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Bill Black: Romney Takes His Political Inspiration from Europe’s Worst Mistakes

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Yves here. As much as Bill Black’s post makes a number of important observations about how the pro-austerity camp is misrepresenting its cause and the situation in Europe, it is also looking like Romney’s backers will win even if they lose. Recall that Obama himself is a budget hawk; we’ve discussed repeatedly how “reforming” Social Security and Medicare are long standing priorities of his. There was even a point in the budget negotiations of late 2011 where Obama was pushing for deeper cuts than Boehner. But the aggressiveness of Ryan’s talk will give Obama plenty of air cover, and as Dave Dayen has separately pointed out, take the focus off of some of Obama’s failures, such as the state of the economy and his refusal to provide anything beyond Potemkin reforms in the housing market.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly posted with New Economic Perspectives

One of Governor Romney’s criticisms of President Obama is that he “takes his political inspiration from Europe….”

Romney never gives specifics on this criticism. The irony is that Romney (and Representative Ryan) “takes his political inspiration from Europe” and that the European policies they embrace have already proven disastrous in Europe. Here are five examples:

1. Austerity. European austerity has promptly forced the Eurozone back into recession. Romney, channeling Germany’s Prime Minister Merkel, claims that deficits are “immoral” and must be ended. Austerity is pro-cyclical policy that makes recessions far more severe. It has pushed several European nations into Great Depression levels of unemployment, which has reduced income and tax revenues and increased budget deficits. The EU’s Stability and Growth Pact (an oxymoron designed by regular morons) produces instability and negative growth by banning EU nations from using effective counter-cyclical fiscal policies that have proven successful for decades in reducing the severity and length of recessions.

2. Slashing working class wages. Ryan is an implacable opponent of unions and wants to end the minimum wage. Merkel is demanding the repeal of European laws protecting workers and is coercing the periphery to reduce working class wages. Unemployment rates are roughly 25% in Spain and Greece and the unemployment rate for the young is nearly 50%. The old sick joke is true again in Ireland – its leading export is the Irish. Real wages in Europe has fallen and unemployment has increased sharply.

3. Ryan wants to remove the Federal Reserve’s statutory mandate to seek full employment consistent with price stability and have it subject to a solitary mandate to maintain price stability. That mimics the disastrous single mandate of the European Central Bank (ECB). The ECB lacks the legal authority to help the nations of Europe respond to the worst economic catastrophe since the devastation caused by World War II. It is an insane policy. The ECB’s crippled mandate meant that our Federal Reserve had to intervene in Europe to save several European Central Banks from collapse, which could have led to a global depression. Ryan wants to adopt a European policy that has proven grotesquely self-destructive.

4. Romney wants to end any vigorous financial regulation. He is inspired by the now infamous European “lite touch” regulation. The United Kingdom (UK) epitomized lite touch regulation. The failure of most of the UK’s largest banks, the Libor, HSBC, and Standard Chartered scandals and the allegedly rogue operation of JPMorgan’s Chief Investment Office in the City of London constitute a record of failure and scandal without equal. Romney and Ryan oppose any serious regulation of banking and call for the immediate repeal of the Dodd-Frank Act in its entirety and the re-adoption of European-style “lite touch” regulation.

5. Romney’s lead economic advisor, N. Gregory Mankiw, continues to champion the regulatory “competition in laxity” that produced the “race to the bottom” that simultaneously destroyed effective financial regulation throughout the developed world. This perverse dynamic has created the criminogenic environments that drive our recurrent, intensifying financial crises. Mankiw is pushing the “need” for the U.S. to win that race to the bottom against the City of London. The only way to “win” a race to the bottom is to refuse to race, but Mankiw takes his policy inspiration from Europe and the City of London. Mankiw’s advice has caused Romney to ignore the recurrent disasters and the warnings of effective regulators, economists, and white-collar criminologists that his European-inspired anti-regulatory policies are criminogenic.

The truth is that Europe has some excellent and some terrible economic policies. Romney and Ryan have shown an unerring talent for embracing Europe’s worst financial policies and denigrating its best policies. What is amazing is that no matter how badly the European policies fail, Romney and Ryan ignore the failures and promise to drag us down the path to inevitable failure. Romney and Ryan complain about unemployment in the U.S. while pushing Europe’s austerity policies that would massively increase unemployment, debt, and deficits in the United States.

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40 comments

  1. jake chase

    The “policies” of Romney and Ryan are so fantastic one must consider the possibility that they have been crafted to insure Obama’s reelection. Or perhaps the electorate is really so stupid as to confuse the Republicans with Winston Churchill?

    Perhaps Bill Black can tell us what we can hope for from a second Obama administration to suggest that we should care one way or the other?

    1. kezza

      Or perhaps the electorate is really so stupid as to confuse the Republicans with Winston Churchill?

      What confusion? We all know the Republicans are hopeless in managing the US economy, and Winston Churchill was the ill-fated Chancellor who brought Britain back to the gold standard in 1925 ensuring years of recession until Britain left the gold standard in 1931 (plus he lost most of his then wealth in the 1929 Wall Street crash).

    2. psychohistorian

      What we see unfolding is a setup that others have detailed before.

      The purpose of the Rsquared GOP team is to scare the Bjesus out of the populace that assumes that Obama can’t be that bad, re-elect him and with the “mandate” he gets from the landslide “election”, his team eviscerates SS and Medicare while continuing to backstop the financial fleecing of the 99%.

      Whoooocouldaaanode?????

      fey

      Laugh the global inherited rich out of control of our world and lets build more humanistic social organizations.

  2. F. Beard

    Romney’s lead economic advisor, N. Gregory Mankiw, continues to champion the regulatory “competition in laxity” that produced the “race to the bottom” that simultaneously destroyed effective financial regulation throughout the developed world. Professor Bill Black

    Government privileges (deposit insurance, a legal tender lender of last resort, borrowing by the monetary sovereign, etc.) and government regulation logically go together. So the call for less regulation should also be a call for less government privilege.

    Ideally, credit creation and money lending should be entirely private businesses with no government privileges. Why aren’t they? Government has no need for banks and as for the private sector it can certainly come up with entirely private money solutions, can’t it?

    But let’s be generous. Let’s reduce

    1. Heron

      Governments and government debt create banks(Bank of England, Bank Suisse, various US and US state banks, ect), and that debt creates currency(“legal tender” translates to “an IOU the government will accept”). If anything the solution isn’t less government in banking and credit creation but more. If we want to ensure that the only people ruined by risky, stupid, short-term-minded investments are the firms and managers pursuing them, then why not create a series of “utility banks”, operated by the State, returning a low inflation-adjusted rate of interest, and required to invest solely in safe assets like Treasury Bonds, where citizens can keep their savings and handle thier checking? Another benefit would be that the US gov would no longer need to insure private bank accounts up to 100k as the savings accounts it offers would serve that purpose; without that safety net of insured deposits perhaps private banks might not be so reckless and suicidal with thier investment strategies.

      1. F. Beard

        If we want to ensure that the only people ruined by risky, stupid, short-term-minded investments are the firms and managers pursuing them, then why not create a series of “utility banks”, operated by the State, returning a low inflation-adjusted rate of interest, and required to invest solely in safe assets like Treasury Bonds, where citizens can keep their savings and handle thier checking? Heron

        That’s what I do advocate except the service should pay no interest and invest in nothing, not even in US Treasuries since the US Government has no need to borrow in the first place. The service should function as a free (up to normal household limits) risk-free fiat storage and transaction service.

        Another benefit would be that the US gov would no longer need to insure private bank accounts up to 100k as the savings accounts it offers would serve that purpose; without that safety net of insured deposits perhaps private banks might not be so reckless and suicidal with thier investment strategies. Heron

        Amen, amen! But not just deposit insurance should go; the lender of last resort and government borrowing should be abolished too.

        1. Susan the other

          Just thinking about the evolution of the EU: the ECB will soon become “the lender of last resort” and then it will progress into an ultra sovereign bank (after it has dispatched all the lesser national banks); the ECB will then be able to morph into a direct provider of funding to all of its members. As long as they do not borrow like lunatics from GS. Because (cool here) an ECB that is ultra-sovereign does not borrow. I really don’t think Romney and Ryan can manage this reality.

  3. sameoldcant

    Specious poppycook and electioneering propganda.

    1) Romney is not calling for less “finacial regulation”; he is calling for less regluation in general, particularly on manufacturing, argiculture and commodities. He has made no specific call for “financial regulation” relief, More to the point, so-called ‘regulation” is at least the proximate cause of this mess: the CRA, Fannie and Freedia are what have set this off. Regluation is just a platform for graft and other forms of poltical corruption. The financial markets are some of the most regulated areas of business in the nation and just look at the corruption. Why is not Corzine in jail? What naive faith you put in government.

    2) “Austerity” is merely the reduction of government spending, and in particular socialist or quasi-socilist redistributionist programs. The very term smacks of marxit agitprop. You have it just backward: pace the loopy notion of the Euro, it is out of control government spending that is causing the economic crisis and not attempts to rein it in. Typical Socilist projection.

    3) Romney has said absolutely nothing about unions or minimum wage. Period. If only what you say was true for there needs to be substantial reform (amd prosecution) of the quasi-criminal organizations we call “Labor Unions” in this country. Again, you have an almost comic naivite here about key elements of the Democrat (read Communist) Nomenklatura.

    4) Dodd-Frank is a monstrosity and a uncostitutional power grab. It needs to be repealled. It is just a plaform for posturing and graft for congress and will solve no problem. It will in fact cause more problems. It is sad that you think that these two scondrels, Dodd and Frank, would ever do anything that was not self-serving. Frank, a leader in the whole CRA “movement”, can be considered one of the architets of this mess.

    5) Your point #5 in wholly unitelligable and full of faulty reasoning. It is little more than propganda. It says absoutley noting of substance. It in fact veers towards the paranoid.

    You points are the usual talking point we hear out of the Democrat electioneering propogsandist every election year. They are little more than lies, destractions, evasions, distortions and agitptop. Moveover, the fact that they are so mechanically trotted out year after year bears ample witness to the inablity of the Left to face the destructiveness of the Left’s agenda.

    Above all, this is an example os switch and baitL you completely ignore the issues that Romney is talking about concerning EUrope, and substitute straw men.

    How dishonest and immoral of you. How very Democrat of you.

    1. F. Beard

      it is out of control government spending that is causing the economic crisis and not attempts to rein it in. sameoldcant

      Before I understood how credit creation is a form of counterfeiting (“bank loans create deposits”), I would have agreed with you. But now I understand that ANY deficit spending is helpful because it provides the money for people to pay off their debts to that cartel.

      Of course that deficit spending should be targeted correctly. Steve Keen’s “A Modern Debt Jubilee” would give money equally to the entire population, including non-debtors. I agree that there is where the new money should go. We also have legitimate infrastructure needs; we should spend generously on those.

    2. Pete C

      I don’t understand the argument that Romney has said nothing about unions or minimum wage. He praises/decries unions strategically, supports/opposes raises in minimum wage.

    3. sidelarge

      “Specious poppycook and electioneering propganda.”

      And then you counter that with far worse neolib propaganda, full of convenient assumptions and practically no arguments.

      That kind of a drivel you spewed there has been torn apart right here on NC for the umpteenth time. If that’s all you can come up with, don’t even bother.

    4. Yves Smith Post author

      Wow, the trolls are organized these days. A lot more newbie dishonest comments prominent in the threads than in the past.

      There has been extensive coverage of that the Republicans want to repeal or gut Dodd Frank if Romney wins. So stop the efforts at disinformation. The readers of this blog know better. And regulating institutions that depend on state charters, and extensive backstops, more support by far than any industry, is not a power grab, it’s protecting taxpayers (or an attempt to, they still aren’t doing a very good job).

      And no, we aren’t Democrats here. We bash pols of either party with equal vigor.

      1. walter_map

        Wow, the trolls are organized these days

        Well-paid, too.

        Keep in mind that the War on Poverty was lost because, after all, the rich can afford much better weapons. Also more soldiers.

        “I can hire one-half of the working class to kill the other half.”

        - Jay Gould, on recruiting strikebreakers.

        1. F. Beard

          after all, the rich can afford much better weapons. walter_map

          Not really. They can afford the best whores that money can buy but whores are still whores.

    5. walter_map

      The financial markets are some of the most regulated areas of business in the nation and just look at the corruption.

      You’re kidding, right? The corruption went through the roof when the financial industry was deregulated.

      Tell us, why do you think legalizing fraud was such a great idea? Examples from your own profiteering experience might be helpful.

    6. Glen

      One has to admire that CRA law, not only did it wait thirty years to finally take “effect”, but it successfully knocked out the WORLD WIDE banking system despite being a US law.

  4. linda amick

    Isn’t it clear by now that the two “parties” in the US are nothing more than faux competitors in the theatre of spectacle? Ryan’s purpose, as Bill Black states, is to push the US towards greater wealth divide by destroying social safety nets and funneling that money into the pockets of the elites via military adventures: think defense contractors and banks (think funding for transnationals). It does not matter who is elected. The trajectory is the same.

    The only hope for change is that the thieves in power will go too far and attempt significant robbery of 401K and IRA monies. This could wake up what remains of the middle class.

  5. Jill

    Here’s Bill Black on Democracy Now: “AMY GOODMAN: Your assessment of President Obama versus President Bush?

    WILLIAM BLACK: Well, less bad on this subject, but President Obama is also—feels that he must politically say there’s a vital need to balance the budget, which is to say, to have austerity, even though he’s looked at Europe and seen that the worst possible thing you can do in a great recession, or the attempted recovery from a great recession, is to start reducing the spending and such.”

    Mr. Black, it would be more effective to simply state the whole truth, that is, both Romney and Obama draw their “inspiration” from Europe. If people are allowed to hear they are betrayed by both men, how they are betrayed, what the effect this “inspiration” will have on our lives, we would have a chance of making a real choice in this nation. We could look into other parties, with ideas that don’t betray the people. More importantly, we could band together, as a people, to peacefully confront a common enemy.

    This govt. gets away with economic crimes and devestation in part because it has been able to turn people against each other. The left wing’s intelligentsia is as guilty of this as the right. Few people who could explain the situation in a truthful, detailed and accessible manner will do so. I am sick of it! I want people like you to come out against these destructive, senseless ideas, no matter who holds them and I want people like you to state clearly that these ideas are held in common by the powerful in “both” legacy parties.

    This matters because the truth matters. It matters so that people will finally understand that we have common ground and we need immediate peaceful resistance to war and financial criminals.

    1. walter_map

      This govt. gets away with economic crimes and devestation in part because it has been able to turn people against each other.

      That’s what you get when the government is corrupted by Cheap-Labor Conservatives.

      The problem isn’t government per se. The problem is corruption by the greedy and unscrupulous. Government is properly seen as the victim of this corruption – and you’re blaming the victim, so as to distract attention away from the perpetrators.

      Why would you do that?

      1. Aquifer

        Walt,

        I don’t think Jill is directing her critique at “gov’t. per se”. Correct me if I am wrong but i do believe she refers to THIS gov’t.

        In that i agree with her critique …

        The gov’t. you refer to as the “victim”, methinks, is the one we could have …..

        We have THIS gov’t. because the one we could have has been hi-jacked by the schmucks who use the duopoly as their water boys. The wrinkle, of course, is that they did, and continue to do, so with our imprimatur at the polls. This is at one and the same time the source of our shame but also a potential source of our salvation … We used the polls to seat them, let us use them to seat better …

  6. jsmith

    Let’s see, the markets which form the very basis of our economic system have been shown to be completely and totally manipulated fictions.

    There are countless examples of market activity over the last 4 years that defy even the most seasoned observer’s ability to explain these movements without relying upon the interference of HFT algorithm and their bots, PPT and other such external “influences”.

    Secondly, we now have had it confirmed that the world’s central banks have been rigging the Libor rate for probably the last 20 years much to the benefit of the elite and very much to the detriment of every one else.

    Lastly, we have the austerity siege that is being simultaneously implemented across all Western nations with no end in sight, no matter the cost in human suffering.

    Yet, because we have all been so relentlessly subjected to non-stop neoliberal propaganda over the last 40 years we have seemingly lost the ability to do much more than debate the nuances of a system which we all – every single one of us – should be calling for a complete end to.

    Whether it’s because you can’t stand seeing rigged markets everyday.

    Or you’re p*ssed that your city or state is going “bankrupt” due to interest rate manipulation.

    Or maybe due to austerity you can’t afford the medicine to keep a sick relative or child alive with any longer.

    Whatever the case, it all should be adding up to a clarion call that it ALL needs to be dismantled and that the system can’t be saved in any version of its current form.

    But what about the Troika’s latest offer?

    And that’s EXACTLY how it continues….

    1. walter_map

      Lastly, we have the austerity siege that is being simultaneously implemented across all Western nations with no end in sight, no matter the cost in human suffering.

      It is the policy of those governments, that are controlled by the greedy and unscrupulous, to enrich the wealthy to the detriment of the general population. The trick is to sell such policies to the victims.

      Never underestimate the profitability of human gullibility.

      The people have spoken, and they have said “Ba-aa”. Suckers.

  7. Kiste

    “Merkel is demanding the repeal of European laws protecting workers and is coercing the periphery to reduce working class wages.”
    —-
    So when exactly did Merkel “demand” that? Oh, the things Ms. Merkel does… quite the Boogeyman she is.

    I’m sorry, but Mr. Black should stick to things he knows, i.e. US financial regulation. Or at least provide sources for his claims.

    1. Yves Smith Post author

      Kiste,

      Sorry, people here do read the foreign press. Even Juncker, who has been leery of pushing Greece out of the euro, has now said Greece must knuckle under, and wage reductions are a major part of the conditions being imposed (the code is “conditionality”).

      One more incident of running blatant falsehoods and you lose your comment privileges. I like robust debate, but I will not tolerate someone providing patently inaccurate information to defend their position on a regular basis, which is what you have taken to doing.

      1. Kiste

        You must be kidding. I have taken to “providing patently inaccurate information”? Care to cite an example where I did that? Just one, and I’ll shut up.

        Or are you referring to that incident when I corrected Wolf Richter’s disastrously wrong posting on German car sales? The one he later retracted and even apologized for here:
        http://www.nakedcapitalism.com/2012/03/wolf-richter-the-debacle-of-my-last-post.html

        The posting for which you _personally_ flamed me with a weak appeal to authority (i.e. Wolf Richter knows better because he used to be an auto exec). You like robust debate? There is nothing robust about non-arguments like appeals to authority. And there is nothing “robust” about calling me “deranged” as well, especially considering that I was right. You never cared to apologize either – it’s what I would do, if I had the habit of insulting people for no good reason.

        But let’s get back to the topic at hand. Again, I ask: where did Merkel demand the repeal of European labour protection laws. PROVIDE A SOURCE. I bet neither you nor Mr. Black can.

        Furthermore, with regard to Mr. Blacks claim that “Merkel is coercing the periphery to reduce working class wages”, I’d like to comment that this sounds awfully simplicistic.

        This is a very broad statement that seems to imply that Berlin is forcing the PIIGS to lower working class wages across the board. Again, when did this happen? The closest thing would be requiring Greece to cut public sector spending as a prerequisite for bailouts, which resulted in the reduction of some working class wages (i.e. in the public sector) but that would imply that Germany is forcing austerity on the PIIGS with the aim to depress working class wages – which makes no damn sense at all.

        It’s exactly this kind of sloppy analysis that I find so objectionable, especially considering the quality of analysis this blog _used_ to offer.

        And why the personal demonization of Angela Merkel? It’s silly and it’s infantile. There’s the Netherlands, there’s Finland and others, there are central bankers and there are finance ministers; and there are parliaments who have to pass any bailout measures. There’s even France, which holds huge amounts of periphery debt. Yet, it’s Ms Merkel personally who is the great puppeteer, the great mastermind behind the great conspiracy to, uh, implement neoliberal economic policy in the periphery? And Germany would stand to gain what exactly from this?

        People do read the foreign press here, you say? Maybe they should start with this interview with the Germany finance minister here:
        http://www.spiegel.de/international/europe/finance-minister-schaeuble-euro-crisis-means-eu-structures-must-change-a-840640.html

        This short interview alone offers more insight into German motivations and their political aims than all the screeching about the mythical “Berlin Consensus” I keep reading in the Anlgo-American blogosphere.

        1. Yves Smith Post author

          You are pretty desperate, aren’t you? The Richter post has nothing to do with the austerity debate. And your post above was inaccurate. Moreover, you fail to rebut the point I made re Juncker, and cite only the English version of Der Spiegel and a article nearly 2 months old, when I’ve cited more recent reports in Handelsbatt and Faz, among others. This is a moving target, and you’ve just revealed you aren’t even remotely on top of it, and probably don’t read any of the German language press.

      2. Jim

        Yves, your insights are often brilliant, so I have to ask, how else can Greece remain part of the Eurozone?

        It doesn’t have its own currency. It’s currently using a currency which renders its work product hopelessly uncompettiive.

        The obvious solution is to leave the EZ. But if it elects not to do so, short of permanent fiscal transfers similar to those in the USofA, Greece will need to dramatically cut wages.

  8. mac

    It seems to me that the article and many of the comments point to this: There is no hope, Romney or Obama and we get the kind of lie invested mess that exists in Europe and to some extent here.
    No hope!!

  9. Chauncey Gardiner

    I very much appreciate Mr. Black’s post and Yves’ decision to post his piece. However, I would edit Mr. Black’s title. These policies are not “Mistakes”, but have been intentionally undertaken with complete foreknowledge of the probable outcomes; i.e., “Not a bug, but a feature”.

    And as Yves implicitly observed in her intro paragraph, it’s not just Romney and Ryan. Obama’s policies have also been consistently supportive of the transnational wealth concentration and political power strategies of the global 0.1%.

    Are both candidates’ policies “inspired”?… In the sense that Webster’s New Lexicon dictionary defines “inspire” perhaps: …”To affect, ‘to inspire someone with disgust’; to suggest, ‘be the motivating but unnamed power behind’…”

    “No hope”?… I disagree. But it will take future events and achieving critical mass of public awareness and discontent before the will to take them down and to install democratic governance will become available as an option. Despite their breathless corporate media propaganda and control of the megaphones, this is gradually occurring as We the People wake up… one by one.

  10. Susan the other

    What I am about to say falls under the category of scapegoating. Sorry. I must comment on our cultural institutions which we share with Europe, much to the consternation of the current British and US globalony. If we had not indulged China, China would have found its own direction. That is the tragic news. But we thought our Yankee shrewdness could win the day. Funny. Now the Chinese are pulling out of US stock markets because they don’t like the regulations and the transparency! Whoa. Please Sir, sell me some Golden Elephants!

    1. Susan the other

      Oops. I’m just starting to hack a trail through my own thinking: So then. If China has just become the Sink-erator of capitalism, the same capitalism we have known proudly in the US ever since we became the supreme military power, why don’t we look at that instead of all this other austerity nonsense?

      If we follow our own cultural path we will establish a mandate for full employment asap. We will not be hijacked into foolishness just for the sake of trade, because trade is just a skimming device for rich thieves. Trade, as it exists now is just bullshit. And our Federal Reserve is trying to avoid its full employment mandate. Clearly. It is a betrayal. And an even deeper one that TPTB realize. Because in the near future there will be no industry price to stabilize at all. “Price stability” as we are playing with it is just another pimp.

      1. JTFaraday

        “because trade is just a skimming device for rich thieves.”

        So is the cheap welfare “job guarantee.” It becomes the rationalization for why it’s okay for all the other forms of exploitation and expropriation to continue.

        It only has any potential to start making any kind of sense within a comprehensive program of reform, and I would still have concerns about it. But outside of that, you can forget it.

  11. Jim

    Europe’s worst mistake over the last 50 years has been its commitment to the ill-fated Eurozone.

    And though I prefer Obama to Romney, I must admit that, forced to choose which candidate is more likely to cede US monetary sovereignty in favor of some nebulous, ill-defined, trans-national project, I would have to, reluctantly, select President Obama.

  12. Kunst

    As soon as I see CRA — Community Redevelopment Act — I know I am tuned into the Republican Big Lie station. That was passed in 1977, you know. Bush II pushed “everyone a homeowner” 30 years later. The housing crisis was caused by financial industry fraud based on mortgage securitization. Freddy and Fannie were late to the party and mostly got stuck with other people’s trash. The CRA thing is really about how those shiftless minorities took on irresponsible loans; never mind that they were the biggest victims a the predatory lending industry.

    You want dishonest, look in the mirror. You are nothing but a partisan parrot.

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