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Articles by [email protected] (Cyril Morong)

When demand for one good falls (gasoline and ethanol) leads to an increase in price for other goods (beer and soda)

6 days ago

See
A Coronavirus Chain Reaction: Less Driving Means Less Fizz for Sodas: Carbon-dioxide output is down, as the drop in gasoline demand slows fuel production by Vipal Monga of The WSJ.I don’t think I have heard of anything like this before. If the supply of carbon dioxide (an ingredient in soda and beer) falls, its price will rise. Then supply will decrease for beer and soda since the price of a resource used to make it has increased.Excerpts:
"As the summer season approaches, consumers might end up paying more for
their beer and soft drinks. The reason? The cost of the bubbles in the
drinks is going up.""Carbon dioxide is a byproduct of ethanol, which by federal mandate is
mixed into gasoline to help it burn more cleanly. But fewer people are
driving because of the Covid-19

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We just had two straight months with the CPI falling at least 0.4% for just the fifth time since 1947

7 days ago

Seasonally adjusted data from the St. Louis Fed.Here are the CPI numbers for the last 3 monthsFeb.) 259.050
March) 257.953
April) 255.902The drop for March was 0.42% while for April it was 0.795%.Here are all the occurrences. We had three straight months in 2008. So that counts as two cases. Those all came in about the middle of the last recession. Date
Change
Nov. 1948
-0.00617
Dec. 1948
-0.00455

Sep. 2006
-0.00491
Oct. 2006
-0.00444

Oct. 2008
-0.00860
Nov. 2008
-0.01771
Dec. 2008
-0.00823

Mar. 2020
-0.00423
Apr. 2020
-0.00795
A 0.7% or greater decrease for just one month has happened only six times since 1947. Three were in 2008, one in 1948 and one in 1949. The sixth is the one from this April.

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The NCAA wants an antitrust exemption from Congress so it can oversee name, image and likeness deals

9 days ago

See The NCAA’s Athlete Endorsement Plan Comes With a Long-Shot Demand by Laine Higgins and Louise Radnofsky of The WSJ.This is related to last week’s post NCAA Takes Another Court Hit on Athlete Compensation: The Ninth Circuit ruled that the organization’s restrictions violated federal antitrust law.The NCAA still has rules against schools directly paying players. But players will be able to make money selling autographs, for example. One concern is that a player could go to an autograph show, and the organizers could pay them alot of money that is actually coming from their school. The NCAA wants to review such deals and limit what can get paid. But that sounds like an agreement among competitors to control prices.Excerpts from the article:
"The NCAA has also said it would require

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You could be paying higher insurance premiums than someone with the same driving history, car and background because of price optimization

9 days ago

See
Your habits may be costing you by Kayda Norman of Nerdwallet.The price optimization the article mentions sounds like what economists call "price discrimination." That is explained below. In the article, it sounds like the unwillingness to shop around means that your demand is less elastic and those customers get charged a higher price.Excerpts from the article: 
"some insurers jack up prices based on seemingly unrelated data — like your magazine subscriptions or what groceries you buy.Even if you have a clean driving record and have stayed
loyal to your insurance company for the past 10 years, you could be
paying higher premiums than someone with the same driving history, car
and background. Why? Price optimization.Price optimization is the practice of charging higher rates based

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Remdesivir and Type I & Type II errors

15 days ago

I use the book The Economics of Public Issues in my micro
classes. Chapter 1 is called "Death by Bureaucrat." It discusses how the
Food and Drug Administration can make either a Type I error or a Type
II error.Type I error: The FDA approves a drug before enough testing is done and when people take it, there are harmful side effects.Type II error: The FDA tests a drug longer than necessary to stay
on the safe side. But people might suffer because the drug is not yet
available. 80,000 people died waiting for Septra to be approved.The FDA would rather make a Type II error because the public can blame the FDA if a Type I error occurs.Remdesivir might be a treatment for Covid-19. But if it, or any other drug, shows some promise, how long do we keep testing it before we allow patients to

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Joseph Schumpeter And Me

26 days ago

Jeffery S. McMullen of Indiana University published an article in the academic journal "Business Horizons." It is titled"Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless."At the end of the post is a link to this article.McMullen cites a paper I wrote in the 1990s and mentions my name in the
same sentence as Joseph Schumpeter, an important economist from the 20th
century.Click here to read a short bio of him
A few years ago I wrote a post called "My Favorite Economist Is Joseph Schumpeter."  Here it is
""Why is this blog called The Dangerous Economist? Back in the early
1990s, I wrote a paper called "The Creative-Destroyers: Are
Entrepreneurs Mythological Heroes?" It compares the entrepreneur in capitalism to the hero

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How much will you pay me if I take your oil?

April 23, 2020

This in not something we see very often-a negative price.See U.S. Oil Costs Less Than Zero After a Sharp Monday Selloff: Many traders are betting that the coronavirus pandemic will run its course and demand for oil will jump later this year by Ryan Dezember of The WSJ.
"U.S. oil futures plunged below zero for the first time Monday, a
chaotic demonstration of the dwindling capacity to store all the crude
that the world’s stalled economy would otherwise be using.The price of a barrel of West Texas
Intermediate crude to be delivered in May, which closed at $18.27 a
barrel on Friday, ended Monday at negative $37.63. That effectively
means that sellers must pay buyers to take barrels off their hands.The historic low price reflects uncertainty about what buyers
would even do with a barrel

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Is There Economic And Political Meaning In “The Wizard of Oz?”

April 19, 2020

To get a handle on this, you can read Money and Politics in the Land of Oz
By Quentin P. Taylor.  Below is an excerpt from the Taylor paper:
"Dorothy, the protagonist of the story, represents an individualized
ideal of the American people. She is each of us at our best-kind but
self-respecting, guileless but levelheaded, wholesome but plucky. She is
akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy
lives in Kansas, where virtually everything-the treeless prairie, the
sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle
Henry-is a dull, drab, lifeless gray. This grim depiction reflects the
forlorn condition of Kansas in the late 1880s and early 1890s, when a
combination of scorching droughts, severe winters, and an invasion of
grasshoppers

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Flushing out the true cause of the global toilet paper shortage amid coronavirus pandemic

April 11, 2020

By Marc Fisher of The Washington Post.It seems like panic buying and the fact that we are at home more (and are using more TP there and less at work) are the main reasons (and they may be related). It is costly for the makers of institutional TP to get their stuff to stores since it is not currently set up for the consumer market. It reminds me of  The Law of Increasing Opportunity Cost. That is the idea that as you try to produce more of one good (A), you have to keep giving up more and more of another good (B), to get 1 more unit of A. This is because different resources are better suited to different productive activities. More on this below.Excerpts:
"The problem, like the virus that spawned it, is global. In Australia,
a cafe began accepting rolls of TP as payment — a cup of

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Historically, college students who graduate into a recession have settled for lower-paying jobs at less prestigious companies

April 3, 2020

For the Class of 2020, a Job-Eating Virus Recalls the Great Recession: With interviews postponed and internships canceled, graduates seeking work fear for the future by David Yaffe-Bellany and Jaclyn Peiser of The NY Times. Excerpts:
"A number of major companies, including Yelp and Disney,
have suspended their internship programs, a common route to a first job
for many graduating seniors. At some job fairs in early March, major
companies simply didn’t show up; now all those career events have been
canceled.""Historically, college students who graduate into a recession have
settled for lower-paying jobs at less prestigious companies than people
who finished college even a year earlier. Economists have found that the
impact of that bad luck can linger for as long as 10 or 15 years,

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HEB’s response is a masterclass in preparation and being ready to support your community

March 27, 2020

Every
Grocery Store Should Be Handling the Pandemic Like This Texas Chain:
Whole Foods, local grocery chains, and probably the federal government
could take a page from HEB’s emergency preparedness book by Hannah Smothers.
"Every person who grew up or even just briefly lived in Texas knows
two things, by heart: the pledge of allegiance to the state flag, and
that “no store does more than my HEB.” The beloved grocery store is
universally known (among Texans, and anyone who knows a Texan) for fresh
tortillas, smiley employees, and generally being the best place to buy
food in the state. But for the past three months, doing more has also
included perhaps the smoothest and swiftest response to the COVID-19
pandemic in the entire country. HEB’s list of coronavirus safety measures

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Awash in dirty plastic: We’ve got a big problem in our recycling market

March 4, 2020

By Michael Taylor of The San Antonio Express-News. Excerpts:
"plastic straws represent just 0.03 percent of American plastic waste
that ends up in the ocean, according to Rachel Meidl of Rice
University’s Baker Institute for Public Policy""the global market for recyclable commodities got a massive shock at the end of 2017, with the situation still evolving.China
announced a new program called “National Sword” in 2017 in which it
would not import 24 types of waste, including many mixed paper and
plastic products, starting in March 2018. A further list of 16 more
items, including many metals, will be banned from import by the end of
2019."
"The China bans allow for the importation of “clean”
plastics and metals, but it ceased the importation of what people in the
industry call

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How Odysseus Started The Industrial Revolution

February 27, 2020

Factory work may have been a commitment device to get everyone to work
hard. Odysseus tying himself to the mast was also a commitment device.
Dean Karlan, Yale economics professor explains how commitment devices
work:
"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.Economists call this method of pushing your future self into some
behavior a “commitment device.” [Related: a Freakonomics podcast on the
topic is called "Save Me From Myself."] From my WSJ op-ed:
Most of us don’t have crews and soldiers at our disposal,
but many people still find ways to influence their

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Funds that market themselves as sustainable investments aren’t necessarily focused on companies that fight climate change, develop wind turbines or promote diverse boards

February 20, 2020

See Big Technology Stocks Dominate ESG Funds: The most commonly held S&P 500 stocks in actively managed sustainable equity funds last fall were giants including Microsoft, Alphabet and Apple by Akane Otani of The WSJ. Excerpts:
"Funds that market themselves as sustainable investments aren’t
necessarily focused on companies that fight climate change, develop wind
turbines or promote diverse boards.Instead, many of them look a lot like a portfolio of big technology stocks.The five most commonly held S&P 500 stocks in actively managed sustainable equity funds last fall were

Microsoft Corp.,

MSFT 0.89%

Alphabet Inc.,

GOOG 0.40%

Visa Inc.,

V 1.39%

Apple Inc.

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A Special Valentine’s Message On Romantic Love

February 12, 2020

The first one is Researchers at AAAS Annual Meeting Explore the Science of Kissing.
The following quote gives you an idea of what it is all about:
"Kissing, it turns out, unleashes chemicals that ease stress hormones in
both sexes and encourage bonding in men, though not so much in women." I
guess economists call this "interdependent utility functions." Meaning
that what brings one person pleasure brings brings the other person
pleasure, and vice-versa.The other is Cocoa Prices Create Chocolate Dilemma. (that is from 2009)
The article opens with "Soaring cocoa prices are creating a Valentine’s
Day dilemma for chocolate makers. They don’t want to raise retail
prices when recession-weary consumers are trying to limit their
spending." The problem is crop diseases in Ivory Coast and

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Businesses intentionally display their social and environmental performance in addition to their financial performance to stakeholders

February 7, 2020

See It is all about the money when discussing ‘planet, people and profits’ by Prasad Padmanabhan. He is a professor of finance at St. Mary’s University.Adam Smith’s "invisible hand" suggests that if you follow your own self
interest, you will promote the interests of society. I have had some
posts on this issue of being selfish vs. being altruistic and if they
can actually be separated before. So those links are at the end.Adam Smith talked about the invisible hand and how profit seeking firms
would provide what the public wanted. But what about trying to make the
world a better place? What if companies do that because buyers demand it? Maybe if they didn’t they would not maximize profits. That is what Padmanabhan’s article is about.Here is an excerpt from The Wealth of Nations found

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Another Semester Has Started

January 24, 2020

Welcome to any new students. The entries usually have something to do
with a basic economic principle that is related to a recent news story.Here is something I wrote for The Ranger (the school paper of San Antonio College where I used to teach) back in 2011 titled "Why is college so hard?"Students might wonder why college, and SAC in particular, is hard. This
might sound trite, but I think the faculty at SAC want students to
achieve success in life and that means that classes have to be hard if
you are going to learn and understand the concepts which provide a
foundation for that success.I think my own experience as a
community college student over 30 years ago helps me understand this. My
teachers took their subjects seriously and maintained high academic
standards. They got me

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Why Your Uber Ride Can Cost as Much as a Plane Ticket

January 23, 2020

Ride hailing apps, promising cheap and easy travel, cannibalized New York’s taxi industry. What happens when they no longer feel like a bargain?By Ginia Bellafante of The NY Times. Someone living in Brooklyn paid $192 to get to LaGuardia airport for a "trip that typically ran about $35." Excerpts:
"prices always climb when demand is very high, and demand is always high during the holidays."
"A number of factors combined to produce
this new reality. Chief among them, according to James Parrott, an
economist who analyzes data on ride-hailing services both as an
independent academic and adviser to the city’s Taxi and Limousine Commission is the fact that Uber and Lyft had discounted prices in advance of each company’s initial public offering last year.

Rides
were artificially cheap.

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Fed Has Many Tools to Deter Recession, Former Chairman Bernanke Says

January 22, 2020

Quantitative easing, forward guidance could be equivalent to 3 percentage points of rate cuts, Mr. BernankeBy David Harrison of The WSJ. Excerpts:
"The Federal Reserve has ample tools for fighting a potential recession
even though its benchmark interest rate remains historically low, former
Fed Chairman

Ben Bernanke

said.""Under the current economic conditions, those methods, known as
“quantitative easing” and “forward guidance,” represent the equivalent
of up to 3 percentage points of cuts in Fed interest rates, he said."Economists say broad structural changes to the economy such as an
aging population or technological advances will hold down interest rates
for the foreseeable future.Right now, the Fed’s benchmark rate is in a range of 1.5% to 1.75%.By

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Cocoa Cartel Stirs Up Global Chocolate Market

January 21, 2020

Ivory Coast and Ghana, which combined produce more than 60% of the world’s cocoa, join forcesBy Alexandra Wexler of The WSJ. Excerpts:
"The West African nations of Ivory Coast and Ghana, which combined
produce more than 60% of the world’s cocoa, have banded together to form
their own chocolate-coated version of the Organization of the Petroleum
Exporting Countries.Like OPEC, whose control over crude oil output has largely
driven global oil prices since 1960, the decision by the world’s top two
cocoa producers to join forces is expected to raise the cost of candy
bars, ice cream and cake. The two-nation chocolate bloc has decided to charge an extra $400 per metric ton of cocoa, which is currently trading around $2,500 per metric ton. “COPEC,”
as some in government and industry have

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The Sahm rule and recessions

January 18, 2020

See Are We in a Recession? Experts Agree: Ask Claudia Sahm: Sahm rule is reassuring to economists looking for new ideas on stimulus when interest rates are already low by Kate Davidson of The WSJ. Excerpts:
"a Federal Reserve economist has come up with a simple rule based on
movements in unemployment to rapidly determine when a recession is under
way. In conjunction with that rule, Claudia Sahm has also proposed
policies to immediately soften the downturn without the political
hurdles that usually slow stimulus efforts.""In January 2008, Fed officials projected the flagging U.S. economy
would avoid a recession. Fed staff believed the probability of recession
within the next six months was 45%, according to a policy meeting
transcript.In fact, a recession had begun the previous

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Fewer Jobless Americans Tap Unemployment Benefits

January 17, 2020

The U.S. work force’s reliance on unemployment insurance is dwindling amid tighter rules and a strong job marketBy Sarah Chaney of The Wall Street Journal.When I cover unemployment, I don’t spend much time on how the unemployment insurance system works. This article has some good information on it. Excerpts:
"Last year, 28% of jobless people received benefits, down from 37% in 2000—a period of similarly low unemployment.Among the main reasons, experts say: After the last recession
ended, state legislatures passed policies reducing unemployment benefits
and tightening eligibility requirements.Ten states cut the duration of benefits, five adopted stricter
work-search requirements and several trimmed the average weekly-benefit
amount""A strong labor market also means many jobless people

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What if companies can’t afford real models for their ads? Use AI generated fake pictures

January 15, 2020

See Dating apps need women. Advertisers need diversity. AI companies offer a solution: Fake people by Drew Harwell of Washington Post. Excerpts:
"Artificial
intelligence start-ups are selling images of computer-generated faces
that look like the real thing, offering companies a chance to create
imaginary models and “increase diversity” in their ads without needing
human beings.

One
firm is offering to sell diverse photos for marketing brochures and has
already signed up clients, including a dating app that intends to use
the images in a chatbot."

"Icons8, an Argentina-based design firm that sells digital illustrations and stock photos, launched its online business Generated.photos last month, offering “worry-free, diverse models on-demand using AI.”

The
site allows

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Rank-and-File Workers Get Bigger Raises

January 13, 2020

By Eric Morath and Jeffrey Sparshott of The WSJ. Excerpts:
"Pay for the bottom 25% of wage earners rose 4.5% in November from a
year earlier, according to the Federal Reserve Bank of Atlanta. Wages
for the top 25% of earners rose 2.9%. Similarly, the Atlanta Fed found
wages for low-skilled workers have accelerated since early 2018, and
last month matched the pace of high-skill workers for the first time
since 2010.“A strong labor market makes the bargaining power of
lower-paid workers more like the labor market higher-wage workers
experience during good times and bad,” Nick Bunker, economist with job
search site Indeed.com, said.""Average hourly earnings for production and nonsupervisory workers in the
private sector were up 3.7% in November from a year earlier—stronger
than the

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Private fire fighting

January 9, 2020

See While California Fires Rage, the Rich Hire Private Firefighters: A small but growing number of wealthy people are hiring their own teams by Ethan Varian of The NY Times.Fire fighting is often seen as being a "public good." A definition and discussion of that is given after excerpts from the article. If your local fire department is going to put out fires, it will do that for everyone. We can all get protected. If someone did not pay their bill, the FD would still have to come if their house was on fire and put it out so it does not spread to anyone else’s.So how could private fire fighting exist? Here are some excerpts from the article:
"Don Holter is an owner of Mt. Adams Wildfire, a private contractor in
the Sierra Nevada foothills near Sacramento. Most of his business comes
from

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Jobs and Inflation: The Great Trade-Off, Demystified: The relationship between inflation and unemployment is real, but far from simple

January 8, 2020

By Justin Lahart of The Wall Street Journal. This article discusses the Phillips curve. It is related to Monday’s post on full employment. The link to that post and many other previous posts (some with graphs) on this topic are listed after these excerpts from the Lahart article:
"in the years spanning 1861 to 1957 the unemployment rate and wage
inflation in the U.K. were negatively correlated—meaning that when one
went up, the other one tended to go down, and vice versa.That makes sense: When unemployment is low, workers can bargain for
bigger wage increases than they can when unemployment is high.American economists Paul Samuelson and

Robert Solow

seized on Mr. Phillips’s work, showing in a 1960 paper that it applied to the U.S. as well.""People’s inflation

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Will Recession Strike in 2020?

January 3, 2020

By Burton G. Malkiel and
Atanu Saha. Excerpts:
"The Conference Board, a nonprofit for economic research, tracks 11
predictive measures of future economic activity in its Index of Leading
Economic Indicators. The LEI purports to forecast the economy over the
coming three to six months. The individual components include data on
unemployment, the direction of the stock market, consumer and business
sentiment, and manufacturing activity. Unfortunately, the LEI is
somewhat unreliable as a forecaster and often misleading.We
examined the record of the LEI (and its components) over the eight
recessions and nine sudden market declines of 15% or more since 1960.
The good news is that the LEI and many of its components have had a
near-perfect record in anticipating recessions. The most

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Who’s highest‐paid in your state? (based on public employee salaries)

January 1, 2020

By Charlotte Gibson of ESPN. Excerpts:"Who’s the most powerful person in your state? Well, based on public
employee salaries, it’s likely a college coach (sorry, governors). A
whopping 28 college football coaches are the best-paid employees in
their states, along with 12 college hoops coaches who top the state
payrolls. Check out the map below to find your state’s top-earning
public official, plus the governor’s salary."So in 40 out of 50 states, it is a coach.

"Money men
Notice any familiar names on this list of the 40 highest-paid coaches
at public colleges? You should — Nick Saban, Dabo Swinney and Jim
Harbaugh have been on it for years. But some others (hello, Dan Hurley)
crack the list for the first time.

Dabo Swinney, Clemson

$9.3M

John Calipari, Kentucky

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Concert promoters are using Airline-style dynamic pricing to increase revenue

December 31, 2019

See Why Concert Tickets Are So Expensive: Over the past decade, the average ticket price for the top 100 North American tours has increased 55% to $94.83 by Anne Steele of The WSJ.The concert venues and promoters are trying to raise prices on the seats that will have the highest demand. Airlines do this as demand increases for certain flights.I think that the demand for concert tickets might be (or might have been) less than one since they raised prices but revenue still went up (see the previous post).These higher prices might increase efficiency. If prices are too low, you will have to have some other rationing system. If the price is below where supply and demand intersect, then you get shortages. Maybe tickets go to who is ever first in line (even if that means buying them online).

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This Has Been the Best Year Ever

December 29, 2019

For humanity over all, life just keeps getting better.By Nicholas Kristof. Excerpts:
"2019 was probably the year in which children were least likely to die,
adults were least likely to be illiterate and people were least likely
to suffer excruciating and disfiguring diseases.Every single day in recent years, another 325,000 people got their first access to electricity. Each day, more than 200,000 got piped water for the first time. And some 650,000 went online for the first time, every single day.""Historically, almost half of all humans died in childhood. As recently as 1950, 27 percent of all children still died by age 15. Now that figure has dropped to about 4 percent.""A majority of Americans say in polls
that the share of the world population living in poverty is increasing —
yet

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