Markets in everything (not)

by Henry on June 18, 2005

Julian Sanchez and Lynne Kiesling say very rude things about Bob Geldof’s campaign to stop the sale of tickets to the Live-8 concerts on eBay (BBC story here). Julian describes this as “idiotic” and Lynne describes it as “wooly thinking about economics.” It’s neither. There’s an excellent rationale for what Geldof did. The tickets were initially distributed through a lottery, in which people sent instant-text messages to an address for a fee; a small percentage of the two million who sent the messages got tickets. It’s safe to assume that those who participated in this lottery did so for a mix of reasons; partly charitable, partly a desire to go to the concert. But altruistic motivations can be driven out by market mechanisms. Richard Titmuss wrote a famous book a few decades ago, The Gift Relationship, which provided a fair amount of empirical evidence to show that this was true in the case of blood donations, and that purely voluntary systems of blood donation did better on a variety of counts than did systems where some people were paid to donate blood (see also this paper by Kieran which touches on Titmuss’s arguments). On this logic, Geldof did exactly the right thing. If tickets to the concerts became commodities to be bought and sold on the open market, it’s highly plausible that future participation in lotteries of this kind would be seriously hurt. Geldof’s actions are perfectly defensible.

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Catallarchy
06.19.05 at 12:23 pm

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1

engels 06.18.05 at 10:58 am

I don’t think you even need to invoke motivational “crowding out” to justify Geldof’s actions. From a purely self-interested perspective, risk-averse individuals might be discouraged from participating in future lotteries if they believed they could buy the tickets afterwards on the open market. So Geldof is right to act to protect the lottery’s reputation and the success of future lotteries. Although the effect you point to is probably the more significant.

2

Matt 06.18.05 at 11:45 am

The text messaging thing was stupid, and no his acts were not defensible. His actions were a response to people making money off of a charitable event. Somehow I doubt participatiopn in future events was a factor.

Here is what they should have done. Created a dutch auction system like what google created for thier IPO. Those who want to be assured a ticket can bid really high, in which case most of the extra money from scalping goes to charity, and thier are fewer open market trades.

Additionally, they could change the procedure so that you must pay what you bid, and raise even more money.

3

Anthony 06.18.05 at 12:08 pm

I mostly agree with Henry, even though the lottery is not the most efficient way to raise money for the charity. The point that neither the critics nor Henry makes is that Geldof (or the producers, if it’s not strictly Geldof) have the right to place contractual limitations on the tickets, and to enforce those limitations. The concert is effectively an “invitation-only” event – Geldof & Co. have picked, by some legally irrelevant process, 10,000 or so of their best friends to invite to their concert.

Sanchez and Kiesling and matt are correct that Geldof could make more money for his charity in other ways. But nothing requires that to be Geldof’s only motivation in choosing prices and ticketholders.

4

Luc 06.18.05 at 1:41 pm

I don’t think maximizing the charity proceeds was on Geldof’s agenda. The slogan on the frontpage of their website is

“We don’t want your money – we want you!”

Having an enthusiastic audience at the show is in all likelyhood on their agenda.

Given these assumptions it would be easy to conclude that distributing those tickets through an sms style raffle is to prefer over an (ebay) action.

Maybe Sir Bob has visited some football games and noted that the people who pay the most for their tickets are the people with the least outwardly display of enthousiasm. While those with the cheap tickets cheer their team through thick and thin, those on the expensive business seats are dividing their attention between business, beer and an occasional cheer when there’s a goal scored.

When you want/need the money, do the expensive tickets. When you don’t, don’t.

5

ogmb 06.18.05 at 2:13 pm

I don’t follow this argument at all. There’s a small fee lottery for a number of high-valued prizes, with payout seemingly unrelated to participation. How would an aftermarket for the prizes reduce lottery participation to a point where prizes outnumber participants?

6

Rich Puchalsky 06.18.05 at 3:49 pm

With all the libertarians pooh-poohing Geldof’s right to set up the event as he chooses, you’d never know that they were supposedly so much in favor of freely agreed to contracts. In fact, they’re not. They’re in favor of the principle that money should be able to buy anything — not at all the same thing.

7

nic 06.18.05 at 4:05 pm

The Gift Relationship is a really important book. But I’m not sure the analogy crosses over to the Live8 situation. There already is a market for tickets. £1.50 buys you a 3.75% (75,000/2,000,000) chance of getting a pair of tickets. To establish that selling tickets you’ve won would damage the lottery takes more work than anyone’s done yet. Given that the after-market for Tickets is pricing them very highly, surely logic suggests that entering the lottery is profit-making and this would drive the number of lottery entries and the money raised up?

My position is that people have a basic right to sell stuff that they own. Anthony suggests that Geldof has the right to place contractual limitations on the tickets, and to enforce those limitations. He’s absolutely right, but so far as the current situation goes Geldof doesn’t have the right to add new limitations on the tickets once they’ve been sold. I’m also very sceptical over whether anti-competitive contracts, such as those seeking to prevent the resale of concert tickets, should be legally enforcable.

8

Bob McGrew 06.18.05 at 6:30 pm

The notion of crowding out altruistic motivations is an important one for some situations, but I don’t see why in this case altruistic motivations would be crowded out by selfish ones.

9

Jack 06.18.05 at 6:36 pm

If restrictions on the right to resell things is the only issue I just wish that such indignation had been mustered before that ship had sailed. I hope at least they refuse to use Microsoft software or buy music from iTunes music store.

The idea that this is some unusual interference in property rights is bizarre. Not only are tickets generally restricted to the person to whom they were sold, try Glastonbury for example — they may even have your photo printed on them — the logic behind this would be that I have to accept as guests anyone to whom a party invitation is passed.

In any case there is no question of legal enforcement here. Geldof said that he didn’t think sale of the tickets on eBay was a good thing and eBay agreed with him, or rather the many people who agreed with him.

10

marek 06.18.05 at 6:37 pm

Perhaps all this gets clearer if we generalise the argument. Is the answer the same for a west end musical as it is for Live8?

I have never understood the sanctimoniousness which surrounds the secondary market in tickets. If you have a ticket to Billy Elliott and I am willing to pay you a sum greater than its value to you, why on earth should anyone be concerned that you sell it to me.

The position on Live8 isn’t obviously different. Geldof has already raised all the money that he is going to through the ticket lottery – so when he says that sellers are “miserable wretches who are capitalising on people’s misery” it’s hard to understand what he means beyond simple insult.
Live8 has explicitly been organised with acts which well known and popular, and there has been heavy criticism of the under-representation of African music – it’s a bit rich, therefore, to turn round and cricitise people for responding to it in terms of the music they want to hear rather than the wider message.

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marek 06.18.05 at 6:43 pm

“the logic behind this would be that I have to accept as guests anyone to whom a party invitation is passed.”

This is a slippery slope which is far too well greased. The idea that a concert in Hyde Park is like a party in my home is pretty far fetched. More importantly, though, Live8 has already given up any claim that some ‘guests’ are more desirable than others by running a lottery in the first place. Anybody who ran a party on that basis could hardly be surprised if some strangers turned up.

12

asg 06.18.05 at 8:00 pm

With all the libertarians pooh-poohing Geldof’s right to set up the event as he chooses, you’d never know that they were supposedly so much in favor of freely agreed to contracts. In fact, they’re not. They’re in favor of the principle that money should be able to buy anything—not at all the same thing.

Two strawmen in three sentences — a rare find indeed. Well done.

13

Brandon Berg 06.18.05 at 11:11 pm

Anthony suggests that Geldof has the right to place contractual limitations on the tickets, and to enforce those limitations. He’s absolutely right, but so far as the current situation goes Geldof doesn’t have the right to add new limitations on the tickets once they’ve been sold.

The terms of the lottery–available on the concert’s web site–stipulated that the tickets were nontransferable.

I’m also very sceptical over whether anti-competitive contracts, such as those seeking to prevent the resale of concert tickets, should be legally enforcable.

In principle, they should have a right to enforce it, but it’s not reasonable to ask taxpayers to foot the bill for something so trivial. If event organizers really want to stop resale, and aren’t willing to do so by pricing the tickets appropriately, the best thing to do would be to print names on the tickets and check IDs at the gate.

14

ogmb 06.19.05 at 1:47 am

I have never understood the sanctimoniousness which surrounds the secondary market in tickets.

The sanctimonousness comes from the fact that this secondary market could very easily be operated by the original sellers who, usually for reasons of public goodwill, refrain from doing it.

15

Jack 06.19.05 at 4:38 am

Marek, it is not half as slippery a slope as the one that makes profit maximisation a moral imperative deducible from economic truths. I’ve rarely seen such sanctimony with so little justification. Has Bob failed in his own terms? I think his actions were popular. Is he economically naive? He has run successful businesses and is campaigning about manifest shortcomings of current economic practice. Is stopping resale of concert tickets morally wrong for some reason? He is hardly the first. This objection really opens the floodgates. Were his tactics irresponsible? I think this is the best point.

Property is itself a slippery concept and that the assumption that a ticket is by default a transferable thing is both historically inaccurate and by no means obvious.

Sir Bob wanted to allocate attendance at random. Should he not be allowed to do that? Does public disapproval mean nothing? Should there be a market in not transferring tickets as well?

I’ve yet to see an argument that even tries to persuade Sir Bob that he should have allowed the eBay auction. All they say is that he would not have lost money and that itself is more debatable than made out. There is no discussion of time consistency. There is no analysis of what actually would happen if there was a full aftermarket.

Even airlines have toned down their full revenue maximisation programmes because hey were having negative effects.

I think it is very odd that this standard practice is only attracting criticism when it is performed by someone for whom it would not obviously be hypocritical.

16

marek 06.19.05 at 5:58 am

I’ve rarely seen such sanctimony with so little justification.

As the one guilty of raising the temperature by using ‘sanctimoniousness’, may I point out that I did so in a context which was explicitly not about Geldof/Live8. Nor have I seen anybody arguing that profit maximisation is a moral imperative – I certainly did not and would not.

Clearly there are reasons why primary sellers may choose to operate in ways which do not maximise revenue in the short term – or which reflect the fact that they are not in a position to practise price discrimination. Some such sellers in some circumstances attempt to prevent the creation of a secondary market. For some sellers – airlines for example – that is in part because the existence of a secondary market directly undermines their ability to operate price discrimination based in part on time sensitivity. The airlines have managed to strengthen their ability to prevent secondary sales, notably in the US domestic market as a useful (to them) by-product of post 9/11 security changes, but moving away from full revenue maximisation programmes is more because their excessive complexity made it difficult for anybody to understand the rules than in response to reactions against price discrimination as such.

But perhaps the reason why this issue is suddenly getting some attention around Live8 is less to do with the moral worth of the enterprise, but more because in some ways it is an unusually clear cut case: the instant sellout/lottery based allocation means that the interaction between the primary and secondary markets is much more straightforward than it might otherwise be.

And of course it is Geldof’s invective against eBay which has presented this as a moral argument, which prompts some to wonder just how strong that moral argument (as opposed to Live8 itself) really is.

17

nic 06.19.05 at 6:43 am

Jack’s mades a lot of points. There’s two issues here, the first is Bob’s actions, the second is the more interesting general case of how property rights apply to tickets.

…there is no question of legal enforcement here.

What Geldof did was worse than this, he was trying to use *illegal* enforcement measures. He did, after all, incite people to commit illegal acts in order to prevent secondary sales. And that is what got ebay to take the sales down.

I do think that attempts to prohibit resale are an “unusual interference in property rights”. In my experience tickets generally aren’t restricted to the person to whom they were sold – though we may just have different experiences because we live in different places. Glastonbury really is an exception. I don’t think conditions attached to tickets in order to try to maintain a monopoly on the sale of tickets should be respected by the law.

I’m sure – given that tickets are transferable – you wouldn’t have to accept as guests anyone to whom a party invitation is passed, there certainly isn’t anything legally binding about a party invitation.

18

kevrob 06.19.05 at 6:56 am

In defense of we libertarians, especially those of us Stateside who have but a passing interest in Geldof’s Folly, I’d like to point out that when I first heard about the auction flap I thought that Live8 was about raising funds voluntarily from private individuals and groups who wanted to alleviate suffering in poorer countries. On that obviously mistaken assumption, criticism that the organizers hadn’t set up their own auction system to rake in the most bucks seemed foolish.

If, as it seems, Live8 is actually about mobilizing popular support for shoveling more taxpayer-provided “aid” into the pockets of third and fourth-world kakistocrats, then the whole project is just misguided.

19

RS 06.19.05 at 7:56 am

“In my experience tickets generally aren’t restricted to the person to whom they were sold – though we may just have different experiences because we live in different places. Glastonbury really is an exception.”

Funny, in my experience they invariably are. Of course, it is generally very difficult to enforce.

20

Bruce Baugh 06.19.05 at 12:16 pm

I’m fascinated by the semi-explicit argument that Geldof ought not wish to set the terms for his show, or to seek to enforce his wishes. Also by a libertarian argument that other people’s expectations and wishes should determine the available outcomes. When I was a libertarian, I thought it was precisely about being able to make one’s own choices regardless of whether they are ubiquitous, unique, or anywhere in between, so long as I can find others willing to deal with me on those terms. But Rich has pretty well nailed this one: it’s about privileging the power of money. If I offer you enough money, you don’t have to respect anyone else’s wishes nor honor the terms you entered into.

I’m certainly at a loss to know why the expectation that a ticket is re-sellable is so potent that it can override declarations to the contrary for particular events. It seems a risky argument, as applied to lots of other things it would destroy any chance of libertarian goals on any scale, since lots of people assume things not compatible with them. Again, it seems to carry the subtext “I’ll make the principles be whatever they need to be to get what I want”.

21

engels 06.19.05 at 12:34 pm

Please could the libertarians make up their minds whether or not they are in favour of freedom to contract?

22

abb1 06.19.05 at 12:57 pm

I haven’t read the whole thread, so perhaps someone’s already made this point; anyway: what libertarians object to is acknowledging any limitation on ownership of their property. If what you bought (or won) were a right for yourself to be admitted to the concert – that would be one thing, but if what you bought was a ticket – that feels like something quite different: a piece of paper that you own, and since you do own it, you now have a right to do anything you want with it: frame and hang it on a wall or burn it or eat it, or – yes – or sell it.

23

Rich Puchalsky 06.19.05 at 2:11 pm

abb1, I understand that you are trying to describe a point of view that you don’t share. But really, if libertarians do believe as you say, then they are foolish; the tickets were sold on the condition that they were nontransferrable. That was part of the contract. If passing along a physical object implies ownership, then when I rent a truck, I get to own it forever, or when the bank loans me money, I never have to pay it back.

24

engels 06.19.05 at 2:43 pm

The libertarian take on this debate seems clearer in the light of three of their principles.

1) Markets are neat.
2) Rich people rule.
3) Geldof is an asshole and development aid is for suckers.

The principle of non-interference in voluntary contracts seems to have been sidelined.

25

Brandon Berg 06.19.05 at 2:46 pm

I haven’t read the whole thread, so perhaps someone’s already made this point; anyway: what libertarians object to is acknowledging any limitation on ownership of their property.

No. The right of contract is absolute, and much of libertarian theory depends on the ability to create contracts that limit the rights of ownership (i.e., neighborhood covenants as an alternative to zoning laws).

None of this is about what the government should or should not force Geldof to do or not to do. But I suppose I can understand why people who believe that government should control anything and everything having to do with commerce might be confused about that.

Just because you can do something, that doesn’t mean you should. And conversely, just because you shouldn’t do something, that doesn’t mean the government should force you not to. Geldof can do as he likes. But if he’s going to flaunt his economic ignorance and throw a hissy fit about people reselling tickets, then he deserves to be ridiculed. That’s all we’re doing.

26

Jack 06.19.05 at 3:07 pm

Brandon, what economic ignorance is he flaunting? I’d like to know because I think most of his critics are doing the same with theirs.

I would also like to know what Libertarians think of the sabotage of eBay.

Marek, the complaint about sanctimony was not meant ot be aimed at you but rather at the original writers cited by Hemry and Clare Short. Geldof’s critics in this manner seem very sure that he has done something wrong despite it being normal practice for concert organisers.

27

abb1 06.19.05 at 3:19 pm

It’s a radical view and I don’t share it, but since it’s not irrational (doesn’t require supernatural forces and doesn’t entail any weird racist or ethnic stuff and so on) – it can be debated.

As far as tickets being ‘nontransferrable’, it seems that the organizers unfortunately didn’t make a sincere effort to enforce this nontransferrability. If I go to, say, a box-office, buy a ticket by paying cash and see ‘nontransferrable’ written of the ticket, I have to assume that they just printed it there to satisfy some regulations and they don’t really mean it, because they have no way of knowing whether the ticket has been transferred or not.

IOW, if you put some requirement into the contract, but neglect to make even a minimal effort to enforce it or even to trace the degree of fulfillment of it, then I feel it’s a meaningless formality.

I mean, if banks were giving loans without taking your name and just asking: “oh, and when you’re ready to pay back, just drop a wad of cash into that box over there”, then I am sure a lot of people (including many libertarians) would get an impression that this bank really doesn’t care much.

Instead of trying to stop the sale of tickets on ebay, they should’ve taken names of the winners and checked their ids at the doors or something.

28

Brandon Berg 06.19.05 at 4:02 pm

What economic ignorance is [Geldof flaunting?

“He said people had realised that ‘the weakest people on our planet’ were being exploited and they were ‘sickened by that.'”

“It is filthy money made on the back of the poorest people on the planet. Stick it where it belongs.”

I would also like to know what Libertarians think of the sabotage of eBay.

They have the right but not the obligation to help the organizers of Live-8 enforce the non-transferability requirement by canceling listings.

That said, nonpaying bidders are a frequent problem on eBay, and I think they could better serve their customers by requiring bidders to provide some sort of guarantee against nonpayment, such as a valid credit card number.

Geldof’s critics in this manner seem very sure that he has done something wrong despite it being normal practice for concert organisers.

It’s also normal practice for libertarians and economists to criticize event organizers for selling tickets below the market-clearing price. However, it’s not normal practice for event organizers to be…well…so sanctimonious with so little justification. So Geldof gets some extra attention.

29

Jack 06.19.05 at 5:08 pm

Brandon, i know what Geldof said but I do not think that it is self evidently economic ignorance. The language is inflammatory but that’s not really about economics.

I’m not sure that it is normal for economists to assume that concert tickets should be freely tradeable nor to assume that these business people are being wilfully irrational.

30

kevrob 06.19.05 at 6:14 pm

Geldof and Live8 are perfectly within their rights to have created a low-cost lottery for the tickets. They may have thought that using such an egalitarian system was the best thing for the purposes of their event. As for nontransferability, that’s a problem for many promoters, sports teams, etc., anytime the face value of the ticket is much lower than what the market would bring. If – and I say if – Live8 were meant primarily as a fund-raiser, the clever thing to do would have been to reserve a certain number of the tickets for auction to high rollers, gaining access to the wallets of those who just had to see the show, money no object. Better the extra cash go for charity than to Joe ebay Reseller, right? The organizers could also have pumped up revenues by getting the various companies to pay for the privilege of being an official Live8 auctioneer, or for one of them to be the festival’s exclusive auction partner. But maximizing private cash for the poor seems not to be the reason for the show.

As for this:

1) Markets are neat.

Compared to the alternative methods for dealing with scarce resources, yeah, they do.

2) Rich people rule.

It isn’t just about “rich people”. Two people of equal wealth may value tickets to the show vastly differently. You may find middle-class music fans who will pay much more than a casual concert-goer of a higher income. Setting prices in a way that those willing to pay a premium pay it to the event and not to a third party, whether for better seats , avoiding the risk of being shut out in the lottery, or whatever.

3) Geldof is an asshole…
I can take Bob or leave him, but his suggestion that those in sympathy with him DoS ebay was worse than childish.

…. and development aid is for suckers.

Government-to-government aid has been, in many instances. It isn’t charity when it is coerced, anyway, so those who want to pat themselves on their backs for getting politicians A to vote funds to give to dictatorship B, to help the B’ites and feel all warm and cozy about it can just stop. This is especially true when most of the aid winds up in the Exalted Leader of B’s offshore account.

31

ogmb 06.19.05 at 10:28 pm

Even though this thread has disnitegrated into the usual tiresome libertarian-antilibertarian squabbling, I still like to hear (from Henry or someone else who could follow his argument) how the economic model from The Gift Relationship applies to the Live8 case. I still don’t see how the crowding-out effect should work on the particular situation, especially since potential buyers can enter both the lottery and the eBay auction, while potential brokers have to enter the lottery in order to sell on eBay.

32

Brandon Berg 06.20.05 at 12:19 am

I still like to hear (from Henry or someone else who could follow his argument) how the economic model from The Gift Relationship applies to the Live8 case

I have the same question. Granting for the sake of argument the validity of Titmuss’s conclusions (which both the review and the paper to which you linked call into question), I see two serious problems with this analogy.

First, the relationship between money and nonmonetary goods is reversed. In one case you’re giving people money in exchange for blood. In another you’re giving them gifts (or chances at winning gifts) in exchange for donations. The widespread use of charity auction and token gifts in exchange for donations suggests that a quid pro quo might actually increase donations when raising money, so you can’t assume that if it doesn’t work one way it must not work the other.

Perhaps more importantly, the variable is different. In the case of blood donation, the variable is the presence of some sort of material quid pro quo: Do we or do we not pay people for contributing blood? But in the case of Live-8, there’s already a quid pro quo: Pay money and you get a chance to win a ticket. The more money you pay, the greater your chances.

What we’re changing is the nature of the quid pro quo. I suspect that this change would have a greater effect on the behavior of those who are driven primarily by the desire to see the concert than on those who are motivated more by altruism, since the nature of the quid pro quo is less important to them.

33

Jack 06.20.05 at 12:21 am

ogmb, without an aftermarket only people wishing to attend would enter the lottery. With an aftermarket there ought to be massive speculative entry too.

With an aftermarket there will be mnay people making a profit at which point those making a gift of their time might wonder why they are doing so.

I think the prawn sandwich effect described above might also be quite potent.

34

Jack 06.20.05 at 12:28 am

Brandon, i think the blood issue is that the people are less willing to give blood if some people are paid and that there is some adverse selection involved when you start paing for blood. Also people start to measure the benefit in purely selfish terms and find their willingness to donate actually reduced by the presence of the incentive.

In this analogy the payments are not exactly going to the donors.

kevrob, the “Markets are neat” is not that markets are not neat but that origami is too (but it isn’t a solution to every problem)

35

Henry 06.20.05 at 11:05 am

omgb – the mechanism I’m arguing for is as follows. My starting assumption is that many (most?) of those who participated in the lottery were doing so for a mix of reasons – because they felt they were doing it for a “good cause” and because they to some extent wanted to go to the concert. From the perspective of the conference organizers – Geldof etc – the former was much more important than the latter. Their desire was not to raise money – organizing a concert is an inefficient way of funneling cash to charity – as to create the basis for a social movement, and for political pressure for structural change in the relationship between the developing and developed world. The concert organizers’ belief – which has a fair amount of support in the social psychological literature – was that by persuading people to behave expressively in a relatively cheap way, the organizers would encourage them to engage in more ‘expensive’ forms of political action thereafter. Again, social psychology (and indeed, in a backhanded way, some of the literature on signalling and collective action) would suggest that the degree to which people are _ex post_ inclined to interpret their prior behaviour as expressive – and thus to develop affective ties – depends on their beliefs regarding how others perceived the act of participating in a lottery. If they believe that others perceived the act of participating as purely self-interested, then they _ipso facto_ are less likely to see their own behaviour as involving a real commitment, and hence less likely to engage in other forms of collective action (or indeed to participate in similar lotteries in the future).

My apologies at spelling out what seems to me to be a quite straightforward mechanism at length.

Brandon – the caveat in the New Statesman article regards Titmuss’ claims about the superiority of the voluntary system – not whether voluntary donations may be driven out by market mechanisms. Kieran doesn’t call Titmuss’ claims into question instead he notes that it’s difficult to test them given the currently-existing blood donation regimes, but finds that insofar as they can be tested, Titmuss seems to hold up. In other words, this is irrelevant to the subject at hand.

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John Humphreys 06.22.05 at 4:02 am

What’s with the libertarian-bashing here? And why is it so universally ill-informed?

Just because a libertarian supports the freedom of contract does not mean that they must personally agree with every contract ever entered into. Those that suggested otherwise might consider a retraction.

Instead of understanding this simple point, people on this blog prefer instead to type the word “rich” a few times and scream in agony. That is not what libertarianism is about.

“He who knows only his side of the argument, knows little of that” – J.S.Mill

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