The USA’s Fear Of Socialism Is Misguided

Mistaken beliefs and induced fears are no substitute for real knowledge and rational choices

Image credit: Philadelphia Enquirer

Of all the OECD nations, the USA is almost always an outlier. Its educational system ranks far lower than comparable nations; it spends twice as much on healthcare than the next-most-costly nation yet gets results near the bottom of the league table; it suffers a level of gun violence that exceeds most war zones; US infrastructure rates a D grade whereas most OECD nations manage B scores; and its citizens are ill-informed about the rest of the world.

Precisely because US citizens know so little about conditions elsewhere, they continue to imagine they live in “the greatest country on Earth” while actually living in an increasingly decrepit and backward nation.

Not surprisingly, therefore, most people in the USA have no idea what the word “socialism” means and they are equally confused about what the word “capitalism” means.

So we’re going to explore both, in order to try to shed a little light on a very important topic: how should society be arranged?

To begin with capitalism, most US citizens confuse capitalism with a market economy, and in turn confuse this with “democracy and freedom.” Let’s untangle the strands.

Capitalism means the application of capital to more productive ends. By way of example, Jenny can weave a single carpet per week on her hand-loom. She borrows money to acquire a steam-powered loom and can now weave three carpets per week. With the extra profits she repays the loan and has tripled her productivity. This eventually reduces the price of carpets, so more people can afford to have carpets in their home. Jenny is now a capitalist because she’s used capital to increase her productivity.

And that’s it. That’s all there is to capitalism. Everything else: the capture of entire markets by cartels, the absurd over-enrichment of CEOs at the expense of everyone else, the massive corruption of the US political system, are all features of government failure.

Exploitation is not a fundamental feature of capitalism unless you somehow imagine that Jenny in our example above is exploiting herself when she buys the steam-loom. All the ills of capitalism are the result of government failure to act as neutral party. In the USA the government was bought early on by the wealthy and powerful and it’s remained that way ever since. Mark Twain, well over one hundred years ago, remarked on this when he said, “America has the best government money can buy.”

A market economy is superior to a command economy because money acts as the signaling mechanism that enables producers to understand what consumers, given a free choice, prefer to buy. Over time the market can adjust supply to demand. It’s always imperfect, but it’s infinitely better than trying to run an economy based on the whims and mistaken notions of bureaucrats. The Soviet Union tried to run a planned economy and ended up unable to supply even basics like bread and shoes; the USA meanwhile churned out ever more varied goods at ever-lower prices.

But a market economy is vulnerable to capture by cartels and other special interest. The USA does not have a free market economy (and Adam Smith pointed out why a totally free market would be a very bad idea); alas it does have a rigged market because government regulations reliably favor the rich and powerful.

As for democracy, it’s perfectly possible to have democracy with a planned economy (as was tried in the UK in the 1960s and in France in the 1980s) and it’s perfectly possible to have relatively free markets with tyranny (as is the case with Russia today and has been the case across most of Africa since the 1960s). Democracy and market economies are sometimes linked, but there’s no inevitable correlation.

Now let’s look at socialism.

At root, socialism is the idea that the wealth of society should benefit everyone rather than accrue to a tiny number of individuals.

There are various means by which to accomplish this goal, and over the last hundred years a wide variety of methods have been tried. Soviet-style socialism was a tyranny in which the State owned and controlled everything, and it was a total failure for the reasons elucidated by people like Popper (The Open Society And Its Enemies) and Hayek (The Road To Serfdom, The Constitution of Liberty).

But it’s easy to argue that the Soviet and Maoist systems were very little about socialism and very much about totalitarianism. Socialism was merely the thin veneer painted over the top to create a semblance of respectability, in much the same way that tyrannical regimes have always pretended towards respectability. By way of example the old East Germany styled itself the People’s Democratic Republic of East Germany and today’s North Korea is likewise “democratic.” But words are empty; all that counts is reality. So the bogeymen of socialism turn out to be tyrannies, not socialist nations in any meaningful sense at all.

Turning now to Europe, which has experimented with socialism since the 1930s, we see a clear evolution of ideas. The first socialist Parties to gain power tended to follow Marx and believed that it was necessary to own the means of production. This led, predictably, to decades of under-performance and eventual failure, especially as labor unions treated their industries as piggy-banks to be raided as frequently as possible. As such, the first generation of socialism was pretty much a failure except for a few important features such as the introduction of universal health care services and the introduction of social security safety-nets for the old and the unemployed.

The second generation of socialism learned from the failures of its precursors. Taxation could be a far more effective way of redistributing wealth without requiring ownership of the means of production. And so for the last forty years or so, European socialism has balanced markets against social needs.

CEOs still get to earn (and keep) large sums of money but not to the obscene degree prevalent in the USA, where CEOs earn 278 times the average salary of the companies they manage. Private enterprise is encouraged, States are learning which regulations cripple innovation and growth and which encourage it, and ordinary people live without fear of becoming indigent because of a health care bill or because they lose their job.

In the USA, ten percent of the population has no health insurance and another twenty percent can’t afford the co-pays so they go without also. Another forty percent cling on to jobs they hate because they can’t afford to lose the corporate contribution to their health insurance premiums. So roughly seven in every ten US citizens has very precarious access, or no access at all, to basic health care services.

In Europe everyone has access to basic health care services. Health care isn’t seen as something companies should profit from. In the USA, the entire system is built to enrich the health insurance companies and health services suppliers. Which is why US citizens pay twice as much as French citizens, but receive much less in return.

In Europe, receiving health care doesn’t mean losing one’s home because of an astronomical bill.

In Europe, losing one’s job doesn’t mean destitution. Forty percent of US citizens are one paycheck away from destitution. In Europe, unemployment benefits and housing benefits mean that few citizens fear ending up on the streets. The USA has over one million people (perhaps many more, because the data is very sparse) living on the streets. So much for “democracy and freedom.”

A couple of years ago the death of one old woman on the streets of Paris during a cold snap sparked nationwide outrage, leading to even more action to ensure no one would suffer a similar fate. In the USA no one cares about the indigent and they die uncounted and unmourned.

In the USA the tax system is designed to benefit the super-rich, who pay a far smaller percentage of total income than ordinary middle-class citizens. Over the last twenty years, 86% of Republican-sponsored legislation has favored the ultra-wealthy and has imposed ever-greater burdens on ordinary US families (by comparison, 36% of Democrat-sponsored legislation has had the same effect). The USA is an oligarchy run for the rich and powerful; Europe has its fair share of billionaires but they pay far higher amounts of tax, which is used to benefit ordinary people.

Of course socialism has many problems. The State is a very poor steward of money, usually wasting a great deal of what could otherwise be productive. But the same is true in the USA: with an annual budget of more than $650 billion, the defense industry is famous for squandering tens of billions of taxpayer dollars every year, decade after decade. At least in Europe, money is directed towards people who need it rather than toward over-stuffed weapons companies.

Oh, and as for the fantasy that “if you work hard in America you can achieve your goals and be better off than your parents,” the fact is that since 1990 Europe has experienced more upward mobility than the USA. So much for The American Dream.

Socialism often enables overly-powerful unions to destroy organizations by imposing absurd over-regulation that leads to unnecessarily high costs of production. In a global economy, this is a one-way path to national ruin, as the British and French discovered more than forty years ago. That’s why today’s socialist governments don’t overly-favor unions.

Today, most US citizens know of socialism only what they hear from the lips of Bernie Sanders. But his socialism is very much like that of Europe before it learned some very hard lessons. Yes, university education should be free to all, because otherwise only the wealthy can afford to educate their children and society suffers greatly as a result. Yes, everyone should have access to health care services that are free at the point of delivery or are mostly reimbursed by the State, otherwise society suffers a huge social and economic cost. And yes, no one should fear ending up on the streets because they were “rightsized.”

But these things have a cost, and Sanders’ economic model is pure fantasy. Furthermore, he has precisely zero probability of ever getting any legislation through Congress because he has no one behind him. Neither Democrats nor Republicans would create the legislation he dreams of. And that’s just as well, because Sanders is a demagogue rather than a thoughtful socialist. He has not learned the lessons Europe discovered at great cost, and therefore his ideas are worthless. He talks because he adores the sound of his own voice, adores the publicity he’s garnering in his old age, and is addicted to attention. That’s a poor basis for seeking election.

But the Republican Party is even worse: for seventy years it’s increasingly been the Party of the ultra-rich, distorting the US economy in order to enable a tiny number of people to amass absurd levels of wealth at the cost of making everyone else insecure. Today, firmly behind the infantile orange moron in the White House, the Republican Party is now destroying what little remained of US economic power.

If US citizens knew more about the rest of the world they could learn how many European nations have combined socialist leanings with market economies. They could discover how Finland was able to spawn tech giants like Nokia and innovative startups like Skype while providing a wealth of services and a high quality of life to ordinary people. US citizens could see how nations like Switzerland combine strong private business with high standards of living for all. They could see how France learned the limits of socialism, and how the Netherlands and Denmark and Norway and Sweden remove insecurity while maintaining incentives to work and create new companies.

No country is perfect. We humans tend to oscillate between one pole and another. But the USA is so far over to the ultra-right and favors the super-rich to such an astonishing extent that most US citizens live fearful lives of insecurity that they try to mask with endless consumption of junk food and junk entertainment. This is not unlike someone self-medicating with far too much alcohol in order to dull the pain of having to work at a job they hate.

The super-rich and the servile politicians who give them everything they want would have US citizens believe that socialism is evil, not “the American way,” and will lead inevitably to social collapse.

Socialists will take away your wives and rape your guns and burn your bibles.

The thing is: in Europe you can change your job without losing everything. In the USA, being “rightsized” can lead to absolute destitution. The USA has millions of malnourished kids who don’t get a decent education and can’t ever even dream of going to university. When they get sick, there’s no doctor to look after them.

In Europe, even poor children receive a decent education, access to health care, and don’t go hungry.

Where would you rather your children lived?

Anyone who enjoys my articles here on Medium may be interested in my books Why Democracy Failed and The Praying Ape, both available from Amazon.

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