Lemon socialism is a pejorative term for a form of government intervention in which government subsidies go to weak or failing firms (lemons; see Lemon law), with the effective result that the government (and thus the taxpayer) absorbs part or all of the recipient's losses. The term derives from the conception that in socialism the government may nationalize a company in its entirety, while in lemon socialism the company is allowed to keep its profits but its losses are shifted to the taxpayer.
Such payments may be made with the intent of preventing further, systemic damage to what might otherwise be considered a free marketplace. For example, the bailout that followed the 2008 financial crisis may be described as lemon socialism. The pejorative arises from the belief among free market economists that in a functional free market, failing companies will be replaced by better functioning companies in response to market demand.
The term may also be used to describe government efforts to nationalize companies or industries, in which the government takes over failing companies without taking over healthy companies. Advocates of free markets may then point to the faltering, nationalized enterprises as examples of how government regulation hurts business.
The sentiment was earlier expressed in the adage "socialism for the rich and capitalism for the poor", which was in use by the 1960s, though the notion of privatizing profits and socializing losses dates at least to 1834 and Andrew Jackson's closing of the Second Bank of the United States.
In Icelandic, lemon socialism is known as Sósíalismi andskotans, meaning "the devil's socialism", a term coined by Vilmundur Jónsson (1889–1971, Iceland's Surgeon General) in the 1930s to criticize alleged crony capitalism in Landsbanki, which has gained renewed currency in the debate over the 2008–2012 Icelandic financial crisis. Lemon socialism, or more precisely crony capitalism, is also referred to as Pilsfaldakapítalismi, meaning "skirt capitalism", pilsfaldur being the hemline of the skirt; and the term referring to children hiding behind their mothers' skirts after having done something wrong to criticize the alleged lack of transparency in dealings and reluctance to deal with bad consequences by themselves.
- Krugman, Paul (30 January 2009). "The Geithner put". New York Times. Retrieved 27 October 2018. (Defining lemon socialism as "socialized losses, privatized profits.")
- Rithotz, Barry (6 July 2015). "Greeks Stand Up to 'Lemon Socialism'". Bloomberg. Retrieved 27 October 2018.
- Green, Jonathon (1984). Newspeak: A Dictionary of Jargon. Routledge. pp. 142. ISBN 0-7100-9685-2.
- Shaw, Randy (18 September 2008). "The Return of "Lemon" Socialism". Beyond Chron.
- Noah, Timothy (30 September 2008). "GOP, RIP? Nearly three decades of Republican dominance may be coming to an end". Slate.
- Will, George F. (29 September 2008). "Bailout on Wheels". The Washington Post.
- "The Bush Crisis Plan: Greatest transfer of wealth in world history". Pravda. 24 September 2008.
- Green, Mark J. (26 May 1974). "Deciding On Utilities: Public or Private?". New York Times. Retrieved 27 October 2018. ("Critics fear that a rush to public ownership may bring a form of 'lemon socialism'—where the government, as in England, takes over failing companies, but not healthy ones.")
- Hahnel, Robin (2005). Economic Justice and Democracy. Routledge. p. 116. ISBN 0-415-93344-7. ("This problem is also referred to as 'lemon socialism': When social democrats were able to nationalize companies, or industries, it was usually because they were in terrible shape. Consequently they often performed badly as public enterprises simply because they were going to perform badly in any case.")
- Krugman, Paul (2 February 2009). "Lemon credit". The New York Times.
- Thorvaldur Gylfason, grandson of Vilmundur Jónsson. "Icelandic banks 2008 in context".