16 jun 2020
Episode 5 features renowned economic historian Deirdre McCloskey.
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The Covid Tonic, Episode 5 Transcript
By Deirdre N. McCloskey & Marian L. Tupy
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The full video interview between Marian L. Tupy and Deirdre McCloskey can be found here. The transcript is below.

 

 

Marian Tupy: Deirdre, thank you so much for being a part of this video. Let's talk a little bit about the pandemic, about politics and about economics. Your new book is called Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All. So how would you rate the performance of liberal countries in tackling the pandemic and contrast that response with the authoritarian or populist regimes?

 

Deirdre McCloskey: Well, I think everyone agrees that early in such an epidemic, coercion is justified and desirable, just as in the case of a forest fire or invasion by Canada of the United States, which I tell you keeps me up at night worrying about those damn Canadians. So if the Canadians come to northern Maine, that's the time to strike, not wait until they've conquered all the Northeast and then get your thing going. The same thing is true here, and of course, authoritarian governments are good at exercising tyranny. And so some of them - China for example – exercised tyranny, closed-off Wuhan and so forth.

 

An extremely interesting example is Vietnam, which has done very well with a big publicity campaign of the kind of socialist, revolutionary sort, just grabbing people and making them test. But, of course, so have many liberal countries. Now, of course, there's a spectrum here. New Zealand has done an excellent job early. The most prominent one is South Korea. These are quite good examples, but then there's the kind of sloppy policy of countries like Italy, France, especially the UK, and most especially the United States, so I don't know. It's not terribly surprising that fighting the forest fire early is something that an authoritarian government can do well.

 

MT: Some people say that many of these countries are to be found in Asia, where they already had a dry run with SARS and with other kinds of contagious diseases before and so were kind of ready.

 

DM: Yeah, that's right. That appears to be true with Vietnam, for example, which had been through this before with the various kinds of viruses from China

 

MT: Okay, but it would be wrong to say that just because China has done a better job, we should try to be like China. We should be China for a day.

 

DM: Of course, that's the danger. That's the inference that some people are willing to make. In fact, it goes back much longer. There's this talk of the China model of economic growth. Well, being a violent authoritarian country but allowing people to start factories more or less when they want if they've paid off a Communist Party official, seems to work pretty well, but it's not as if central planning worked in China. It failed, as it’s failed everywhere. So the China model argument I always contrast with the Indian model. India is a somewhat crazy democracy, and yet it too is growing extremely fast by liberalizing.

 

MT: Let's talk a little bit about the American response and not just your favorite person who is sitting in the Oval Office. Here's what I want to run by you: I have a lot of progressive friends who seem to think that if only you put the right people in charge, you can tackle emergencies like this one in a much better way. But having lived in Washington for 20 years, I feel like Washington really doesn't resemble West Wing very much. It sort of resembles Veep more than anything else. And so I suspect that if you had super smart and super competent people in charge, you would have marginal improvements. I don't think that that would help in any way with the incentive structure, over-regulation, over-bureaucratization, the growth and the suffocating effect of bureaucracy, such as what happened with the CDC testing. Would you care to opine about that but also try to give the viewers a bit of an insight as to the economics of bureaucracy and growth of government?

 

DM: Certainly. As PJ O'Rourke, the American humorist, expresses it, giving more money and power to government is like giving bourbon and the car keys to a teenage boy. All the incentives are wrong as you say. Now that is true that the unhappy transfer of power from Congress to the executive that's been going on since shortly after Watergate was premised on the thought that there'd always be a responsible adult in the Oval Office. Now we have an irresponsible child, so to that degree, our friends on the left may have something. Obama, for example, would have done a much better job on this. I think it's clear.

 

But you're absolutely right. The sort of fundamental incentives of the Food and Drug Administration and the CDC and the whole government bureaucracy is to protect their jobs. You make the old point that James Buchanan made. It shocks some Europeans when you say this, but after all, it's fairly plausible that government officials and politicians have their own interest partly in mind, even if only partly, and that's enough to create the wrong incentives. Every child knows this, of course. I come from Chicago, and we're always making jokes about “the Chicago way,” which is corruption. As long as we make the jokes the politicians are safe. When we get seriously angry about it, they'll have to be concerned. There's a long trend, as Bob Higgs among a number of other people has pointed out, of increasing size of government to increasing reach of government, and I think that has more to do with ideology than any material incentives. This is a separate point.

 

There has been in the last hundred years, for example, a shift of the meaning of the word “liberal.” A hundred years ago, it meant what you and I mean. But now it means sometimes Swedish social democracy. It means moderate socialism. Sweden is always being held up as an example of this, but observe how the Swedes have handled the plague. So there are these standard incentives to corruption. “Power tends to corrupt,” said Lord Acton, “and absolute power corrupts absolutely.” And there's a slide towards more and more absolute power being put into the executive branch. This crazy case before the Supreme Court today about whether Congress has any oversight power over the president is indicative of how far we've gone. I think all the bad things that you can think about the federal government are true: it's got the wrong people. It's got the wrong incentives, and the historical ideological trends are unfortunately against a free society.

 

MT: One of the things that perhaps exacerbates the problem is that a lot of bureaucrats are risk-averse.

 

DM: Yeah, that's right. That's clear in the case of the FDA and the CDC. You aren't old enough perhaps to have a vivid awareness of when the FDA got really conservative, which was after the drug that was used heavily in Europe and caused birth defects. The FDA and its conservative way hadn’t allowed it into the United States, and ever since then, it's been really proud that it didn't let a bunch of stuff in the United States. And it's gotten crazy. Things that work perfectly well in Germany aren't allowed to be used in the United States

 

MT: Isn't it bizarre? Shouldn't we have a rule that if something is safe enough to be sold in the United States, it should be safe enough to sell in Europe and vice versa? It makes no sense to have these two parallel systems of approval.  

 

DM: My own analysis of the problem, not just with COVID 19 but in general, is that the health system of the United States is all about an amazing pile of monopolies: the physicians’ monopoly, to start with, and its monopoly of the prescription power and the restrictions of entry into medicine. A long time ago, I had a Turkish friend who was a brain surgeon who had performed 500 brain surgeries but couldn't get licensed in the United States without practically going back to medical school.

 

MT: That’s an amazing story. I come from a medical family. Both of my parents are actually medical doctors, and they wanted to immigrate to the United States, but it was impossible. They would have to go basically get another degree.

 

DM: It's completely absurd. And then, the one that everyone knows about is the prohibition on importing drugs from Canada. My mom was paying $1,000 a month for her medicine, and she noticed that you could get it for $500 in Canada. She started doing that, and the government threatened her with jail. “Okay, sick old lady, we're going to put you in the slammer if you try to save $500.”

 

MT: I'm laughing, but it's not a laughing matter.

 

DM: These government agencies could be much more flexible. As you noticed, one of the effects of the plague is that temporarily they're abandoning all their regulation. It shows maybe the regulation wasn't such a good thing in the first place. It also shows a kind of panic because they're going to get blamed, and they ought to be blamed. And there's this tremendous faith. About 10 years ago, I heard on NPR the just-retired head of the Food and Drug Administration, and the announcer said in introducing her that she controlled a fifth of the U.S. economy. This one bureaucrat controlled a fifth of the economy: food and drugs. We would do much better with a freer American.

 

MT: I’m sure Americans are learning for the first time about things like a certificate of need. Can you explain to our viewers what the certificate of need is?

 

DM: Well, to my shame, I haven't paid much attention to the health care system because I'm old and you're paying for it. Thank you very much by the way. The certificate of need basically applies if you want to open a hospital, which is a desperately important thing in rural neighborhoods, for example, and out in the countryside, where they've been closing hospitals like mad. If you know you say, “Look, I'm going to open a hospital” or “I think I can make money at it” or “I am a public-spirited person who wants to put my church's money behind it,” the other hospitals have to be consulted because you have to get a certificate of need, a word that gives an economist the creeps. I hate the word “certificate of need,” which is approved by the existing hospitals. But it's not approved, of course. But this is very general. In Holland, in order to open a drugstore, you need to go to the town government and then they consult with the existing pharmacist and, surprise, the first pharmacy says, “Oh no, we don't need another pharmacy.”

 

MT: So that’s your argument about monopolies.

 

DM: Exactly. The key is that these monopolies which have which performed so badly feed into the regulatory system and support they supported in Congress among other places. And so it’s gummed-up as we say. All the machinery is filled with chewing gum. It doesn't work because of this military-industrial complex and this health care industrial complex, one complex after another tied in with politics. Allocating by politics is a very bad idea, although I emphasized that in the early stages of an epidemic like this, there's a case for vigorous coercive action.

 

MT: One last comment on this: my understanding is that nurses in one American state couldn't perform similar duties in other American states.

 

DM: I was married for thirty years to a nurse, so I know this very well. Joanne had a license in Massachusetts and in Vermont. She had to get re-certified in Illinois, and again, it's one of these things where they show that it's silly when it breaks down in the middle of an epidemic. Nurses came from California to New York to volunteer and at first, they said, “No, you can't volunteer. You're not certified in New York. Oh, I guess we'd better set that aside temporarily.” And it's not just nurses. In 1950, 5% of occupations in the United States required a state license. Now, 30% of them do, so this is insane. And it’s getting more and more insane.

 

MT: Let's switch gears a little bit, and let me ask you this: does every sophisticated society have to end up where we have ended up? In other words, as societies evolve and they become complex, richer perhaps, and more populous, the bureaucracy just mushrooms as one layer is placed upon another. Special interests capture the bureaucracy. Do all societies have to be ultimately strangled by this sort of dead hand of bureaucracy or government or is there an escape?

 

DM: Well, it certainly is a danger, and the escape is ideological. The economies were growing quickly, populations were growing quickly, and development was happening in the nineteenth century, and yet in one place after another, the impulse to socializing every decision was resisted -- now not perfectly -- but that was how it should be. It's my view that ideas matter. Bob Higgs, by the way, came to the same conclusion that it’s the idea of liberalism losing its prestige. I was very struck by a cousin of mine who, by the way, is a spy. She works for the CIA. Of course, I don't know exactly what she does, but she controls actual spies as far as I could tell. She said to me once, “I'm so tired of keeping secrets.” I said, “I think we're over-regulated,” and she said, “Well, I understand but don't you think a complex society needs complex regulation?”

 

Well-disposed people don't want a China-Xi Jinping supervisory society with cameras all over the place even though they work for the CIA, that's a very common point, that a complex society needs a complex regulation, which, of course, is exactly the opposite of the truth. We readers of Hayek understand that it's quite the contrary. The more complex the society, the less the arrogance of regulation and supervision and so on is plausible. I just finished a short book against Mariana Mazzucato, an American-Italian-English economist who wrote in 2013 a book called The Entrepreneurial State and then 2018 another statist book. And that's her view, that, of course, we need to go down that path and that’s what concerns me. So that's the desirability and the cause.

 

Then the question about inevitable mistakes. I have to admit that there's kind of strange economies of scale in this political economy: the bigger the government gets, the more advantageous it is to corrupt it, the more it's worth spending money in Congress or anywhere else you can to get the power of the government. The most famous example that I'd like to talk about is the Mickey Mouse Protection Act of 1998, which extended copyright protection by 20 years. It increased the absurdly long copyright in the United States of 50 years after the death of the creator, namely Walt Disney himself, to 70 years because the Walt Disney Corporation went to Congress and, for a surprisingly low price, purchased it. Patents and copyrights have their own special problems. Let’s not get into them. But if the government were small and competent as I would wish, then it wouldn't be worth corrupting.

 

MT: I keep asking my progressive friends what would happen to all the lobbyists on K Street if there was a fundamental separation between the economy and politics. Would they exist? I don't get very far when I ask questions like that, but I think it's a fundamental one. The lobbyists would have no reason to exist. They would have no job to do if they couldn't get goodies from the government.

 

DM: Here's a very simple case: every congressional term, some good-hearted congressperson proposes to move to the German system of income taxation, where the government, which already has all your W-9 forms and knows what your income is, sends you a bill and if you don't like it, you can argue about it. They do it in Estonia too. Guess who stops it every time? H&R Block, the income tax preparing firm. It goes on and on, but it's not something new by the way.

 

MT: Let's change tack a little bit and get a little bit more philosophical. So Milton Friedman, whom you knew, I'm sure you knew also Hayek as well, …

 

DM: I did not know Hayek, but I knew Milton.

 

MT: So Milton Friedman said that tackling pandemics is a key competence of government and you clearly agree with that viewpoint, but are you comfortable with the shutdown or would you be more comfortable with the Swedish model?

 

DM: I think I'd be more comfortable in the Swedish model if we were in Sweden, but the United States is, as you can easily see by just turning on the news, not Swedish. It's not obedient. It doesn't trust the government. There's a kind of “screw-you” irresponsibility that a lot of Americans have, which you can see on TV when they crowd into restaurants in violation of the most common-sense behavior to prevent hurting other people. Donald Trump and Pence not wearing face masks is crazy. So I wish we could do this Swedish model, but we can't because we aren't Swedish. And across the straits in Denmark or across the mountains in Norway, they've done the closed-down alternative, and now they’re gradually coming out of it.

 

If you do it quickly, you end up well. Greece, of all places, has done well. Greece has under 200 deaths. I mean it's substantially below 200. That's because remarkably they jumped on it, so once you've not jumped on it, once you have a raging problem is, as the United States and Britain has, then I guess you have to do the lockdown. We all know what the problem is. The problem is testing and had it been done early, then we would have had enough tests to jump on the few cases here and there, to fight the beginning of the forest fire, instead of waiting until it was 300 miles across.

 

MT: This is certainly a lesson that we won't forget.

 

DM: We keep saying we won't forget it every time it happens and then we forget. The contrast with Obama is very sharp. Obama looked at the Ebola threat and took care of it along with other countries and the very corrupt and stupid World Health Organization. But they did the job, and the contrast is quite striking. They managed to confine it at considerable expense. George Bush even was alarmed by the AIDS crisis in Africa, and he actually did something about it. By the way, AIDS and Ebola are cases where we still don't have a vaccine, so it's not at all obvious that will get one. I think we will, but it can be that you don't ever get a vaccine, in which case you have to manage.

 

MT: You mentioned the word “trust” in terms of Sweden. I keep wondering what people mean by that for the following reason: the people of Sweden trust their government to do the right thing. Now, some people say this is because Swedes are all alike. It's a homogeneous society. But there are plenty of homogeneous societies where people don't trust their government and you need to wonder if part of the reason why the Swedes trust their government is that they have a much deeper faith in Swedish meritocracy. In other words, they believe that the people who run the different government organizations are actually people who are supposed to be there, whereas many Americans believe that the people who run government agencies in America are really incompetent.

 

DM: Well, correct, but I think it varies inside the United States dramatically. I grew up in Boston in the 50s and 60s - fantastically corrupt. Then I moved to Chicago and lived there for 12 years - fantastically corrupt. Then, in 1980, I moved to Iowa, and it was like moving to another planet. It was astonishing. I met a road contractor at a cocktail party early in my stay in Iowa. His company was close to the mutual intersection of Wisconsin, Minnesota, and Iowa, and he said, “When I bid a road-building job in Wisconsin, I fill a paper bag with unmarked bills and give it to the county commissioner. In Minnesota, I write out a large check to the so-called Farmer-Labor Party (which is the name of the Democratic Party in Minnesota). In Iowa, if I do either, I go to jail.” He has to remember where he is, so there is a great variation. There are some parts of the United States that operate much more like Sweden. People in Iowa trust their government and on the whole, it’s competent.

 

MT: Let's talk a little bit about negative externalities. What's a liberal response to parents who refuse to vaccinate their children, who then go on to infect other children? What's the liberal position on forcing people to stay at home even though they are healthy but they could potentially spread the disease more widely?

 

DM: It seems to me that it depends on the numbers. If the infraction rate combined with the danger of death is like the common cold, then I'm happy to let individual incentives work: to avoid getting a cold, wash your hands a lot in the winter and sneeze like this and so forth. I'm perfectly willing to let that work and indeed, for ordinary flu, which by the way could change any day to become the 1918 flu so I’ll be a little careful about that, we've got vaccinations. Every old person has a tremendously large incentive to get the vaccinations. It doesn't work perfectly, so every year, tens of thousands of Americans die of influenza, but there's not much more that the government or individual incentives to self-protection can do about influenza in its present form. But when the number gets up to what it appears to be with this novel coronavirus. Between two and three. That's what we learned to call R0. If you just allowed it to go, how much would it infect people? It's between two and three, and measles is 16. If you didn't do anything about measles, one person would infect 16 others. It's that contagious. That's why the Native Americans couldn't put up a resistance to the coming of the Europeans, not because the Europeans were such great soldiers but because the Native Americans were dead.

 

MT: You brought up the subject of history, so let's talk a little bit about history. What are the most salient lessons from economics, economic history and philosophy that we should keep in mind as we emerge from the pandemic? Let's take them in turn. What does economics have to teach us? What is the one lesson that people should remember?

 

DM: Well that there are externalities, there are spillovers, but spillovers are defined socially. There is a pronounced tendency of economists to think of them as kind of technological: there’s smoke and therefore that's an externality, but you know if I wore an ugly dress, that's an externality. In Saudi Arabia, they have a Ministry of Dresses but just because you're offended by my terrible dress -- I have one in the other room -- that doesn't mean that we should bring in the closed fist of the government. So it's a social decision. There's a rather deep problem, which I've written about in the last couple of years, which is that everyone's connected with everyone else. So the attempt to compensate for your action that affects me is a recommendation for the government to take over everything, for us to become children in the household of the government. And there's no snappy philosophical solution to this.

 

MT: Are you talking about something like, “you didn't build that”?

 

DM: That’s part of it and if in fact, it goes very deep because if you buy a loaf of bread, I can't have that. So to speak, it’s a tort. To express it in economics again, you buy the loaf of bread, you slightly increase the price of bread for everyone in society. You add up all those tiny increases in the price of bread and they add up to, surprise, the price of bread. You could show that in a diagram. to express it in Austrian terms: human action is interference. human action affects you, for better or for worse. and if we start going around thinking of externalities as just anything that affects you, you can’t. So there has to be some stopping point down the slippery slope, and it has to be something like rights or the social agreement to allow free trade to go on and so forth. As soon as you start interfering with this and start protecting this person or that, there's no reason to stop.

 

MT: Constitutional scholars keep talking about the limiting principle.

 

DM: That’s right. As you know, it’s a constitutional problem which the Supreme Court is dealing with today. What are the limits of executive power? We all agree that there has to be an executive power, that there has to be some member of the police force, but as the founding brothers and John Stuart Mill says, there's got to be limits on this or else the slippery slope down to complete tyranny is inevitable.

 

MT: We're not constitutional scholars, but one of the interesting things that's emerged is the compatibility of the shutdown with fundamental rights guaranteed by the Constitution, such as speech and assembly.

 

DM: Actually, it's a nice example because it is about margins and limitations. Obviously, the right to free assembly is not a right to riot. A riot is an assembly that's doing violence to other people or to property. That's what you mean by a riot. If all that people did is assemble and sort of standard harmlessly six feet apart, there would be no issue.

 

MT: What about lessons from economic history and philosophy? You've taught both for a very long time, so if you put on that economic historian hat or the philosopher hat, what do you find?

 

DM: Well, I find that, for one thing, this has happened before: the plague of Justinian, the plague of Athens twice during the Peloponnesian War, the Black Death, which, by the way, started in China in 1331 and undermined the prestige of the Mongols who were in charge in China and had been for about 130 years at that point, because it was evident to the Chinese that the Mongols had lost the Mandate of Heaven.

 

MT: Fingers crossed it will happen again.

 

DM: That's exactly the point. Will this experience we have with incompetently managed plague policy result in a reduction of the Mandate of Heaven for authoritarian governments? Or will the successes – referring to your very first question on the authoritarian side or the democratic side -- result in increased pressure? Because it seems to me, to be philosophical about it and to some degree historical, that there are two tendencies in humans. Let's think in very simple terms: we were hunter-gatherers in small bands for actually millions of years and even for homo sapiens, which is what we all are nowadays, it was a very long time, 300,000 years essentially of hunter-gathering.

 

And that's a very egalitarian and very free culture or politics because it's very easy to kill someone you don't like. So there's a very high incentive for people to get along without crushing each other. Then comes agriculture, and agriculture puts the landlord on a horse with a sword in charge and as Rousseau said, that's the source of the violence and power in the society. And people love their freedom because of the hunter-gatherers, and they love the man on the white horse, the father figure, as well. That's what we face. Do we want to go the way of Iceland or something on the one hand or Argentina on the other? Do we want a free society or an authoritarian society?

 

MT: So are you saying that classical liberals like you and me are really modern age hunter-gatherers?

 

DM: Yes, we are. I went from being a hunter to being a gatherer, and I’m very proud of it. I'm here with my sister. She cooks. She's a very good cook. I'm starting to gain weight, and I don’t like it, but I do the vacuuming and keep the kitchen clean. So we're all here in a little band.  

 

MT: I want to be respectful of your time so let's finish with Deirdre McCloskey, the economist.

 

DM: You said “economist,” not “communist,” right?  

 

MT: “Economist,” definitely not a communist. So has globalization gone too far? Let's take the two most pertinent aspects of globalization: one is the production of goods. a lot of people are saying that the supply chains are overextended, meaning to shorten them we need to bring manufacturing back home. And travel: it's obviously much easier to spread a virus when you are an eight-hour flight away from another continent, so what is Deirdre McCloskey's response to those people who are attacking globalization?

 

DM: That they're wrong, and there are two ways of making the argument. One is the reassembly of Pangea. This is how you can think of the modern world.  177 million years ago, there was one continent. There weren't any other continents, just one. And about then, they started to break up, and having broken up, there was a niche for, say, the Australian type of animal to go off by itself and have its own in the world. Now, because humans are moving around, animals, plants, and bugs move very fast, as though it were one continent. And unless we want to go back to the world in which I grew up in when I was young with lots of restrictions on travel, lots of restrictions on investment and migration -- I think even if we went back to that, we'd still have this problem of Pangea. So that's from biology.

 

As far as economics is concerned, it's a kind of logical point. If you want to shorten the supply chain, why don't you shorten it to your house? I'm trying to learn how to play the accordion, which I bought from the Czech Republic you'll be glad to know. And it's a beautiful little machine. I could go over and get it and play for you, except I'm completely incompetent, so it wouldn't be good. But am I supposed to sit in my apartment in Chicago and make my own accordion? It's completely stupid. If the argument is that we bring the supply chains inside the United States, why not inside Illinois? Why not inside Chicago? Why not inside the South Loop? Why not inside my apartment? The basic argument is that it's part of freedom to be allowed to trade with anyone. If Juan wants to come from Colombia to trade with me, he should be allowed to, or alternatively, I should be allowed to import his coffee from Colombia. I'm allowed to trade with him. So there's a deep sense in which our freedom to engage with other people on all kinds of things -- intellectually, as we are here, or in trade -- is fundamental to our freedoms.

 

After this is all over, you can bet every responsible CFO or CEO or COO in the world is going to be working on thinking up ways of insuring against the breakdown of supply chains. It’s obvious. It would be irresponsible if they didn’t, having seen what this can do. So I don't sympathize at all with this idea. And of course, it's part of the danger that our friends on the left or on the right - both sides, because we're neither. We liberals are not on this left-right spectrum of large government violence -- they really try to use the crisis as an argument for their point of view, fascism on the one hand and communism on the other. And I say to say to hell with them!

 

MT: That would be a wonderful way to end, but I must ask one more question. You said that you were growing up in the 50s and the 60s, so you obviously have seen much more than people who are millennials or younger. What would be a message of hope to them? You've had your share of travails. You've seen a lot of things. What do you say to a 17-year-old high-school student or a 19-year-old college student? Wise words from Deirdre McCloskey for kids struggling with the pandemic.

 

DM: Well, that's the great misfortune. If they're coming into the workforce right now, it's nasty. But they should be comforted by the truth that they'll get jobs eventually, and they should prepare for a lifetime of work and life. You know I'm a big enthusiast for liberal arts, which I believe prepares you to have a full life, whether or not you're rich or not. So I urge them to be of good cheer and go into medicine.

 

MT: That too shall pass. Deirdre McCloskey, thank you very much.

 

DM: Well, thank you very much.

Deirdre Nansen McCloskey is the Distinguished Professor of Economics, History, English, and Communication at the University of Illinois at Chicago and a board member of HumanProgress.org. Marian L. Tupy is a Senior Fellow at the Cato Institute's Center for Global Liberty and Prosperity and the Editor of HumanProgress.org.
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