Try to be your wish-fulfillment homosexual self

In the essay, Sedgwick states, very explicitly, that paranoid readings are not inherently bad, and that they do serve a purpose in criticism. Her definition of "paranoid reading" is also more complex than simply "being critical" of something, or reading something in bad faith. In fact, the idea that paranoid readings are necessary to be critical of oppressive elements in a text is actually part of what Sedgwick argues against in the essay.

...for someone to have an unmystified view of systemic oppressions does not intrinsically or necessarily enjoin that person to any specific train of epistemological or narrative consequences. To be other than paranoid, to practice other than paranoid forms of knowing does not, in itself, entail a denial of the reality or gravity of enmity or oppression.

I am saying that the main reasons for questioning paranoid practices are other than the possibility that their suspicions can be delusional or simply wrong. Concomitantly, some of the main reasons for practicing paranoid strategies may be other than the possibility that they offer unique access to true knowledge. They represent a way, among other ways, of seeking, finding, and organizing knowledge. Paranoia knows some things well and others poorly.

Sedgwick's definition of paranoia is derived from Paul Ricoeur's concept of the hermeneutics of suspicion, which in turn is derived from Marx, Nietzsche, and Freud; it's a form of literary analysis that probes texts for hidden meanings. Sedgwick identifies this kind of approach as central to antihomophobic literary criticism in the '80s and '90s; she also acknowledges that much of her own writing was governed by this approach. Decoding veiled meanings obviously has its uses in queer interpretation, especially for Sedgwick, who worked largely with nineteenth century novels, especially Gothic novels. However, at the time of writing "Paranoid Reading and Reparative Reading," she'd come to notice that "paranoid reading" was conflated with criticism itself; the way it was seen as the only means of antihomophobic inquiry, the only possible response to the recognition of the severity and structural omnipresence of homophobia.

...in the hands of thinkers after Freud, paranoia has by now candidly become less a diagnosis than a prescription. In a world where no one need be delusional to find evidence of systemic oppression, to theorize out of anything but a paranoid critical stance has come to seem naïve, pious, or complaisant. I myself have no wish to return to the use of ‘‘paranoid’’ as a pathologizing diagnosis, but it seems to me a great loss when paranoid inquiry comes to seem entirely coextensive with critical theoretical inquiry rather than being viewed as one kind of cognitive/affective theoretical practice among other, alternative kinds.

What paranoia is, for Sedgwick, is faith in the spectacle of exposure, or the infinitely regress process of mining evidence of oppression. One example she gives is Judith Butler's Gender Trouble, in which Butler identifies drag as exposing the constructed and artificial nature of gender; Sedgwick is not only skeptical of the revolutionary qualities of exposure, but views Butler's argument as a reductive and limited understanding of the affects associated with camp as a sensibility. She also, significantly, uses a reading of Proust as an example of reparative reading. Although she doesn't mention this in the essay, it used to be common in academic criticism of Proust to claim that the women the narrator of À la recherche is infatuated with were "actually" men, as a reading of a veiled homosexuality to mirror Proust's own. Sedgwick instead performs a queer reading through an alternate route, attributing the narrator's revelations in the final volume of the novel to his detachment from normative hetero-reproductive generational cycles. (Note that her conception of a "reparative reading" is derived from Melanie Klein's theory of the "depressive position" - it is a reading produced by a search for joy that comes only in the wake of grief, trauma, and loss.)

...it isn’t that one is pessimistic and sees the glass as half empty, while the other is optimistic and sees it as half full. In a world full of loss, pain, and oppression, both epistemologies are likely to be based on deep pessimism: the reparative motive of seeking pleasure, after all, arrives, by Klein’s account, only with the achievement of a depressive position. But what each looks for—which is again to say, the motive each has for looking—is bound to differ widely. Of the two, however, it is only paranoid knowledge that has so thorough a practice of disavowing its affective motive and force and masquerading as the very stuff of truth.