NYT Magazine staff writer and Times economics columnist David Leonhardt is on a liberal roll of late. Last Friday hegot front-page real estate to demonstrate the liberal obsession with income inequality. Then, in a "The Way We Live Now" column for the Times Magazine, he wondered why government control of the banks is considered so radical - after all, France did it in the early 1980s.
Few words conjure the specter of radicalism quite so well as nationalization. Seizing control of large industries - nationalizing them - is often among the first acts of a leftist government. Lenin did it, and so did Hugo Chávez. Even the comparatively tame François Mitterrand made the nationalization of some banks and heavy industry the centerpiece of his agenda when he became France's president in 1981. He held it out as the alternative to the laissez-faire ideology of Ronald Reagan and Margaret Thatcher.
So it is a bit odd to watch Barack Obama, who aspires to finally end the era of Reaganomics, spend his early weeks in the White House swatting away calls for nationalization from decidedly nonleftist quarters. Lindsey Graham, a Republican senator from South Carolina, recently said that, given the depth of the credit crisis, he wouldn't rule out nationalizing banks. Alan Greenspan went further a few days later. "I understand that once in a hundred years this is what you do," Greenspan, an Ayn Rand disciple before he was a central banker, told The Financial Times.
He took care to distinguish between "two different kinds of nationalization." The first and less appealing kind, with government running the enterprise, Leonhardt admits had "pretty dismal" results. But:
The second version of nationalization is the one that today's advocates point to. It is a temporary takeover born out of crisis. Sweden pursued this kind of strategy in the early 1990s to clean up its banking system. Even the United States has nationalized banks on occasion, including IndyMac Bank last year.
In these cases and others, the government had none of the grand ambitions that Mitterrand-style nationalizers had. The same would clearly be the case with a nationalization of banks today. "Nobody in their right mind wants the government to be in the banking business any longer than it needs to be," said Adam Posen, an economist in Washington and a prominent voice for nationalization. Instead, the federal government would declare a bank insolvent, wipe out its existing shareholders, fire its top executives and inject enough money to keep it functioning. The government could then siphon off the worst assets into a so-called bad bank - pooling them with toxic assets from other nationalized banks - and resell the bank's healthy parts to private investors. Once the crisis lifts, some of the toxic assets may even have value.
Leonhardt seems quite sure that the nationalization could be reversed eventually - although examples of the government giving up power are thin on the ground in recent years.
The question, obviously, is whether it is too late for such moderation and, if not, whether Obama's economic team will be able to see when it is. His top advisers, including Geithner and Lawrence Summers, have spent much of their careers trying to persuade other Democrats of the virtues of private enterprise. They have pushed the party to grasp the folly of Mitterrand and acknowledge the limits of government. As this crisis has made clear, the private sector has its limits, too. Will the people who have Obama's ear be able to acknowledge those limits when the time comes?