If you want to reduce poverty and improve living standards, capitalism has been proven to be the best way to do it. Socialism, on the other hand, leads to misery and death. Sounds like a pretty easy choice to me.

The tired, old promise that giving more power to government will solve all of society’s ills has been repeated ad nauseam by socialists and progressives for more than a century, despite overwhelming evidence showing that no matter how much money and authority Americans give to government, societal problems persist. Presidents Woodrow Wilson, Franklin Roosevelt, Lyndon Johnson, Jimmy Carter, Barack Obama, and others pledged that their reforms would finally put an end to poverty, crime, drugs, suffering, and dozens of other problems, and none of those promises were kept. For example, after a half-century of Johnson’s “Great Society” welfare programs, which have cost trillions of dollars, the national poverty rate remains roughly the same as it was in the 1960s.⁵⁵ And despite countless promises by President Obama that his policies would make health coverage and college more affordable,⁵⁶ health insurance costs and college expenses⁵⁷ are significantly higher than they were when Obama implemented his reforms.

There’s also absolutely no connection between sustained economic growth and socialist or progressive policies. In fact, one of America’s most successful periods—the “roaring” 1920s—included much fewer social programs and regulations. During the 1920s, unemployment rarely rose above 4 percent, and the total U.S. economy grew by a whopping 42 percent.⁵⁸ America’s total wealth doubled.⁵⁹ If giant national government programs are so important to the success of the U.S. economy, why did America experience so much growth in the 1920s?

This important period in history also offers another vital economics lesson. During the Great Depression, progressives insisted that the best way to deal with economic crises is to give government greater control over the economy and to have government pump money into the marketplace as a way of “boosting” growth. This idea, popularized by British economist John Maynard Keynes,⁶⁰ has since become standard practice among socialists and progressives in both the Democratic and Republican parties and is partially responsible for the current $22 trillion national debt.⁶¹ However, data from the 1920s shows that this isn’t the best way to deal with economic downturns. In fact, the data reveal when government gets out of the way, the economy is more likely to recover quickly.

Before the 1920s “roared,” it experienced a significant recession. The federal government faced significant debts remaining from World War I, and consumer price inflation had increased by more than 20 percent.⁶² The country entered a major recession in 1920, and by 1921, unemployment hit 11.7 percent.⁶³ But instead of slashing interest rates and increasing government spending, the Republican-led Congress cut spending and rolled back government’s involvement in the market, and the Federal Reserve increased interest rates to 7 percent, a record high at the time.

Robert Murphy, the senior economist at the Independent Energy Institute and a professor at the Free Market Institute at Texas Tech University, notes that from fiscal year “1919 to 1920, federal spending was slashed from $18.5 billion to $6.4 billion—a 65 percent reduction in one year. The budget was pushed down the next two years as well, to $3.3 billion in FY 1922.”⁶⁴

According to those who advocate for government’s involvement in the marketplace, the recession of 1920–1921 should have been substantially worse than it turned out to be. Spurred by free-market policies, the economy rapidly recovered. By 1922, unemployment had dropped from 11.7 percent to 6.7 percent. By 1923, unemployment hit 2.4 percent.⁶⁵ The recession ended with breakneck speed. In fact, it was perhaps the quickest economic turnaround in the United States in the past century.

By contrast, the economic recovery during the Great Depression was agonizingly slow, despite massive new government programs and persistently low interest rates. During the first full year of the Great Depression, 1930, unemployment hit 8.7 percent.⁶⁶ In 1932, unemployment soared to 23.6 percent, and it remained above 20 percent through 1935. By 1938, a full eight years after the recession started, unemployment was still extremely high, at about 19 percent, and it wasn’t until defense spending tripled in 1942 because of World War II that America finally recovered from the economic downturn.⁶⁷

As Murphy notes, “The conclusion seems obvious to anyone whose mind is not firmly locked into the Keynesian or monetarist framework: The free market works. Even in the face of massive shocks requiring large structural adjustments, the best thing the government can do is cut its own budget and return more resources to the private sector.”⁶⁸

This lesson from the 1920s and 1930s perfectly illustrates why centralizing decision-making is literally the worst thing that can be done. The more power you put in the hands of a relatively small group of bureaucrats, the worse things get. The best way to improve economic growth and increase prosperity for all people, not just the wealthy, is to get government out of the way and let individuals—inventors, innovators, entrepreneurs—make their own economic choices.

Socialism doesn’t allow for that kind of freedom in the marketplace. By design, it centralizes economic decision-making and eliminates market-based incentives. That’s why it always results in lower productivity and often economic chaos. And because the only way socialists believe they can fix economic problems is by increasing their power over an economy, rather than provide market incentives, socialism inevitably devolves into tyranny and often violence. After all, the cheapest way for governments to get people to work harder is to put a gun to the back of their heads, right?

Socialism hasn’t worked well in “some” countries? Some countries? No, socialism hasn’t worked anywhere, despite dozens of attempts in nations large and small. And by “hasn’t worked,” I mean it’s led to unprecedented destruction and mayhem. It’s literally one of the most dangerous philosophical ideas ever conceived, causing the death, exile, or imprisonment of well over 160 million people—and that’s just in the countries mentioned earlier in this chapter. From Asia to Africa to Europe, socialism has terrorized the world for more than a century, and no amount of tweaking socialism will ever be able to fix it. Socialism is rotten to the core.

I’m glad you brought up so-called Scandinavian socialism, though. Perhaps more than anything else, the myth that countries like Denmark, Norway, and Sweden are perfect little socialist paradises has fooled people into believing socialism can work. The truth, however, tells a very different story…

END OF CHAPTER #4