The notion behind the idea of “Lemon Socialism” is that government policy creates arrangements that largely privatize the gain from economic activity if there are profits, while socializing losses, if they result. The just leaked Obama Administration plan for coping with the financial system’s “toxic assets” is another creation of the Lemon Socialists.
This weekend a flood of blogs including some from Paul Krugman, James Galbraith, Dean Baker, and Yves Smith, make quite clear that the Administration’s plan provides little chance that the public will recover its money from private-public “partnerships” to invest in toxic assets, while maximizing the chances that affluent interests in the private sector will either profit handsomely from the “partnerships,” if they succeed; or lose very little if, as asserted by the critics, they fail to re-inflate the value of assets that may be still be over-valued.
Of course, the Obama Administration always emphasizes that the intent of their policy in all recovery areas including this one, is to save the nation from a depression and to save the financial system from collapse. Well, intent is one thing, but any initiative has complex likely effects, and we need to go beyond intent to predict and evaluate the likely consequences of what we do. Whether the Geithner Plan is a success or a failure, the Wall Street interests that have contributed so much to our problems, will be rewarded again. That may not be the intent of the plan. But, intent be damned, a Lemon Socialist outcome is its most likely result.
That kind of outcome should have been prohibited by Obama as unacceptable before the fact, and he should have directed Geithner, Summers, and Romer not to produce such a plan. And when it looked like that was the sort of plan Geithner was working on, the President should have sent him back to the drawing board to find another way. He should do the same now. Is Geither’s Plan really the best plan? Only, I think, if it’s the only plan that can work. There are other plans out there. Can President Obama explain why he prefers this one to one calling for taking the major Banks and AIG into receivership? Can he explain why Geithner, Summers, and Romer, are in the Government and Krugman, Galbraith, Stieglitz, Baker, Roubini, and Reich are outside, blogging?
The violence it does to American values is too great to adopt this plan. We need one that will both work and begin to reconstruct a system in which private rewards will be based on the risks the private sector actually takes, and not on the risks assumed by the rest of us. We need a plan that will both work and reflect Justice as Fairness, and we need it fast, because if we choose the wrong plan now, all the promise of this administration will be destroyed and it will be back to Hooverism.