Lemon socialism is a pejorative term for a form of government intervention in which government subsidies go to weak or failing firms, often with the intent of preventing further, systemic damage to what might otherwise be considered a free marketplace. When these subsidies take the form of a full or partial bail-out, as happened during the 2008 financial crisis, they may be seen as a form of state or crony capitalism. The pejorative comes from the perception among laissez-faire capitalists that failing companies are defective lemons that a working free market would replace with better-functioning companies in response to market demand, and the public-sector involvement this type of state intervention shares with socialism. Lemon socialism is not actually socialism: a marketplace still exists, even if that marketplace is not completely free.
Confusingly, lemon socialism may also refer to government efforts to transition from capitalism to actual socialism; in this case it refers to a deliberate strategy of absorbing the losses entailed in saving jobs within the worst-performing sectors of the economy — the lemons — before the nationalization of more profitable industries.
The sentiment was earlier expressed in the adage "Socialism for the rich and capitalism for the poor", which was in use by the 1960s, and 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.
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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 term 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.
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- Hahnel, Robin (2005). Economic Justice and Democracy. Routledge. p. 116. ISBN 0-415-93344-7.
- Green, Mark J. (1974-05-26). "Deciding On Utilities: Public or Private?; Con Ed Has Taken a Step That Makes It a Little of Each". The New York Times.
- Krugman, Paul (2009-02-02). "Lemon credit". The New York Times.
- Icelandic banks 2008 in context, by Thorvaldur Gylfason, grandson of Vilmundur Jónsson