vimothy

yurp
Bueno de Mesquita (my new hero), Alastair Smith, Randolph M. Siverson, and James D. Morrow, in their highly cynical book The Logic of Political Survival, state that when referring to categories of regime (and all other organisations, in fact) we should consider two institutional dimensions:

The selectorate, the group of people with a meaningful ability to choose the government or leadership;

The winning coalition, a subset of the selectorate that “backs” the leadership, whose support is essential for the incumbent, if they are to remain in power;​

Selectorates vary according to type. In a democracy, the selectorate is the electorate. In an autocracy, the selectorate is the elite, like generals, important merchants, administrators and so forth. In a monarchy, the selectorate is the aristocracy. In North Korea, for instance, the nominal selectorate is the Korean Workers' Party, but the real selectorate is a much smaller group within that. Selectorates vary greatly in size.

Winning coalitions also vary according to type. In the British parliamentary system, the winning coalition must be at least half the MPs, each with half the vote in their districts, or at least twenty-five percent of the vote. In a directly elected presidential system, you need fifty-one percent of the vote. In America, thanks to the vagaries of the Electoral College, you could potentially secure the presidency with as little as nineteen percent of the vote. Proportional representation can give even smaller winning coalitions, many with as little as ten percent of the vote, according to Bueno de Mesquita et al. In a rigged, autocratic system like North Korea’s, you can win with the support of one in every ten thousand, if they are the military leaders. Winning coalitions, too, vary greatly in size.

The example of North Korea is different from those that preceded it in an important way: in an electoral system, the selectorate and winning coalition (i.e. the voters) are essentially anonymous; in all other systems, they draw from a known set.

All governments want to survive, and all have the same basic functions: to set the tax rate, which generates revenue, and to keep their constituents happy, by allocating resources in the form of public goods, which benefit everybody, and private goods, which benefit the winning coalition. Private goods might be monopoly access, access to corruption, access to superior material goods. Democratic systems are no different. Republicans use tax policy to benefit their constituents, the relatively wealthy people who tend to vote Republican, and the Democrats do the same, using tax policy to benefit the relatively poorer people who tend to vote Democrat. The logic of political survival dictates this. The government must satisfy its winning coalition to maintain power, by definition. In this theory (correct, IMO), cronyism is inevitable. “It was written”.

Democracies differ from dictatorships only in terms of scale. They follow the same logic according to the same two institutional predicates. We need not be idealistic regarding the limits and true nature of democracy. It is abundantly clear that it is superior to dictatorial systems, because it guarantees a far larger group is involved in selecting and maintaining the government, because large absolute size of the selectorate contributes to more public goods and because large relative size of winning coalition (relative to the size of the selectorate) contributes to less private goods. A government that is supported by a large winning coalition will find it more efficient to reward that coalition by producing public goods, which can be consumed by all. A government that is supported by a small coalition willl find it much more efficient to reward that coalition with corruption. But, as Richard L. Stroup writes,

In democratic politics, rules typically give a majority coalition power over the entire society. These rules replace the rule of willing consent and voluntary exchange that exists in the marketplace. In politics, people's goals are similar to the goals they have as consumers, producers, and resource suppliers in the private sector, but people participate as voters, politicians, bureaucrats, and lobbyists. In the political system, as in the marketplace, people are sometimes (but not always) selfish. In all cases, they are narrow: how much they know and how much they care about other people's goals are necessarily limited.​
The narrowness of the competing self-interests is a fundamental fact be it democracy or dictatorship. It is impossible not to be narrow. (Hayek wrote a great paper about this, probably one of the greatest papers I have ever read – The Use of Knowledge in Society). Thus, a government might want to pick the best policy for the national interest, but there is no reason to suppose that it will be able to, simply because its knowledge is so limited. And in any case, there are various groups to keep satisfied, whose support is more important than picking the best solution to any given problem. In America, for example, there are policies to protect a handful of super-rich sugar farmers, which keeps sugar prices high, stifles innovation in that sector and keeps developing world producers from accessing American markets. It is so because protecting American industry is popular both with the general population, who suffer as a result, and with the sugar manufacturers, who make lots of money and no doubt form part of a winning coalition somewhere or other.

(I wrote this in semi-reponse to Nomadologist, but mostly because I have been listening to this mind-expanding podcast non-stop for about a month now (h/t: Mr BoShambles))
 
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Mr BoShambles

jambiguous
Brilliant post Vim - summed it up perfectly. Any political system is inherently flawed since as you say:

The logic of political survival dictates this. The government must satisfy its winning coalition to maintain power, by definition. In this theory (correct, IMO), cronyism is inevitable.

Democracy is clearly the best system we have yet discovered to organise societies with big populations. By big I mean anything beyond very small-scale groups which can plausibly organise along autonomous non-hierarchical lines (if indeed this has ever truly existed -- zhao: you are the expert on primitive hunter-gatherer societies).
 

vimothy

yurp
Democracy is clearly the best system we have yet discovered to organise societies with big populations. By big I mean anything beyond very small-scale groups which can plausibly organise along autonomous non-hierarchical lines (if indeed this has ever truly existed -- zhao: you are the expert on primitive hunter-gatherer societies).

One thing that puzzles me, which I'm betting you have a comparative advantage on, is the implications he sketches out for foreign aid, i.e. that donor leaders benefit, that donor winning coalitions benefit, that recipient winning coalitions benefit, but that recipient people loose out. Now, i understand the logic, but doesn't this contradict Paul Collier's work, which does compare aid to the "resource curse" and finds that aid gives a greater "value added" than, e.g., oil?

What's the deal?
 
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Mr BoShambles

jambiguous
One thing that puzzles me, which I'm betting you have a comparative advantage on, is the implications he sketches out for foreign aid, i.e. that donor leaders benefit, that donor winning coalitions benefit, that recipient winning coalitions benefit, but that recipient people loose out. Now, i understand the logic, but doesn't this contradict Paul Collier's work, which does compare aid to the "resource" curse and finds that aid gives a greater "value added" than, e.g., oil.

What's the deal?

Yeah I've been thinking about this too. Not sure I've got a good answer at the moment, but to quote from Collier (The Bottom Billion):

Aid has tended to be more effective where governance and policies are already reasonable. That does not sound very surprising: indeed, it sounds almost platitudinous. But it is actually pretty controversial. Partly, people quite reasonably do not like the harsh-sounding implication that the countries with the worst problems should get the least money. However there comes a point at which money is pretty ineffective in these environments. Recall that expenditure tracking survey in Chad: less than 1 percent of the money released by the Ministery of Finance for rural health clinics actually reached the clinics. In 2005 the European Commission gave 20 million euros to the government of Chad in budget support. How much of it do you imagine was well spent? Do not forget that the tracking survey was only following money that was already intended for health care. This is not, unfortunately, a very high priority for the government of Chad. It prefers to spend its money on the military. The budget support given by the European Union can be spent on whatever the government chooses. I doubt whether much of it was allocated to health. And of the money that was allocated to health, we know how much actually reaches the front line of health care. So the European Commission's well-intentioned support for the desperately poor country of Chad is likely to have ended up largely financing the army

Collier does argue that aid in most cases gives greater 'value-added' than oil or other natural resources but only because of the 'projects, procedures, conditions and suchlike' provided by aid agencies which enhance the value. But i guess the fundamental point here is that where the institutional structure of a country is poor, large inflows of money are not a particularly good tool for assisting necessary institutional change. This is the point Mary Shirley makes when she argues:

Some observers believe that [foreign] aid may even have slowed institutional change by preventing political competition and preserving the power of local elites who might otherwise have been removed.
 

vimothy

yurp
Doesn't Bueno de Mesquita say that there is an inverse relationship between needing aid and getting it, i.e. that the countries who need aid most will get the least, if they get it?
Collier does argue that aid in most cases gives greater 'value-added' than oil or other natural resources but only because of the 'projects, procedures, conditions and suchlike' provided by aid agencies which enhance the value.

But won't the pre-conditions imposed along with aid merely serve the interests of the donor country's winning coalition and provide private goods for the recipient's buddies?
Some observers believe that [foreign] aid may even have slowed institutional change by preventing political competition and preserving the power of local elites who might otherwise have been removed.

And the implications of Bueno de Mesquita's work are that it necessarily does this and in fact all aid ends up oppressing people in recipient countries by providing autocrats with the revenue to buy their constituents the goods they need to stay in power.

Interesting and exciting, though, to read World Bank literature that is honest about asking thease questions.

EDIT:

Should also add that under this model, aid actually is successful, it's just that what it succeeds at is not what most people think of as being the point of aid. Democratic governments need to make their constituents happy, and so they place conditions on the aid. These conditions are good for the democracies in question, and good for the dictators in question, but bad for the people of the recipient countries, since it relieves pressure on the recipient autocrat and allows him to make less public goods and more private ones. (And, according to Bueno de Mesquita, though I'm not sure about this, it imposes policies that are not popular with recipient poulations, because if they were popular, we wouldn't need to buy them with aid. But since recipient populations aren't getting any say in the matter, I'm not sure why he thinks this is the case).
 
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Mr BoShambles

jambiguous
These conditions are good for the democracies in question, and good for the dictators in question, but bad for the people of the recipient countries, since it relieves pressure on the recipient autocrat and allows him to make less public goods and more private ones.

Depends what the conditionalities are right?

Unconditional aid to developing countries (like in the example of Chad mentioned above) will certainly be popular with dictators and perhaps also with some constituents in the democratic donor countries who see it as our obligation to give assistance to the developing world but without imposing stringent rules (i.e "let them develop in their own way"). Of course other constituents will disagree (on one or both points).

Conditionalities at least create a structure to the aid given - thereby increasing the chances that it is used productively rather than just distributed as economic-rents to further strengthen the position of the dictator and his cronies. If such conditionalities are successful surely they will be supported by the recipient consituents who will now see some benefit from the foreign aid flowing in (at least in theory).

There are no guarantees here IMO. But if aid is unconditional it is effectively just a lump some of cash - a cheque in the post - like oil revenue which can used however those who hold political power wish (invariably on military equipment, gifts for their supporting coalition members, white-elephants, or simply deposited in Swiss bank accounts).
 

vimothy

yurp
Depends what the conditionalities are right?

Unconditional aid to developing countries (like in the example of Chad mentioned above) will certainly be popular with dictators and perhaps also with some constituents in the democratic donor countries who see it as our obligation to give assistance to the developing world but without imposing stringent rules (i.e "let them develop in their own way"). Of course other constituents will disagree (on one or both points).

Conditionalities at least create a structure to the aid given - thereby increasing the chances that it is used productively rather than just distributed as economic-rents to further strengthen the position of the dictator and his cronies. If such conditionalities are successful surely they will be supported by the recipient consituents who will now see some benefit from the foreign aid flowing in (at least in theory).

There are no guarantees here IMO. But if aid is unconditional it is effectively just a lump some of cash - a cheque in the post - like oil revenue which can used however those who hold political power wish (invariably on military equipment, gifts for their supporting coalition members, white-elephants, or simply deposited in Swiss bank accounts).

Ah, where would we be without those Swiss bank accounts...?

Do you have any good studies that show positive correlation between conditional aid and political reform, institutional development and / or economic growth?

What is the nature of the conditionalities imposed and what is the quantitative breakdown across the total set of conditional aid?

Also, how do you read Bueno de Mesquita in relation to any insights gained from NIE and The J Curve?
 
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Mr BoShambles

jambiguous
Ah, where would we be without those Swiss bank accounts...?

The Cayman Islands? Panama? :)

Do you have any good studies that show positive correlation between conditional aid and political reform, institutional development and / or economic growth?

What is the nature of the conditionalities imposed and what is the quantitative breakdown across the total set of conditional aid?

Also, how do you read Bueno de Mesquita in relation to any insights gained from NIE and The J Curve?

Leave this with me and I'll try and post something coherent later on tonight/tomorrow.
 

Mr BoShambles

jambiguous
From Bruce Bueno de Mesquita and Hilton L. Root (eds.) Governing for Prosperity:

Substantial variation in economic performance can no longer be attributed to ignorance about what makes an economy grow; observers must look elsewhere than at competing economic theories to explain national economic failure. Today, the key to economic success or failure - indeed, to a broad array of policy successes or failures - lies within the political institutions of sovereign states. Political arrangements create incentives for political leaders to foster growth or to steal their nation's prospects for prosperity. How to govern for prosperity is likely to be the most important policy puzzle of the twenty-first century.

The central thesis of this book is the following: given the state of knowledge about the economics of growth, the solution to poverty lies in the construction of political institutions that provide leaders with incentives to focus on the welfare of their citizens. Society does not have to wait for civic-minded leaders to improve citizen welfare, but it does have to construct institutions for growth that reflect the interests of leaders in securing political power. In too many instances, the institutional arrangements turn bad public policy into good politics.

We identify two contrary impulses in politics: the impulse among politicians to fight over the distribution of goods and the impulse to coordinate the protection of future access to benefits. The choice between fighting over the current distribution and coordinating on future benefits depends on the extent to which incumbents rely on allocating private goods or public goods to stay in office. That dependency, in turn is a function of the political institutions under which they operate. Certain features of democracy promote a focus on public goods and coordination, whereas key aspects of autocracy promote attentiveness to the allocation of private goods and, therefore, to questions of distribution.

Under normal circumstances governments allocate access to resources through taxation, regulation and spending. Leaders can choose to allocate resources for the provision of public goods that benefit all or to provide private goods that benefit their cronies. When leaders provide privileged acces to resources, they interfere with the efficient distribution through the market's decentralized decision making, weakening the economy and diminishing the total resources at a leaders disposal. Why leaders would knowingly choose policies that lead to economic decline is one the great conundrums that accounts for much of the world's poverty.

Economists typically view leaders as benign agents promoting the welfare of their society who would not knowingly precipitate an economic crisis. This book recognizes that deliberate policy failures are ubiquitous throughout history and seeks a solution to this dilemma in the incentives of leaders to stay in office. Political leaders want to stay in power. They are willing to purchase loyalty at any cost to the economy, including providing privileged access to resources, thereby weakening the nations economic performance. Although dispensing privilege may place the well-being of the national economy in jeopardy, leaders may disregard the economic costs until they run out of enough resources to stay in power: their focus is on political crisis, not economic crisis. A political crisis arises only when incumbents are not able to purchase sufficient loyalty to retain office. Politicians worry about an economic crisis only when it becomes a political crisis.

[...]

Thus, for autocrats, economic crises need not represent political crises and so they can attend to distribution problems without much concern for general or future prosperity. Democratic institutions deprive leaders of this choice, compelling leaders through formal, institutional constraints to provide effective public policy and avoid economic crises. This dynamic, more than elections, is the crux of the relationship between democracy and growth.

*********

This book is totally excellent - an integrated institutional approach to political economy - with chapters by North et al on: 'the essential institutional characteristics of economic order and what political institutions require to sustain order'; and de Mesquita et al on: ' the motivation of political authorities to sustain disorder or order.'

The last chapter (by Mesquita and Root) focuses on 'Improving the Effectiveness of Donor-Assisted Development'. Sounds like it might hold to answers to the questions you were asking yesterday re: conditionalities and the (in)effectiveness of aid. Let me read it and I'll post more.
 
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Mr BoShambles

jambiguous
As for Pakistan Vim, I think you're better placed to make an analysis on the situation there based on this kind of analytical framework. Interested to know what you think...
 

vimothy

yurp
Gek -- what do you think of all this? Doesn't it demonstrate the clear superiority of democracy over all other systems of regime?

Crackerjack -- what do you think of all this? Doesn't it demonstrate the problems of all types of government?
 

vimothy

yurp
How to govern for prosperity is likely to be the most important policy puzzle of the twenty-first century.

So why do these threads (this and your institutional economics thread) get so little interest?

Economists typically view leaders as benign agents promoting the welfare of their society who would not knowingly precipitate an economic crisis. This book recognizes that deliberate policy failures are ubiquitous throughout history and seeks a solution to this dilemma in the incentives of leaders to stay in office. Political leaders want to stay in power. They are willing to purchase loyalty at any cost to the economy, including providing privileged access to resources, thereby weakening the nations economic performance. Although dispensing privilege may place the well-being of the national economy in jeopardy, leaders may disregard the economic costs until they run out of enough resources to stay in power: their focus is on political crisis, not economic crisis. A political crisis arises only when incumbents are not able to purchase sufficient loyalty to retain office. Politicians worry about an economic crisis only when it becomes a political crisis.

110% OTM

Thus, for autocrats, economic crises need not represent political crises and so they can attend to distribution problems without much concern for general or future prosperity. Democratic institutions deprive leaders of this choice, compelling leaders through formal, institutional constraints to provide effective public policy and avoid economic crises. This dynamic, more than elections, is the crux of the relationship between democracy and growth.

Ditto

This book is totally excellent - an integrated institutional approach to political economy - with chapters by North et al on: 'the essential institutional characteristics of economic order and what political institutions require to sustain order'; and de Mesquita et al on: ' the motivation of political authorities to sustain disorder or order.'

Bruce Bueno de Mesquita and Doug North in the same book -- sounds like some kind of wet-dream I've been having. One more for the amazon wishlist.
 

noel emits

a wonderful wooden reason
Interesting stuff. Especially this:

"...given the state of knowledge about the economics of growth, the solution to poverty lies in the construction of political institutions that provide leaders with incentives to focus on the welfare of their citizens."

Which seems pragmatic, though cynical indeed. Not sure that the desirability of 'growth' should go unquestioned though I'm sure someone will explain. Also vimothy when you use the term 'goods' are you referring to 'benefits' in general or purely material goods?

What usually bugs me about most of these political and economic discussions is how (I feel) the territory itself is so deeply embedded in an ontological (or perhaps just anthropological) framework that is hopelessly compromised. Even engaging with ideas that originate from these regions is to give undue credence to paradigms and trajectories that I have little affection for. But needs must and I find it hard to ignore a good pragmatic and rational argument if it seems to be leading forwards in some way.

I'll get around to why I think those things when I have time and when the dissensus server is working better. Saying that, I can see that some of the ideas here could be useful in beginning to break the organisational deadlocks we find ourselves in, if only because it might mean that some slightly different classes of idea gain mainstream legitimacy.
 
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vimothy

yurp
Which seems pragmatic, though cynical indeed.
It's a philosophy of total cynicism. I love it.
Also vimothy when you use the term 'goods' are you referring to 'benefits' in general or purely material goods?

Private goods = bribes, corruption, monopoly access, etc, for the incumbent's buddies
Public goods = good public policy (infrastructure, education, solid currency, etc)
What usually bugs me about most of these political and economic discussions is how (I feel) the territory itself is so deeply embedded in an ontological (or perhaps just anthropological) framework that is hopelessly compromised. Even engaging with ideas that originate from these regions is to give undue credence to paradigms and trajectories that I have little affection for. But needs must and I find it hard to ignore a good pragmatic and rational argument if it seems to be leading forwards in some way.

Well, I disagree with that and think it's pretty short-sighted, but regardless -- that's just life, isn't it?
 

Mr BoShambles

jambiguous
Sorry I'll stop quoting soon but this is really interesting stuff. From the chapter 'Improving The Effectiveness of Donor-Assisted Development':

Growth is likely to follow when the institutions of government and the incentives of leaders to stay in office coincide with the need to produce successful economic policies. When economic crises threaten the leaderships hold on power, leaders are motivated to find new institutional solutions. The difficulty is that many institutional environments insulate leaders from the need to find new institutional solutions and may provide leaders with incentives to avoid competition. In such instances, transparency and accountability are not valued. We make a mistake if we infer that politicians who rule through patronage-based systems are backward thinking, irrational, or malevolent. Likewise, we are mistaken if we believe that it takes good civic-minded leaders to provide policies that enhance the welfare of their citizens. Having the right institutionalized incentives makes even the least civic-minded leader do what is good for society exactly because doing so is good for the leaders hold on office. In short, political institutions are a critical influence on whether rulers rule for performance or for patronage. The goal of development assistance should, therefore, be to enhance the ability of government to sustain itself in office through policy performance rather than through graft and corruption. Yet, as obvious as this is, most development assistance today ignores the institutional incentives for corruption and assumes that development follows as a consequence of large-scale capital enrichment programs without performance-based criteria for renewal, extension, or new rewards. Most development assistance programs, like most macroeconomic theories of growth, mistakenly assume that interest groups take governments off the course of development and that governments are benign or disinterested. The chapters in this book clearly show how political institutions can produce governments that ignore the general welfare and are anything but benign.

*****

So what can be done? According to de Mesquita et al:

1. 'Effective implementation of reform agreements is a question of aligning managerial incentives with desired policy outcomes. Economic reform must be concerned with improving shareholder control over managers in the public sector' (i.e. encouraging transparency and accountability - something Collier talks a lot about).

2. Move away from the current situation where the control of development assistance is concentrated in a few hands, and open this area up to greater competition. Big agencies (i.e. the IMF/World Bank) are populated by 'international officials and bereaucrats [who] are no less motivated by self interest than are national leaders.' 'Therefore, if international organizations are to foster growth they must [themselves] face competition, and the organizational criteria for evaluating performance must be based on measures of success in altering growth rates.'
 

noel emits

a wonderful wooden reason
The idea that it actually benefits a ruling elite to get wealthy and powerful by fucking over the populace, even if they can indefinitely get away with it, is something that needs challenging for instance. It's about values and assumptions, and I see that as short sightedness though I don't deny that's how things are right now. Is it really in their interests to exist in a world where everyone else is limited in the 'happiness' and fulfillment they can attain? Does that not put a cap on the potential of the human species?

So say we do put in place policies and institutions that help ensure that the self-interest of those in power coincides with that of as large a group of 'the people' as possible to me that is positive only in so far as it is moving towards a condition that recognises that 'benefits' really are universal and it is actually nonsensical relativism that says that people have different needs and desires. That may appear to be the case under the present conditions of pathology and the economics of lack.
 

Mr BoShambles

jambiguous
The idea that it actually benefits a ruling elite to get wealthy and powerful by fucking over the populace, even if they can indefinitely get away with it, is something that needs challenging for instance. It's about values and assumptions, and I see that as short sightedness though I don't deny that's how things are right now. Is it really in their interests to exist in a world where everyone else is limited in the 'happiness' and fulfillment they can attain? Does that not put a cap on the potential of the human species?

So say we do put in place policies and institutions that help ensure that the self-interest of those in power coincides with that of as large a group of 'the people' as possible to me that is positive only in so far as it is moving towards a condition that recognises that 'benefits' really are universal and it is actually nonsensical relativism that says that people have different needs and desires. That may appear to be the case under the present conditions of pathology and the economics of lack.

The way I see is that its all about pragmatism. Not idealism. Things are pretty bad right now for a lot of people i.e. the majority of the worlds population who live in countries where the political institutions are set up to reward corruption, rent-seeking and patronage. Those leaders (and their cronies) who hold power today (and those who will hold power in the future if the institutional arrangements remain the same) have no reason to open up the political system to real competition or to provide public goods to the majority of the citizens, since they are happily working the system to maintain their own power. If international organizations do nothing the situation won't change quickly. But sending aid money, as demonstrated above, is pretty ineffectual in its current format; in fact in many cases its counterproductive since it reinforces the current status quo.

So although it may seem far from ideal, the best strategy is to find (as Dani Rodrik would say) 'second-best solutions' which aim to build the institutions of government and align the incentives of leaders with the need to produce successful economic policies. As this happens (if it can be done) then perhaps economic growth and increasing prosperity will place greater pressure on the existing elites to reform the institutional arrangements to create greater transparency and accountability, open up the political sphere to greater competition etc etc.

EDIT: What is patently obvious is that top-down universal reform programs are not suitable given the inherent diversity of existing institutional structures across societies today. But this recognition has profound implications for international developmental policy advice and practice. In fact, it makes the one-size-fits-all recommendations prescribed by the IMF, World Bank, and ‘Western’ donor states throughout the 1980’s and 90’s look totally inappropriate.
 
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Mr BoShambles

jambiguous
Get involved.....

So why do these threads (this and your institutional economics thread) get so little interest?

People of dissensus, I am genuinely surprised by the lack of interest in this thread. The institutional approach to political economy discussed here is a fairly new and exciting framework for analysing social interaction, and the incentives and constraints which shape social/political/economic continuity and change. This is fascinating stuff IMO and I am curious to know what people think of it. Gavin, Gek, Zhao, Crackerjack and anyone else --> what do you say??
 
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