieur Koch in France, can you write a candidate a million-euro check?

Fortunately, the good folks at the International Institute for Democracy and Electoral Assistance (International IDEA), an inter-governmental agency, have gathered this kind of information together. Of course, a large database of laws from all over the world is going to miss many of the subtleties and loopholes that characterize each individual country's system. But if you were thinking that other similarly advanced democracies must all have tighter laws than ours, you wouldn't be exactly right.

While International IDEA's database contains information on 43 variables for 172 countries, for the moment I decided to focus on two questions: Are there limits on contributions to parliamentary candidates, and are there limits on spending? I also decided to focus on the 34 member nations of the Organisation for Economic Cooperation and Development, since the OECD is how we often define "countries like us." And I eliminated Mexico and Portugal, where all contributions go through parties and individual candidates don't take contributions. So, what does the picture look like?

The no-limits nations:  Australia, the Czech Republic, Denmark, Estonia, Germany, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, and Turkey.

In these places, there are no limits on contributions, and no limits on what candidates can spend. But that doesn't mean that these countries' wealthy are writing million-euro checks to parliamentary candidates. It's important to keep in mind that the role money is able to play in politics is determined by multiple factors, many of which serve to hold down both contributions and spending, even when the law doesn't impose limits. For instance, most of the countries in the OECD have traditions of stricter party discipline than we do, and that makes members of the legislature somewhat interchangeable, which in turn can reduce the utility of buying yourself a few of them. Even more importantly, TV advertising is the single largest expense for most American congressional candidates, while in many other countries candidates are either forbidden from advertising on television or given free TV time. In most places there's substantial public funding of campaigns, and candidates are often forbidden from campaigning until a relatively short period before election day. Put all that together, and you have elections where, even if it would technically be legal to rain huge amounts of money down on candidates, nobody considers it worth their while (for instance, here's a nice description of the relative quiet of a German campaign). So the idea of someone spending two or three million dollars to get a seat in the national legislature, the way American House candidates routinely do, would seem absurd.

The all-limit nations: Belgium, Canada, Chile, France, Greece, Iceland, Ireland, Israel, Japan, South Korea, Poland, Slovenia.

In these countries, there are limits on both contributions and on spending. The contribution limits tend to be in the same rough ballpark as ours (the current limit for U.S. federal campaigns is $2,600 in the primary and $2,600 in the general). So in Canada, you can give $1,100 to a parliamentary candidate; in Greece it's $3,000 euros, in Iceland it's a little under $2,500 euros, and so on. There are a couple of outliers—in Japan, you can contribute 1.5 million yen, or $14,439 in today's exchange rate, to each candidate per year. Another is Israel, where a complicated formula will allow you to contribute a couple of hundred thousand dollars to some candidates.

But spending limits, which are quite low in most places (often in the five figures), make all the difference. Which brings us to:

The nations with limits on spending but not on donations: Austria, Hungary, Italy, New Zealand, Slovakia, the United Kingdom.

It does seem a little odd that you would have limits on what a parliamentary candidate can spend, but no limits on what someone can donate to her. But if you have the former, you don't really need the latter. If a candidate is only allowed to spend $20,000, she doesn't really have to worry about seeking out donations (a raffle or two down at the pub might do the trick), and there's no point in writing her a big check to try to win her favor. And finally…

The nations with contribution limits but no spending limits: Finland, the United States.

Not knowing much about Finnish elections, I'm not going to speak to what goes on there (though if I had to guess I'd say they're polite, thoughtful affairs). But for American candidates, it's the worst of both worlds. The lack of spending limits means they're always at risk of being outspent, which means they can never stop raising money. But the lack of contribution limits means they have to get that money in $2,600 increments, meaning they have to keep asking and asking and asking.

If we removed the contribution limits, it would certainly make candidates' lives easier; if you can convince one billionaire to write you a check for $2.6 million, that's the equivalent of persuading a thousand ordinarily reach people to give you $2,600, and that would free you up to spend a lot more time calling your opponent a low-down cur who wants to bring the republic to ruin. But would it make the system more corrupt? You bet it would.

As you look over the different regulations various countries have come up with, it does seem that the thing that makes all the difference in how campaigns are conducted is the spending limits, which are often combined with time limits on electioneering. Everyone has to weigh two competing considerations. The first is the desire for elections that retain a reasonable amount of integrity, and are conducted in a manner that is, for lack of a better term, civilized. And the second is the principle of free speech, that a candidate for office should be able to say what he wants, as often as he wants, and spend as much as he wants doing it, even at the risk of corruption. In most other countries, they've decided that the first consideration is more important. In the U.S., we've decided that the second consideration is the only one that matters.

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Wall Street’s Subsidy Safety Net

Financial reformers in both parties have insisted for years that the largest banks remain too big to fail, and that Dodd-Frank did not cleanse the system of this reality. You can mark down this week as the moment that this morphed into conventional wisdom. In successive reports, two of the more small-c conservative economic institutions, without any history of agitating for financial reform—the Federal Reserve and the International Monetary Fund—both agreed that mega-banks, in America and abroad, enjoy a lower cost of borrowing than their competitors, based on the perception that governments will bail them out if they run into trouble. This advantage effectively works as a government subsidy for the largest banks, allowing them to take additional risks and threaten another economic meltdown. With institutional players like the Fed and the IMF both identifying the same problem, Wall Street grows more and more isolated, setting up the possibility of true reform.

The idea that big banks can borrow more cheaply makes intuitive sense. Say you’re an investor with the option of lending money to a big bank or a smaller one. If you know that, in the event of catastrophe, the smaller institution will get swallowed up by the FDIC without an investor payoff, while the big bank will get protected with a taxpayer bailout, of course you would feel that your money is safer with the big bank. Therefore, investors ask for higher interest rates from smaller banks, because of the greater risk of losses. This also distorts market discipline, as investors have no reason to worry about excessive risk-taking at a too-big-to-fail bank if the government will clean up the mess regardless. Even if the government insists that the era of bailouts has ended, the mere perception by investors about the safety of their funds in a too-big-to-fail bank drives borrowing costs lower.

Federal Reserve research, put out last week as part of the annual Economic Policy Review, makes the historical case for this disparity. Using a twenty-four year dataset, João Santos of the Federal Reserve Bank of New York argues that the largest banks have a cost advantage “consistent with the hypothesis that investors believe the banks are ‘too big to fail.’” Santos compared bonds of similar characteristics issued by banks of all sizes, and calculated that larger banks, on average, raise money at interest rates between 0.31 and 0.41 percent lower than their smaller counterparts.

This sounds small, but when you consider the hundreds of billions in that the average mega-bank borrows in a typical year, the amounts can add up. If you multiply that figure by the total liabilities of the top ten U.S. banks, it equals as much as $45 billion a year in subsidy, around half of the mega-banks’ annual profits (previous data put the subsidy at almost twice as much). Santos broadened the investigation by looking at the firms outside the banking sector, and found that their borrowing advantage relative to smaller competitors does not hold when comparing similar types of bonds. “These results suggest that the cost advantage… is unique to banks,” Santos writes.

The problem is that the dataset goes from 1985 to 2009, ending before passage of Dodd-Frank and its implementation. Therefore, this data alone, while confirming the existence of a consistent borrowing advantage for big banks over time, cannot answer whether Dodd-Frank fixed the problem and eliminated the subsidy. However, additional Fed research, using data through 2013, showed that the largest banks take bigger risks than their peers, suggesting that they still rely on the likelihood of government aid if they fall into crisis.

The IMF report looked at banks all over the world, and just to make things more confusing, they used the term “too important to fail” rather than the more common idiom. But they arrived at much the same conclusion as the Federal Reserve, even when analyzing data from after 2009. In fact, because we have a test case for whether governments will seek bailouts—the massive support handed to banks in the wake of the 2008 financial crisis—the IMF believes that the problem “has likely intensified.” Banks have grown more concentrated since 2008, and as the IMF notes, they did so by responding to the major incentives to grow: the bailout protection and the borrowing subsidy.

In general, the IMF found a much larger subsidy for banks in Europe than in the United States; judged by their estimates, European mega-banks look like complete wards of the state. However, when comparing bonds of similar types issued by U.S. banks, the borrowing advantage did show up as anywhere between $15 and $70 billion, depending on the methodology used to calculate it.

This represents a decline from the peak of the crisis, when the borrowing advantage was much higher. And the potentially smaller finding than the Federal Reserve suggests that Dodd-Frank made some difference in investor expectations, reducing the subsidy. But in all cases, the cost advantage seen in post-crisis data was larger than the advantage from before the crisis. In other words, the experience of the bailout meant more to investors in cementing the notion of government protection for big banks than any of the regulatory actions taken after the bailout. In all, the IMF estimated that governments around the world provide $590 billion annually in implicit subsidies to mega-banks because of their too-big-to-fail status. “The expected probability that systemically important banks will be bailed out remains high in all regions,” the report concludes.

In combination, the papers from the IMF and the Fed provide powerful ammunition for reformers to rebut their critics at the big banks. In general, banks and their lobbyists have taken the line that Dodd-Frank solved the problem. In fact, a couple weeks before these reports, the financial consultant Oliver Wyman put out their own report asserting that too-big-to-fail subsidies no longer exist. The report was financed by the Clearing House Association, a consortium representing 17 of the world’s largest banks.

If this were a fight just between financial reformers and bank-funded studies, perhaps the debate would endure without resolution. But when the IMF and the Federal Reserve weigh in, it has the effect of a referee judging the debate. And both of them clearly sided with the reformers, agreeing that the subsidies remain and that policy reforms since the financial crisis have not succeeded in eliminating them.

With the debate basically over, the question arises of what to do about the implicit subsidy and the excessive risk to the economy that goes along with it. Senators Sherrod Brown and David Vitter have carried bipartisan legislation for nearly a year that would increase capital requirements for the biggest banks, effectively ensuring that they pay for their own bailouts. More wide-ranging reforms would cap the size of the largest institutions at a certain percentage of GDP. And in his tax reform proposal, Republican Dave Camp drew from an idea dropped from the final version of Dodd-Frank, suggesting a tax on the biggest financial firms to finance future bailouts.

There’s little chance of any of these solutions gaining traction in this election year. However, financial reformers can only be helped in the future by the end of the debate over whether mega-banks derive a substantial portion of their profits from government subsidies. The idea that banks benefit from government largesse offends the sensibilities of both parties, for different reasons. Wall Street is now virtually alone in denying reality, and this should aid efforts to finally solve the problem.

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