Like Kevin Drum, I think that as the “nationalize now” meme has taken hold in the blogosphere, people are talking about nationalization “awfully casually.” One way this manifests itself is in the argument that the only reason people are skeptical of nationalization is because it’s “un-American,” when, in fact, I think people are skeptical of it for two big reasons:
Two years of financial crisis does not invalidate the general principle that private enterprise is typically better at efficiently allocating resources than government; and
the idea of the state literally determining which companies and individuals do or don’t get credit is, even to a non-libertarian, at least a little troubling.
The other way the pro-nationalization forces are making their case casually, I think, is that they’re not just skipping over the details of how the process would work (and the devil here really is in the details), but they’re also downplaying the magnitude of what they’re advocating, and of how long it’s likely to last. In Paul Krugman’s Op-Ed on Monday, for instance, he suggested that nationalization would be like what the Resolution Trust Corporation did with the savings and loans at the end of the nineteen-eighties: seizing the banks, hiving off their bad assets, paying off debts to make them solvent, and then selling the banks to new owners. But when you nationalize the entire banking system, who, exactly, are these “new owners” who are buying the cleaned-up banks supposed to be? And what investor is going to be interested in putting up money to acquire a bank that has to compete with nationalized, and therefore subsidized, banks (since the government presumably won’t be able to privatize all at once). Krugman also adds that any government takeover will be “temporary.” But does that mean eighteen months, or does it mean a decade?
The one person who’s really acknowledged the consequences of nationalizing the banks is the economist John Quiggin, who writes:
Now, Quiggin’s a Social Democrat, so this prospect is not a problem for him. But to me, the idea that most of Barack Obama’s Presidency will be spent presiding over a government-run banking system is a daunting thought. To be sure, none of these objections are insurmountable, and of course the myriad programs the Fed has embarked on to jumpstart the credit markets mean that the government is already intimately involved in controlling the flow of credit. And the original idea behind the TARP—which I, unlike just about everyone else in the blogosphere, thought then, and still think, was a good idea when combined with capital injections—has its own set of problems. But I’ll just echo Kevin Drum’s words on nationalization: “No stampedes, please.”
