The Problem with Socialism

Thomas J. DiLorenzo

• Publisher: Regnery
• Year: 2016
• Print ISBN: 9781621575894
• eBook ISBN: 9781621575979
• Topic: Politics & International Relations
• Subtopic: Communism, Post-Communism & Socialism
• Index: Politics & International Relations

"DiLorenzo's book is a pleasure to read and should be put in the hands of every young person in this country - and elsewhere!" —FORMER CONGRESSMAN RON PAUL "It is a worthwhile investment for parents with college-age children to buy two copies of The Problem with Socialism -one for their children and one for themselves." —WALTER E. WILLIAMS, John M Olin Distinguished Professor of Economics, George Mason University and nationally syndicated columnist "Ever wonder what one book you should give a young person to make sure he doesn't fall for leftist propoganda? You're looking at it." — THOMAS E. WOODS, JR., host of The Tom Woods Show, author of the New York Times bestseller The Politically Incorrect Guide to American History What's the Problem with Socialism? Let's start with... everything. So says bestselling author and professor of economics Thomas J. DiLorenzo, who sets the record straight in this concise and lively primer on an economic theory that's gaining popularity—with help from Elizabeth Warren and Bernie Sanders—despite its universal failure as an economic model and its truly horrific record on human rights. In sixteen eye-opening chapters, DiLorenzo reveals how socialism inevitably makes inequality worse, why socialism was behind the worst government-sponsored mass murders in history, the myth of "successful" Scandinavian socialism; how socialism is worse—far worse—for the environment than capitalism, and more. As DiLorenzo shows, and history proves, socialism is the answer only if you want increasing unemployment and poverty, stifling bureaucracy if not outright political tyranny, catastrophic environmental pollution, rotten schools, and so many social ills that it takes a book like this to cover just the big ones. Provocative, timely, essential reading, Thomas J. DiLorenzo's The Problem with Socialism is an instant classic comparable to Henry Hazlitt's Economics in One Lesson.' In the words of Thomas E. Woods - "Dance on socialism's grave by reading this book."

1

THE PROBLEM WITH SOCIALISM

Aquarter of a century after the spectacular collapse of socialism in the Soviet empire, a large segment of the “millennial” generation of young Americans (those born between 1982 and 2004) thinks socialism may be the wave of their future. A 2015 “yougov.com” poll revealed that 43 percent of Americans between the ages of eighteen and twenty-nine had a “favorable” opinion of socialism and that they have a higher opinion of socialism than they do of capitalism.¹ (Who says the public schools are not teaching the kids much these days?)

A 2016 Pew Foundation poll found that 69 percent of voters under the age of thirty expressed “a willingness to vote for a socialist president of the United States”; and literally millions of millennials voted for self-described “democratic” socialist, Senator Bernie Sanders, in the Democratic Party primaries in 2016.² Sanders won majorities of the under-thirty vote in several major state primaries campaigning on a platform of “free” higher education, “free” healthcare, and a vastly increased welfare state.

Did America “forget what ‘socialist’ means,” asked one pundit in response to this youthful fascination with neo-Marxism.³ Apparently so. Just as apparent is the fact that many younger Americans believe that there is a Santa Claus after all (stripped of all his religious significance as Saint Nicholas, of course) who can—and should—give them “free” education, “free” healthcare, “free” whatever they want, because they deserve it. But government is not Santa Claus and nothing is free. Uncle Sam has not been replaced by Uncle Santa. Someone has to pay for all those doctors, nurses, hospitals, medicines, x-ray machines, ambulances, and everything else associated with healthcare. The public schools are not “free” either; they are paid for with billions of dollars in property taxes and other taxes imposed by federal, state, and local governments. The same goes for “free” higher education that is occasionally promised by political demagogues like Senator Sanders.

What socialists like Senator Sanders should say if they want to be truthful and straightforward is not that government can offer citizens anything for free, but that they want healthcare (and much else) to become a government-run monopoly financed entirely with taxes. Taxes hide, but do not eliminate, the cost of individual government programs. No one gets an itemized tax bill denoting how much goes for national defense, how much for the Department of Labor, how much for the Environmental Protection Agency, how much for celebrating Lesbian, Gay, Bisexual, and Transgender Pride Month (established by President Obama in June 2009), and all the rest. Consequently, it is indeed difficult to know exactly how much of one’s taxes goes for any particular program. But nothing about government is ever free. According to the Tax Foundation, working Americans toil, on average, until the end of April each year–one-third of the year—just to pay all the taxes owed to federal, state, and local governments.⁴ After that they can begin working for themselves and their families.

Does anyone really believe that turning any industry into a tax-financed, Department-of-Motor-Vehicles-style, government-run monopoly (which is what socialism is) will make things cheaper (or free) instead of substantially more expensive? History and all worldly experience would suggest that the latter is true, and that socialism (government-run monopolies for healthcare or anything else) reduces the quality of products and services offered to the public.

WHAT WE MUST FORGET

In order to have a “favorable” view of socialism one must have either forgotten what the entire world learned about socialism from the late nineteenth century on, or have never learned anything about it in the first place. The latter is obviously true of much of the younger generation.

Socialism started out being defined as “government ownership of the means of production,” which is why the government of the Soviet Union confiscated all businesses, factories, and farms, murdering millions of dissenters and resisters in the process. It is also why socialist political parties in Europe, once in power, nationalized as many of the major industries (steel, automobiles, coal mines, electricity, telephone services) as they could. The Labour Party in post-World War II Great Britain would be an example of this. All of this was done, ostensibly, in the name of pursuing material “equality.”

In the foreword to the 1976 edition of his famous book, The Road to Serfdom,⁵ Nobel laureate economist Friedrich Hayek wrote that the definition of “socialism” evolved in the twentieth century to mean income redistribution in pursuit of “equality,” not through government ownership of the means of production but through the institutions of the welfare state and the “progressive” income tax. The means may have changed, but the ostensible end—equality—remained the same.

Hayek’s mentor, fellow Austrian economist Ludwig von Mises, explained in his classic treatise Socialism: An Economic and Sociological Analysis,⁶ that the welfare state, the “progressive” income tax, and especially pervasive government regulation of business were all tools of “destructionism” in the eyes of the socialists of his day. That is, he observed that the proponents of socialism always employed a two-pronged approach: (1) the government takeover of as many industries and as much land as possible, and (2) attempts to destroy existing capitalist societies with onerous taxes, regulations, the welfare state, inflation, or whatever they thought could get the job done.

We must forget (or be oblivious to) an awful lot of not-so-ancient history to have a “favorable” view of socialism. We must be unaware of how it is a form of economic poison that destroys prosperity and is the biggest generator of poverty the world has ever known. In the early twentieth century it turned Ukraine from “the breadbasket of Europe” to a desolate, barren land where the people could hardly feed themselves let alone export food to anyone else in just a few years. It had the same effect all throughout the world in countries that adopted socialized agriculture.

When the Chilean government adopted socialism in the early 1970s and nationalized industries and farms, the economy ground to a halt and the government did what all socialist governments eventually do to bail themselves out: it printed massive amounts of money to attempt to keep the economy—which it had all but destroyed—going. The result was that the cost of living rose by 746 percent (the annual inflation rate); unemployment was sky high; and the government was eventually replaced in a coup by a repressive regime.⁷

The Soviet economy was so dysfunctional, thanks to seventy years of socialism, that by the time the entire system collapsed in the late 1980s it was most probably only about 5 percent of the size of the U.S. economy according to Dr. Yuri Maltsev, an American economics professor who was an advisor to Mikhail Gorbachev, the last president of the Soviet Union. This was despite the Soviet Union’s vast natural resources, unrivaled by any other country or political empire. Soviet socialism never produced a single product that succeeded in international competition, with the possible exception of Russian caviar which comes from a fish (the sturgeon), not a factory. All of the socialist “satellite” countries of the Soviet Union suffered a similar economic fate, from Romania, Czechoslovakia, and East Germany to Cuba and beyond. In socialist country after socialist country, the common people were equal in their poverty while the political elite lived privileged lives. The entire world celebrated the demise of Soviet socialism, but nowhere was the celebration as great as among the millions of surviving victims of socialism who lived under the boot of the Soviet empire.

Great Britain adopted its brand of “democratic” socialism, known as “Fabian socialism,” after World War II as it nationalized many key industries, imposed very high rates of taxation, established a massive welfare state, and adopted socialized medicine and government-funded pensions. Britain had been the wealthiest country in the world up to the beginning of World War I, so it was able to live off of the “capital” created by previous generations of British entrepreneurs for a while. But within twenty years the entire world was talking about “the British disease,” a phrase that was used to describe the gross inefficiency of all those socialist, government-run monopolies in the British steel, automobile, telephone, electric, and other industries.

By the 1970s the British had had enough. After thirty years of Fabian socialism, they elected Margaret Thatcher prime minister. A student of Friedrich Hayek and other free-market economists, she privatized many of Britain’s nationalized industries. For decades, Great Britain had been falling behind other European democracies in terms of per-capita income. That trend was reversed by Thatcher’s desocialization programs.⁸

Another example of an economic catastrophe caused by the adoption of “democratic” socialism is the country of Argentina, which embraced socialism in the late 1940s during the Juan Perón regime. Perón restricted international trade, imposed wage-and-price controls, seized private property, nationalized some industries, and spent lavishly, much of which was financed by the government simply printing more money. The predictable result was economic ruination and hyperinflation that led to Perón’s ouster in 1955 by military coup. Argentina, however, remained socialist. Its economy continued to stagnate and, several coups later, by the late 1980s, it was suffering from 12,000 percent inflation from years of trying to cover up the failures of socialism by printing money to pay for all the socialist programs.⁹

In 2001 Argentina defaulted on its obligations to foreign lenders in the then-largest public default in history. It defaulted again in 2014. Argentina was once the world’s tenth-largest economy, but by 2016 it was barely ahead of Kazakhstan and Equatorial Guinea.¹⁰

India was once one of the wealthiest countries on earth. Its textile industry was the envy of the world; it had sophisticated financial markets, many talented entrepreneurs, millions of acres of fertile farmland, and plenty of extravagant wealth. When it gained independence from Britain in 1947, it was no longer one of the richest nations on earth, but it inherited an infrastructure of railroads and schools and ports and parliamentary institutions and law, and the lingua franca of English. Unfortunately, in rebellion against the traditions of its “capitalist-imperialist” masters (but in accord with intellectual fashion), it adopted a home-grown version of Soviet-style central economic planning. Under Prime Minister Nehru and his top economic planning minister, Prasanta Chandra Mahalanobis, India adopted a series of “Five-Year Plans” modeled after the notoriously failed Soviet Five-Year Plans. The Marxist economic model that was used to justify these “plans” was one that was first developed by a Soviet economist named G.A. Feldman. It eventually came to be known as the “Feldman-Mahalanobis model” for a socialist, centrally planned economy.¹¹ It was no more successful in India than it was in the Soviet Union as India, after independence, became synonymous with “poverty.” In the 1980s, Indian Prime Minister Rajiv Gandhi essentially gave up on socialism and cut taxes and deregulated and privatized industries. The result was that India’s economy finally became revitalized and started to create wider prosperity.

Economist George Ayittey, a professor at American University and native of Ghana, is the author of several scholarly books about how socialism destroyed the economies of many post-colonial African countries that rejected capitalism and adopted socialism in the 1960s.¹² African leaders took the position that “Soviet-style socialism with the state determining the economic destiny of the people” was the best way “to move Africa toward economic prosperity.”¹³ “Many foreign companies were nationalized, and numerous state-owned enterprises were established. Roadblocks and passbook systems were employed to control the movement of Africans. Marketing boards and export regulations were tightened to fleece the cash crop producers. Price controls were imposed on farmers and merchants. Bewildering arrays of restrictions were imposed on imports, capital transfers, industry, wages, trade unions, prices, rents, interest rates, and the like.”¹⁴ “Only socialism will save Africa” was the slogan of African political elites.¹⁵ The result was that, forty years later, these African countries were poorer than they had been as colonies. The African political elites, however, were fabulously wealthy, with billions of dollars stolen from public treasuries and bribery a necessary condition to get anything done.

Socialism is “as alien to Africa as it is to the rest of the world,” wrote Professor Ayittey, who recounts the long history of private property and entrepreneurship among Africans before the “alien ideology” of socialism was imposed after independence. “[N]obody can defend socialism on the basis of the African tradition,” he concluded.¹⁶

For most of the Cold War years the starkest difference between a capitalist and a socialist economy was the comparison of Communist China with nearby Hong Kong. Hong Kong was one of the freest economies in the world under British rule with a modest, flat income tax and very little government regulation of business. That recipe made Hong Kong, with no natural resources to speak of except for a large harbor, one of the most prosperous countries on earth. By contrast, socialist China experienced the usual economic stagnation and backwardness that is the hallmark of all socialist economies.

China abruptly liberalized a large part of its economy beginning in the late 1970s by allowing private enterprises and even private banks, to some extent, to exist. The creation of a free enterprise segment of the Chinese economy, combined with the typical Chinese/Confucian work ethic and entrepreneurial spirit that is on display all over the world, began to produce prosperity. By the beginning of the twenty-first century China had become one of the biggest, if...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• 1. The Problem with Socialism
• 2. Why Socialism Is Always and Everywhere an Economic Disaster
• 3. Egalitarianism versus Human Reality
• 4. Islands of Socialism: The Follies of Government “Enterprise”
• 5. Why “The Worst” Rise to the Top Under Socialism
• 6. The Socialist Roots of Fascism
• 7. The Myth of Successful Scandinavian Socialism
• 8. How Welfare Harms the Poor
• 9. How Socialized Medicine Kills the Patient and Robs the Taxpayer
• 10. How Socialism Causes Pollution
• 11. Karl Marx’s “Progressive” Income Tax
• 12. Minimum Wage, Maximum Folly
• 13. How Socialist Regulation Makes Monopolies
• 14. Destroying Capitalism by Socializing Capital
• 15. Is Socialism Really the Best Way to Organize Schools?
• 16. Socialist Myths and Superstitions about Capitalism
• Notes
• Index