Socializing Risk

Uppity Wisconsin asks:

Why is that every time bad investments made by private institutions go belly up, the U.S. taxpayers are called upon to socialize the financial risk?

This is a fair question, but I see a bit of hypocrisy in this discussion (not necessarily from this source, but from public outcry). In May, CNNMoney reports:

Politicians are eyeing oil profits like a fat juicy glazed ham.

The argument for windfall taxes is the reverse of the previous critique. Why should we privatize risk and then socialize profits? Organizations should be accountable and if we deem them “too big or too essential to fail”, they should also be deemed too integral to be lucrative for the shareholders. But we cannot have both. We cannot demand that when companies that have privatized the risk reap major returns that they share those rewards with everyone.

We should not forget the Little Red Hen—even if it is politically popular.


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