38 Comments

Very interesting. We need a new word for what the three Ninth Circuit judges represent. It's something beyond mere corporate Democratic Party piety. It isn't entirely a shift to the Right nor is it a straightforward embrace of centralized power, like entrenched totalitarianism. It's a new mix that pervades across age-generations.

It's pro-corporate pro-stakeholder pro-identity anti-worker anti-labor anti-socialist pro-authority pro-credentials pro-censorship pro-military anti-competition anti-libertarian ahistorical elitist hierarchy of merit progressive incrementalism.

We need a word for that!

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I agree. It's weird.

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Anti-citizen?

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You nailed it.

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Woke Capitalism? I mean, there's nothing more insulting than being told I'm a racist, and that "it takes all of me and my white friends I guess to fix" something, while I watch two teams that are 92% black play a G0d d@m$d football game, with each of them making more money in this game than I'll make in my entire life.

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Mar 16, 2022Liked by Matt Stoller

Better question is, Why should judges, trained in jurisprudence, be even asked to adjudicate matters falling within the scope of economics???

I love your newsletter.

Anton, Ottawa, Canada

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Mar 16, 2022Liked by Matt Stoller

Using economic theories as justification should be an obvious fallacy. Everyone knows who pays economists.

The market makers pay the model makers.

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This shit is just not sustainable. Something gotta give.

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Democracy because this is the result of a corrupted system.

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Just to help people quantify and raise consciousness: Let's say inflation is running 7%. "Normal" is 2.5%. That's 4.5% "extra", which, given the average per capita gdp of $63,000 per person of which consumption is ~70%, $44,100, requires 4.5% of recompense (ie. $1984) per person to "sustain". Just some simple math to keep the discussion grounded in fundamentals, which i like. [I say this with a cunning view of Congress, which may, under one guise or other provide yearly subsidies of $1984 (let's call it $2,000) per person to keep this game afloat! ] just musing, but let's see....now we can both assess. Cheers.

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Good example but it's important to always remember there is no theory of inflation that explains the academic definition of inflation: A general rise in prices.

The Fed itself, that is, the economists in the Fed admit they have no theory of inflation.

https://www.levyinstitute.org/pubs/ppb_156.pdf

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This isn’t the first time I’ve read about judges taking it upon themselves to determine the answer to a question that is beyond their level of expertise. They are meant to adjudicate based on the written law; not determine the merits of a case based on having read some economists’ reports (who paid these economists for this research ?). There’s always two sides to a coin and the judges, I would have thought, were duty bound to look at both. Reading this is so annoying. Thanks Matt for all you do.

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The behavior of these judges comes from the Law and Economics ideology promulgated by former 7th Circuit Appeals Court Judge Richard Posner, his fellow travelers, and acolytes. There is significant overlap with the Federalist Society types.

After the 2008 financial crash he supposedly began rethinking his reliance on 19th century marginalist equilibrium economics—commonly called neoclassical economics—but by then the damage was done. He and the rest of them, and the presidents and senators who nominate and approve judges have created an economically reactionary federal judiciary that is very hard to move.

Although, in matters of sex, sexual orientation and sexual harassment he was notably thoughtful and not as rightwing patriarchal as you might guess. He figures often in Martha Nussbaum's Sex and Social Justice. It's long but worth it.

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That influence is interesting however, one would think that after the 2008 crash it would have been criminal law the judges reviewed - everything that happened seemed to have been covered by the rescinded Glass-Steagall Act ;-)

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Why should Muricans be surprised? Weren't we told that a spouse of a supreme court judge took a brief "revolving door" job/consulting-assignment from a big money NGO just before hearing a case related to that business interest? T.I.M. This is Murica. It's all good.

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Semi-OT: Here's an unusual view into an unexpected monopoly. The podcast is mainly about art vs loneliness. The author owned an art gallery for a while, and discusses the takeover of the art world by a few big galleries like David Zwirner, leaving no room for independent galleries.

https://player.fm/series/beatrice-institute-podcast/loneliness-as-world-decay-with-ian-marcus-corbin

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The 9th Circuit's decision should be called "Wink, wink, Nudge, Nudge" Capitalism. It's not insane. It's corrupt.

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Hmmm, sounds like our political system in which 2 parties collude to keep others out ... and adding insult to injury, they are the ones making the laws that result in such exclusion ...

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Christ, I hate VISA and Mastercard more than all of the others! I wish someone would fix their profit rate at 1%.

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look at China: "free" electronic transactions! What a scam visa mc are running! Market economy FAIL! America eats its own.

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I'm a little skeptical about the source of the issue and your proposed solution. You're correct that corporations act the way they do because of the law, but generally speaking, these types of monopolistic practices are enabled through government legislation. I'll give you a couple of examples.

1) Starting in the 20s, chemical companies like DuPont started using tetraethyl lead as a gasoline additive to combat engine knocking. They knew the issues associated with it, but proceeded with it anyway—to no one's surprise. What enabled them to be successful in this endeavor was the US Surgeon General and his corresponding task force concluding in 1925 that there were no problems with leaded additives and therefore no reason to prohibit their sale.

There's been no formal documentation showing whether the federal government was paid off by DuPont, GM, or any of the others. I wouldn't be surprised if that happened, though, and the reason for it is simple: when you have one regulatory body that allows or denies the sale of something, that becomes a single point of failure. This happens today, quite frequently, with the FDA and EPA as well. See, for example: Bextra and gabapentin. You can also think of this as a government monopoly, because a singular entity—the state—determines what is permissible.

2) The fossil fuel industry has strict control of supply of oil and gas because of anti-fracking and anti-drilling legislation. You have all sorts of Green non-profit companies and other NGOs, like Sierra Club or 350.org, who advocate for all sorts of environmental policies or renewable energy. Those companies are funded by the fossil fuel industry (Tom Steyer is a good example) to act as pseudo-competitors in the energy sector. By passing legislation that limits fracking and drilling, companies like Exxon, BP, Shell, and Chevron can drive up their prices because demand for fossil fuels continues to rise without increasing supply at the same rate. When asked for more supply, they shrug their shoulders and say they can't because the government has tied their hands.

The thing is that big business loves regulation because it hurts small business competitors. If I run a company that generates 10m of revenue a year and a new regulation comes into place that drives my operational costs up by 1m a year, I've just lost 10% of my revenue. For most small companies, that would cause them to go out of business. Until, lo and behold, a larger company comes along and offers to buy them for an amount greater than their now-lower valuation (and it's lower because their profit has dropped considerably thanks to the legislation changes). The net result is decreased competition. Likewise, it's much harder to get a new company off the ground to compete because of all the restrictions. The only way they can do so is with a lot of venture capitalist investment, and if you're getting funded heavily by a VC, you're at their whim for how your company runs—you no longer call the shots despite being the "business owner." From there, it's not terribly difficult for an investor in a big corporation to also fund a VC to give to someone trying to start up a new company in another market, especially before the regulations come in because they can dictate the market and later determine what "regulations" should go into place

Most anti-trust legislature isn't necessary in the first place because it's difficult to obtain a monopoly over a market without government intervention.

I'm also a bit perplexed at you dunking on economists as if they're a monolithic entity with the same set of ideas. I think you and I both know that any organization can pay off any economist or group of economists to claim whatever the organization wants—that doesn't mean much on its own, nor does it speak to the concept of economics in any way. This sounds like more of a flaw of the judicial system relying on third-party "experts" who can be paid off.

Moreover, there are multiple schools of economics; though, quite frankly, only one of them is worth a damn: the Austrian school of economics. It's the only one that actually explains how anything and everything within the market economy works. This is a bit tangential, so I'll leave that here.

The final part I'll comment on is that a hypothesized conspiracy theory based off limited circumstantial evidence is justification for a discovery phase that requires a company hand over private documents. You need to be extremely careful when claiming the state should have easy authority to compel access to private property. The only reason a business has private property is because individual persons have private property, and infringing upon property rights of a business makes it much easier, by way of case law, to infringe upon property rights of individual persons. Your stance strikes me as missing the significance behind property rights, to which I would suggest spending some time reading Locke. The right to own private property is fundamentally an extension of the property each person has within themselves—this is individual sovereignty or "self-ownership." You make property rights easily infringed upon and you make it easier for the state to determine how you should apply your labor or live your life. It's actually quite severe.

I agree with you that big business is a problem, and Austrian economics argues the same thing. In general, though, it's facilitated by government intervention that stifles competition. And, annoyingly, most government-created problems require a strong, government-created solution—see, for example, anti-trust.

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Your arguments are interesting, but I'm unclear as to your proposed solution...the state should not have authority but the government should? What is the distinction that you are making? I'm also dubious about the 'limited circumstantial evidence' argument...at some point, a judge is qualified to say that sufficient evidence exists for a trial to commence. In the specific case at hand, even Robert Mueller would be hard-pressed to avoid finding sufficient evidence for discovery.

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Oh, I’m not trying to propose a solution. I think Matt appropriately called out that dismissing the motion to a discovery phase is the problem, but I wanted to be clear that it doesn’t immediately necessitate access to internal documentation. I feel there should be something more compelling to subpoena for that. If the bar is low for access to private documentation, then that becomes an easy route to exploitation via the government, not just for businesses, but for individuals. I firmly agree with John Locke’s stance that the government is the greatest threat to the individual.

When I say the government or the state, I’m using them interchangeably. There is no actual distinction I’m trying to make.

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Mar 19, 2022·edited Mar 19, 2022

" I firmly agree with John Locke’s stance that the government is the greatest threat to the individual."

"The" government is the thing people get caught up on. Any entity empowered over others is a government to be concerned about, whether it's a federal, state, local, or corporate government. The people maimed or killed due to unsafe working conditions pre OSHA (and post-OSHA by bad actors). Those killed by Pinkerton agents hired by corporations. Those who died from purposefully un-recalled manufacturing defects. Those who had their homes taken by local governments for private use (e.g. Kelo v. New London). Employers demanding social media logins as a condition of continued employment. They have all suffered at least as bad as anyone has suffered from the hands of any federal or state government.

What I'm trying to say is that there is no threat greater than "now you're dead", or "now we have control over the dispensation of your personal property". "Government" doesn't have a monopoly on those kinds of controls. Maybe in Locke's time it did, but not today.

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I agree that any form of centralized authority that becomes large enough is a threat to the individual. I focus on the government more because it is by nature of its conception centralizing and monopolistic. The only way it remains in check is through citizens upholding their civic responsibility, and that's a tall order.

Businesses have more limiting mechanisms in the market because the market operates through natural selection. It doesn't care what your beliefs are, how much you engage in political discourse, or whether you vote—someone out there will find a better way to do something and people will "vote with their dollar" over time because they demand results. Natural selection forces people to align their own self-interests in a way that benefits society, because otherwise you will eventually fail.

With government, there incentive structures are fundamentally mis-aligned. A politician's interests only align with the citizens interests because the citizens determine whether the politician maintains their seat. Even then, you must limit their authority to minimize the amount of damage they can do when they get into power, because voting requires trust upfront instead after the results are delivered. Government agencies, like OSHA, are even worse because they are not responsible to the people. We vote for neither the people who run those agencies nor the policies they enact. Ergo, they can and will operate however suits them best irrespective of the cost to the citizens. You see this regularly with entities like the FDA (hello, Pfizer) and the EPA (hello, Exxon).

This is why Locke called government the greatest threat. It has the worse incentives and fewest, most-difficult-to-enforce limiting mechanisms.

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Mar 19, 2022·edited Mar 19, 2022

"any form of centralized authority that becomes large enough is a threat to the individual."

And a threat to other collective entities.

We can vote with our dollars, but doing so means one dollar equals one vote. There's only so much an individual consumer can do to pressure even a medium-sized corporation without banding together in the magnitude of numbers that is also sufficient to pressure many parts of the government. Hobson didn't seem to go out of business, even though he didn't give his customers a choice.

I agree with you on government agencies to some extent. Courts likewise are mostly outside the jurisdiction of voters. This wouldn't be so bad if they were also outside the jurisdiction of large corporations, other moneyed interests, and ivory tower theorists.

It would be very nice to have federal initiative, referendum, and recall laws (even nicer if we could have a citizen's impeachment which bars reelection or reappointment). There's less of a need to preemptively limit authority if the actors can be directly held accountable. It would be even nicer to have an electoral system that didn't incentivize a maximum of two parties and first-past-the-post politicians who cater to the average of every voter's preferences (or even worse the average of their base's preferences).

Chaos can be worse than even the strongest authoritarian governments. Under a totalitarian government a person can typically live an adequate life if they don't make waves. Under a chaotic non-regime of thugs a random citizen can be totally screwed even if they do everything they can to keep safe.

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Oh, I agree with you fully. I called them limiting mechanisms since they're just that—limiting. Once they're beyond that point, "limiting" them doesn't really do anything lol. Anti-trust will likely always be necessary at some level, if only for the threat of it. Accountability is itself a limiting mechanism, but instead operates with the weight of consequences instead of explicit restriction. So I'm with you, both are necessary.

I'm also with you about chaos. Anarchy is just as bad as totalitarianism, just manifested differently. Freedom, as we know it, only operates within a framework of constraints.

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Discovering everyday people ill-equipped to do their jobs properly. Why would these judges be so trusting of an economic model (and not use common sense)?

Separately, I was wondering whether even if they could be brought to court, companies would decide to collude and raise prices anyway, because by the time the courts would intervene, the profits they would make would be worth the trouble.

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The decision as described here makes no sense. I presume next step will be a request for the appeal to be considered by the full 9CA bench. Hope Matt updates us!

Of course, if this isn’t the final decision in the case and it reaches SCOTUS and SCOTUS decides on actually hearing an appeal, odds are they’ll just approve the decision here or maybe even find a worse basis.

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All of these judges using economics to justify price-fixing appear to be acolytes of the Law and Economics (L& E) movement started at the U. of Chicago in the late 1960's when folks like Milton Friedman and other libertarians were there. Richard Posner, now a federal judge who has made some good (unrelated) decisions wrote the first textbook on L & E in 1968.

Today there are L & E programs at many universities, including George Mason University. They are funded by, among others, the Koch family. Also at George Mason is the Mercatus Center, the Koch-funded libertarian think tank. Hmmm.

I think it would be interesting to see how many of these judges had taken courses at the L & E programs. IIRC, the Federalist Society also sponsors them.

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Matt, I enjoy your writing and fully agree that the FTC has been asleep at the wheel for 40+ years.

I also completely agree that the dismissals cited above are crazy and should never have happened. However, you're kind of getting to the Matt Levine point of "everything is a monopoly". I work for a competitor of Unilever's and so may be able to provide some helpful commentary in that example.

First off, your assertion that "the firm is hiking prices not because costs are going up" is just not correct. My company buys almost all of the same raw materials as UL and costs are very, very much going up. We are seeing all-time record prices for some of the key raw materials in our industry (these materials are commodities) and the run-up in logistics costs is hardly a secret - you've documented it quite well in your articles on shipping. Unilever and its competitors (P&G has also publicly announced pricing) did not just "wake up" in 2021 and realize they could take pricing - they are being forced to take it due to cost increases. They are fairly certain that competitors will follow because those competitors buy the same raw materials and pay for the same transportation. You are correct that many markets within the CPG industry are quite concentrated and there is probably some degree of implicit price collusion, but you are putting 100% of the weight there and none on the cost picture.

A couple of other points on this industry (and others like it). While some cases of oligopoly or monopoly are due to M&A, there are many cases where it's due to firms offering a superior product or just being better at marketing that product. For example, P&G (owner of Tide) did not come to dominate the detergent category because they bought up all of the detergent brands - they did it by producing a better product and marketing it effectively. What is the anti-trust solution to that? Second, while you are correct that many CPG markets are quite concentrated, the trend for the past 10 years has been in the direction of more competition and more fragmentation, not less (this is typical: https://talkbusiness.net/2021/02/the-supply-side-niche-brands-took-share-from-large-cpg-players-in-2020/). The rise of eCommerce and digital advertising has enabled a massive increase in the number of brands competing in these markets. Brands that have been built entirely off of a DTC model are starting to break into brick & mortar retailers as well - go take a look at the body wash shelf at Target and you will see it is full of startup and independent brands, a far cry from 10 years ago when P&G and UL owned 1/2 of the shelf. It is crucial that anti-trust prevent the major players from snapping up these small brands and re-consolidating the industry.

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"First off, your assertion that "the firm is hiking prices not because costs are going up" is just not correct."

That is absolutely what Unilever's CFO said. So don't take it up with me, take it up with him.

As for the CPG industry, there's a reason it's more fragmented now, and it's not because it's competitive or because Tide was a superior product and all of a sudden people figured out how to make better detergent. It's because of rebates and consolidation. P&G bought Gillette for a reason.

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Matt, I'm going to quote directly from Unilever's CEO on their earnings call for FY 2021 results "But the biggest challenge we'll face this year is navigating a further step-up in input cost inflation." They may believe they have pricing power for any number of reasons (and they are probably correct), but as someone who works for a large CPG company I can guarantee you to the point of certainty what is driving a large % of the price conversations inside their business is that their margin is eroding due to cost pressures. Unilever didn't wake up in 2021 and realize they had pricing power. Everyone in the industry is taking pricing right now and the common driver is costs. These companies have many different business in many different markets - not all of them have pricing power or a dominant position in their market. The one common feature across the industry is cost inflation.

Your argument is that the industry is more fragmented is due to rebates and consolidation? I'm not quite following. P&G bought Gillette 17 years ago, and that's a great example of consolidation that should have been blocked. However, the internet (through opening up distribution and lowering the cost of customer acquisition) and the rise of contract manufacturing (reducing startup capital costs and granting some economies of scale to small players) has massively opened up the conglomerates to new competition (example pre-pandemic here: https://www.forbes.com/sites/andriacheng/2018/10/17/17-billion-this-is-how-much-sales-major-cpg-brands-have-lost-to-upstart-labels/?sh=2bf02f656d35). Gillette is a perfect example - they have been absolutely bleeding market share to Harry's, Dollar Shave Club and others, all startups that would have been impossible to launch pre-Internet. Gillette has reduced prices to compete and invested heavily in launching new razor brands. While oligopoly is definitely a problem in the CPG industry the trend right now is not the big getting bigger (P&G for instance sold off quite a few smaller brands in the past 10 years).

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I'm aware of all of these dynamics. I don't think they conflict with my point. Firms raise prices because they can. Unilever is not entitled to the high margins they have, and that they are raising prices is a function of their ability to do so. That's what their CFO said. Their challenge, which is a challenge for everyone, is cost increases. That's as true for small cattle ranchers as it is for Unilever and Tyson. The difference is small farmers *can't* raise prices because they don't have any market power, whereas Unilever and Tyson can.

Sorry, I was unclear before. My point was that P&G bought Gillette to gain power in distribution, which it organizes through rebates with large retailers. The internet opened up a new channel for distribution, which Harry's and Dollar Shave Club walked through. A large razor blade producer tried to buy Harry's last year, and was blocked. But Dollar Shave Club was bought a few years ago by... Unilever.

https://mattstoller.substack.com/p/blocking-mergers-is-good-for-business?s=w

https://mattstoller.substack.com/p/razor-blade-wars-part-ii-amazon-and?s=w

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I should say, though we disagree, I appreciate your comments.

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Mar 16, 2022Liked by Matt Stoller

I appreciate your taking the time to respond to comments on your posts. I definitely agree about pricing power - in the classic Econ 101 perfect competition none of the firms would have pricing power and so would just eat the cost increases. My main points were a) cost is increasing and definitely has something to do with all the pricing announcements, b) all pricing power is not necessarily rooted in market power - some of it is rooted in the product/branding (the whole point of brands is to create pricing power) and c) the market power that these companies have has been eroding over the past ~10 years due to the internet.

Fun fact: I don't work for UL but I have friends who do, and by all accounts the DSC acquisition has been a disaster - massive culture clash and lack of business model understanding on the UL side.

On another note, an area you might want to look into is the VC business model both in DTC and tech. I know you've written before about opposition to loss-making pricing (I'm avoiding "predatory" for now) by Amazon and others in order to grab market share. That's essentially been the VC DTC model for the past 10 years - I've seen plenty of income statements from small private consumer brands and they lose money hand over fist, the idea being to keep losing money until they can build enough brand equity to get acquired or get into Target/Walmart (where they may or may not turn around profitability - Harry's still is not profitable). On the tech side, it's somewhat openly stated that the VC model is 1. invest money for ultra-rapid growth with huge losses 2. establish monopoly position 3. raise prices to profitable levels. It's a whole model built on developing monopolies with pricing power and yet is rarely talked about.

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Let's not exclude the new fangled "pixel-price" phenomenon from "the great inflation and profit bagging". What price/quantity offering I see on big-jungle-shopping-site.com is very different from what price YOU may see on big-jungle-shopping-site.com, and note, Congress hasn't legislated against econ-101's "price discrimination" either! Meanwhile people are getting pavlovian conditioning to always buy from their keyboard on these big-jungle-shopping-site.com rather than checking out stores, which, to my REPEATED experience, have better prices, and better supplier agreements (from the manufacturer) to deliver those cheaper prices than big-jungle-shopping-site.com ever could. Hand-to-god, this is my experience based on many many many searches for everyday items from Men's underwear, to microwave ovens, to spices, to kitchen utensils. Price differences of often greater than 30%, and not in favor of the new-fangled .com wave as we are brainwashed to believe!

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How is what this comment states here not the exact place where the Ninth Circuit ended up? This is the exact argument at the fundamental position of the post. Govenment beholden to the purse strings of Fortune Business, as a comment noted earlier "market makers who pay the model makers" collusion at its strongest. Coprporate connections, Collusion, Corruption, all to inflate and bifurcate the the masses with the money, that are innocent and don't have the capacity to know any differently.

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