Why do Americans use the term ‘socialism’ to refer to economic systems ranging from Nordic welfare capitalism to Stalinist state socialism? This seems bizarre to me.

It’s basically due to the fact that the socialist tradition in America was A. historically (mostly) confined to European immigrant enclaves in the Northeast and Midwest and then B. was viciously repressed in the first and second Red Scares, stamping out what socialist tradition had managed to form. (To give an example of the chilling effect of the first Red Scare: in 1912, Eugene V. Debs got 900,000 votes or 6% of the total in the general election as the Socialist candidate; by 1924, the Socialist candidate got less than 30,000 votes or .13% of the total.)

The result was, that unless you came from particular immigrant or ethnic backgrounds and/or were a “red diaper baby,” most Americans post-1945 especially would have no exposure whatsoever to the mainstream socialist traditions and their basic political vocabularies that would have been entirely normal to anyone who grew up in a working class European family in the same period. 

Add onto that a rich and vigorous history of various conservative forces in the U.S labeling pretty much any domestic liberal reform and more than a few soon-to-be-overthrown foreign nationalist governments as “Communistic,” and you begin to see why our grasp on the political language of socialism is so feeble.