John Stossel Debunks Five Socialism Myths and Seven Capitalism Myths in Economic Systems Showdown
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John Stossel Debunks Five Socialism Myths and Seven Capitalism Myths in Economic Systems Showdown
Economist John Stossel tackles the resurgence of socialist ideas among young people, challenging claims that Venezuela and the Soviet Union weren't "real socialism" while defending capitalism against accusations of creating monopolies and income inequality. From Noam Chomsky's influence on college campuses to the reality of Scandinavian economic models, Stossel examines why socialism repeatedly fails while capitalism creates wealth across all economic classes. He addresses concerns about robber barons, workplace safety, automation, and whether billionaires harm the economy, arguing that free markets have lifted more people out of poverty than any system in human history.
Despite the collapse of the Soviet Union, socialism has experienced a remarkable comeback in popularity, particularly among young people. The movement has found an unlikely champion in 90-year-old linguist Noam Chomsky, who receives up to $30,000 per speaking engagement at colleges where he characterizes capitalism as a "grotesque catastrophe." This resurgence has made socialism as popular as capitalism among younger generations, prompting a closer examination of what socialism actually delivers versus what it promises.
The appeal is straightforward: many believe that in capitalist society, the people who work hardest make the least money, while extreme wealth inequality continues to grow. Activists proclaim "this is class war" and advocate for transforming society based on freedom, equality, and solidarity. But economist Ben Powell argues these promises consistently fail to match reality when socialist policies are implemented.
Myth One: The Soviet Union Wasn't Real Socialism
When confronted with the failure of the Soviet Union, socialism's defenders immediately claim "that wasn't real socialism." They argue the Soviet system was as remote from true socialism as imaginable, since working people had no control over production. However, this excuse misses the fundamental problem.
When the Soviets made private business illegal, they created something as close to the pure socialist end of the spectrum as the world has ever seen. Socialism means abolishing private property in the major means of production and replacing it with collective ownership. In practice, this inevitably means state ownership and control, which is exactly what the Soviet Union delivered in abundance.
The claim that socialism requires workers to control production sounds appealing, but that's precisely what socialism cannot deliver. The system inevitably concentrates power in state hands, leaving working people with no control over anything.
Myth Two: Venezuela's Crisis Has Little to Do with Socialism
Venezuela provides a more recent example, yet defenders make the same excuses. When confronted with Venezuela's transformation from the richest country in Latin America into the poorest, with people struggling just to eat, critics claim the crisis has nothing to do with socialist policies.
Media outlets like Al Jazeera blame "epic mismanagement" and "economic policies that failed to adjust to reality." But this misses the essential nature of socialism itself. Economic reality evolves every day through millions of decentralized decisions by entrepreneurs and consumers making fine-tuning adjustments.
In capitalist societies, when COVID-19 hit, millions of entrepreneurs adjusted without government orders. Servers switched to delivery drivers, bartenders became sales representatives, restaurants installed heat lamps and expanded patios. Although reporters complained about the absence of federal direction, no central authority could possibly direct all these individual adjustments in thousands of different places. Federal direction would have prevented these innovations.
In a market economy, everyone's adjustments get tested in real time. The market reveals what works. In a socialist economy, you get one-size-fits-all adjustments and miss out on the learning process where entrepreneurs copy successful ideas and abandon failures. East Germany's socialist planners pushed Trabants, claiming they were great cars. In reality, they were terrible vehicles that were hard to drive and spewed pollution. Even while West Germans built Volkswagens, BMWs, and Porsches, East Germans remained stuck with Trabants.
Some blame Venezuela's collapse on falling oil prices in 2014, noting that President Maduro failed to adjust. Vox even produced an entire video on Venezuela's collapse without mentioning socialism once. But oil price declines don't explain the crisis. Plenty of countries depend on oil revenue, and when prices fell, their people didn't start losing weight from starvation. That only happened in Venezuela.
Others blame U.S. sanctions and embargoes. While these certainly don't help, they're an afterthought compared to the real cause. Cuba drives 1950s U.S. cars, but there's no U.S. Navy blockade preventing Kia, Fiat, or other manufacturers from sending them modern vehicles. The reason for their suffering is an economic system that simply cannot deliver.
Myth Three: Democratic Socialism Brings Good Things
Democratic socialists argue that the failed examples critics cite were authoritarian states, not socialist democracies. They emphasize the key word "democratic," believing both government and the economy should be run by the people through the ballot box. They point to things like public schools, government-funded research, and interstate highways as examples of successful democratic socialism.
However, Venezuela's socialist leader Hugo Chavez was democratically elected. Socialist governments can start as democratically elected, but once they centralize control over the economy, it becomes impossible to democratically un-elect them. Maduro now rules while ordering state employees to vote for him or lose their jobs. He blatantly buys votes by placing food aid stations next to polling places, rewarding correct voters with rations. Democracy there has become a sham.
This pattern repeats everywhere socialism is tried. It's hard to exercise political freedom without economic freedom. When you're dependent on the state for your livelihood, you lose your ability to oppose the government because you can be punished for speaking out.
The examples often cited as democratic socialism—public schools, government research, highways—are actually socialized industries within otherwise capitalist economies. It's no accident that when examining these sectors, the most inefficient and underperforming are public education and congested streets. These socialized industries don't work well.
Myth Four: Socialism Works Well in Scandinavia
When Cuba and China prove unconvincing, socialism's advocates point to Scandinavia. Politicians frequently cite Denmark and Sweden as successful socialist models. But Scandinavian countries are not socialist.
Volvo is a private company. Restaurants and hotels throughout Sweden are privately owned. Markets organize the vast majority of Swedish economic activity. Sweden did experience a period in the 1970s and 1980s when it resembled socialism, with big government that taxed and spent heavily. The result was waiting lines for healthcare and pension systems people couldn't depend on. The Swedish population eventually said enough was enough.
Sweden responded by cutting taxes and government spending. They privatized trains and sold state-owned businesses. When American politicians wrongly called Scandinavia socialist, Denmark's prime minister came to America specifically to refute them, stating clearly that Denmark is far from a socialist planned economy—it's a market economy. In fact, Denmark today ranks higher in economic freedom than the United States.
Myth Five: Socialism is Completely Different from Fascism
When one congressman suggested that the potential exists for another Hitler—a socialist like Hitler—to come along, another congressman objected strenuously. The Nazis were terrible, not the socialists, he argued. They were fascists who killed Jews, not socialists.
While fascism and socialism aren't exactly the same, they share much in common. Both replace market decision-making with command and control. Socialism abolishes private property and replaces it with state ownership. Fascism leaves private ownership in nominal terms but replaces decision-making with state control and orders.
For average people living their lives, whether under socialism or fascism, the result is the same: loss of autonomy and control over your own future. Only under capitalism do you have the freedom to say no. Entrepreneurs offer services and employment, but you can choose a better path for yourself. You don't get that choice when someone else is planning the economy.
At Socialism 2018, the biggest gathering of young socialists, attendees pointed out numerous problems in the United States—issues with migration, war, and policing. But the problems they identified are products of bad government, not capitalism.
Socialism appeals because it promises fairness and equality, claiming resources should be allocated to those who need them. Supporters hear the promises about equality but don't examine what socialism actually delivers. Throughout human history, poverty, starvation, and early death were the norm. This remained true until very recently. In the last 20 years, more humans have escaped extreme poverty than at any other time in human history. That happened because of markets—free markets and capitalism.
Myth Six: Capitalists Get Rich by Taking from Others
Despite capitalism's success at reducing poverty, people everywhere attack it. Critics claim no system has redistributed wealth from poor to rich as effectively as capitalism, calling it "slavery by another name." The assumption is that we have a finite amount of money, so when capitalists win, everyone else loses.
But this ignores how entrepreneurs create new wealth. Research shows that when entrepreneurs got rich, they kept only 2.2% of the additional wealth they generated for the economy. The rest of us captured almost 98% of the benefits.
Steve Jobs kept billions when he created Apple, but he gave us far more—thousands of new jobs, billions added to the economy, and technology that makes our lives better. The goal should be to encourage a hundred new super-billionaires, because that means a hundred new people have figured out ways to make the rest of our lives better.
Former Labor Secretary Robert Reich argues that entrepreneurs like Jeff Bezos would be just as motivated by $100 million or even $50 million instead of billions. But this misses capitalism's most important fact: no one gives Jeff Bezos money unless he's selling something they value more than that money.
Putting a cap on earnings would eliminate the incentive to continue innovating. Entrepreneurs might decide to retire, sail yachts, and start consuming instead of saving and producing. Critics claim that money in the richest hands just sits in banks doing nothing, but this reflects ignorance about how banks work. That money gets lent out, allowing other people to build businesses, buy homes, get educated, and invest in machinery, tools, factories, equipment, and technology.
Myth Seven: The Rich Get Richer While the Poor Get Poorer
The claim that the rich get richer while the poor get poorer is demonstrably false. The poor and middle class are getting richer too. The economic pie grows. We are much richer than our grandparents, and they were much richer than their grandparents.
For thousands of years, the world experienced almost no wealth creation. Then some countries tried capitalism, and per capita GDP began climbing dramatically. Capitalists helped everyone, including the poor, by bringing cheaper and better food to supermarkets and providing better goods and services.
Twenty-five years ago, mobile phones were large, expensive devices. Then came the Blackberry, the iPhone, and now cheap smartphones available to almost everyone. When media outlets claim the middle class is in decline, they're technically right—but they miss why. The middle class is shrinking because more and more people are moving into upper income brackets.
The average family today is almost a third richer than 40 years ago, because capitalists compete to get our dollars. This assumes competition exists, however. Critics argue that monopolies have destroyed the free market, with some Republicans and Democrats calling for breaking up tech companies, labeling Facebook, Amazon, and Apple as monopolies.
The Monopoly Myth
Real monopolies do exist: the government school system and the postal service. Monopolies are almost always created by government intervention that blocks competition. Government granted Ma Bell a monopoly on phone calls. Over 30 years, their phones barely improved, and a short phone call cost $17 in today's dollars. Ma Bell got away with this because government banned competition.
In a free market economy, monopolies are impossible because if a company gains significant market share and tries to raise prices, new competitors spring up and draw away customers. This happened to Blockbuster, which charged late fees until Netflix promised no late fees. Blockbuster soon went out of business.
People claim today's tech companies are uniquely powerful and impossible to compete with. Yet alternatives exist—Duck Duck Go instead of Google, for example. Even if someone uses Google and Facebook for ten hours daily, no one forces them. These companies provide value, including free search engines and free social media.
Just 14 years ago, people called MySpace a monopoly. Then Facebook proved them wrong. Government once called U.S. Steel, Pan Am, IBM, Internet Explorer, and Kodak monopolies. All were eventually displaced by competition.
Myth Eight: Only Government Can Create Safe Workplaces
Critics argue that free markets create unsafe workplaces, and only government agencies like OSHA can stop that. Charts showing declining workplace fatalities since OSHA's creation seem to support this claim. However, examining data from the decades before OSHA reveals that fatality rates were already declining just as fast.
As societies become richer, they become safer. The wealth capitalism creates allows us to afford safety devices and build machines to do dangerous work. Capitalist societies have cleaner water, cleaner air, and better lifestyles. We need more capitalism, because when people get rich, they can afford more safety.
The Robber Baron Myth
Before government regulation, critics claim unfettered capitalism created evil robber barons who collected great riches at the expense of workers who toiled in dangerous conditions for little pay. But little pay compared to what? When examining factory life 100 years ago by today's standards, it seems terrible. But compared to toiling 14 hours daily on a farm for half as much money, that stage of economic development was practically paradise.
John D. Rockefeller, who created the oil industry, is still called a robber baron. But he wasn't born rich, and he didn't rob. Rockefeller got rich by inventing ways to deliver oil for less, constantly lowering prices. That's why he gained market share. No one was forced to buy his oil.
Although media implied that people suffered to support fat cats, entrepreneurs' innovations actually made almost everyone better off. In the 1800s, the era of so-called robber barons, America went from agricultural poverty to a country characterized by middle-class prosperity.
Cornelius Vanderbilt was another tycoon called a robber baron. But he too was born poor. At age 11 he quit school to work on boats. He invented ways to make travel cheaper, cutting the New York to Hartford fare from $5 to $1. His competitors didn't bother because they relied on friendly politicians giving them subsidies. That's not capitalism—that's corporatism. Only when politicians leave capitalism largely alone does it create wealth.
Myth Nine: Capitalism Isn't Good for Well-Being
Critics claim capitalism is not designed to optimize our well-being, questioning whether cheaper iPhones or more Amazon deliveries of plastic garbage from China will make us happy. But people don't buy iPhones and other products unless they believe those items are worth more than the dollars in their bank accounts. Capitalism is the only system that gives people the liberty to make their own choices.
The Automation Fear
The final myth is that capitalism will take away everyone's jobs through automation. Experts predict 50% of the workforce being completely eliminated. For years, they've predicted employment decline, but it's never happened.
When markets are free, some people do lose jobs, which is genuinely hard on them and their families. If you were a typewriter builder 30 years ago, personal computers likely destroyed your job. If you were a candle maker, electricity destroyed your job. It's upsetting when anyone loses a job.
But overall, capitalism creates millions more jobs. When America began, 90% of workers worked on farms. Now fewer than 2% do, yet farm workers found better jobs. As long as the economy maintains the dynamism that free markets allow, we see more job creation and higher income levels. That's what makes the children and grandchildren of typewriter makers so much better off.
Truck drivers rightly fear self-driving trucks. Some commentators favor restrictions on this technology to protect jobs. But blocking innovation would halt progress. A parody illustrates this perfectly: someone who used to clean toilets and empty them from alleyways complaining that flushing toilets and plumbing took away their job, or lamenting that electricity destroyed their profession.
Creative destruction does destroy, but what it creates is so much bigger, richer, and better for everyone—rich and poor alike. That's capitalism, and it's something worth celebrating. No other system anywhere in the world has ever come close to capitalism's ability to generate mass prosperity.
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