For years, the Republican Party has preached the virtues of the "ownership society." Americans should own their own homes, goes the songbook; they should own stocks; they should take ownership of social benefits like heath care; they should approach their lives as if they are in charge rather than look for dependency-inducing welfare programs.
It's a compelling vision—and it has completely collapsed. The only important ownership that the Bush administration is peddling today is government ownership of the country's financial institutions. On Friday, Treasury Secretary Henry Paulson—the former CEO of Goldman Sachs—announced an unprecedented plan to salvage the largest banks in America. Just days after declaring that a bailout of Lehman Brothers would constitute an unacceptable moral hazard, a Republican administration has decided that the only way to keep the American economy alive is to have the federal government take the reins of some of the largest financial institutions in the world.
There is a term in political philosophy to describe a government takeover of a critical industry: That term is socialism . The government is telling us that capital and credit markets cannot, for several reasons, solve the current crisis on their own—only the federal government and its massive taxpayer base have the authority and the resources to solve it. That is state socialism: the philosophy preached by the founders of the Second International, by the radical wing of the American labor movement, through the formation of the Soviet Union and its satellites, and now by Henry Paulson.
Like the ownership society, socialism is also a compelling vision; just look at the logic of the Paulson-Bernanke plan. There are several financial institutions that have brought themselves nearly to extinction by acquiring a cornucopia of toxic assets, ultimately related to mortgages. Those assets might be worth what the banks thought they were worth, and they might be worth nothing; it's hard to know because the market for them in many instances has disappeared.
Because no one truly knows how to value these toxic assets, they have done a lot of damage. This year Bear Stearns and Lehman Brothers evaporated, and last week the stock prices of both Goldman Sachs and Morgan Stanley dropped dramatically despite ostensibly healthy earnings announcements. That is because investors feared that these opaque financial instruments might be costly enough to bring down the remaining two independent investment banks. That scenario could very well propel the American economy and much of the rest of the world into an economic down cycle with drastic consequences.
But when individuals or individual companies cannot save themselves, there is a collective alternative: We all take on the burden. The government picks up the check for the ailing parties and allocates over time the cost to the society as a whole, thereby preventing a meltdown. This is a common approach to economics across the globe, and even within the United States; when we collectively agree to provide income for retired and disabled people to keep them out of poverty, it's called Social Security. If we ever agree to provide health insurance for the tens of millions of Americans who don't have it, that will be called socialized medicine. What the Bush administration is proposing is, plain and simple, socialized banking.
Of course, the ironies and the potential pitfalls of this administration enacting a socialist takeover can hardly be overstated. This is the political party that for decades has insisted on deregulation and free markets, has scolded Hugo Chavez  for nationalizing the oil industry, and even now is attempting to tar and feather  Barack Obama with the label of socialist. But if this bill is enacted at its advertised $700 billion price tag—and many people believe the price will ultimately prove higher—it means that the Bush administration has undertaken the single largest socialist investment in the history of mankind. The Bolshevik revolution of 1917 couldn't dream of an economy worth $700 billion; the figure dwarfs anything ever attempted by Fidel Castro or the Sandinistas.
Focusing on ironies and hypocrisy is fun, but Paulson's socialist prescription actually provides a rare opportunity to advance the state of American political and economic debate. During the Cold War, socialism became an especially unsavory idea because it was linked to the countries that pointed missiles at us. This was less the case in Europe, where democratic socialism grew to become the norm, with sometimes rocky but mostly successful results (you don't see the Spanish having to take over their banking sector, at least not yet). Paulson's relatively untainted socialism offers America a genuine Nixon-goes-to-China moment, a chance to have a more honest, less demonizing conversation about where, when, and how government intervention in the economy is effective and desirable.
Will that conversation take place? Probably not. No matter what this lame-duck government does, facts don't really matter to the dominant Rush Limbaugh wing of the Republican party. Pink-baiting, especially at the congressional-district level, remains an effective political tactic. And Americans' general ignorance about the true nature of socialism is a vacuum that will likely be filled by those whose best bets are evasion and distortion.
There's another problem, too. State socialism is intrinsically unstable and thus doesn't have a great track record; the Soviet Union collapsed for a reason. Purists of Marxist theory viewed state socialism as at best a condition to be temporarily tolerated; ultimately Marx wanted the proletarian class to take power and then run the society as it saw fit, without a state to interfere. Unsurprisingly, Paulson is not talking about that. Still, it is by no means obvious that those who practice state socialism without invoking Marx's name will be more successful than those who did invoke it.