Toward America 4.0

The United States is headed toward its fourth nation-defining crisis. This time, it’s the national debt.

On the 250^th anniversary of the start of armed colonial rebellion against British rule, a timely backdrop for considering long cycles in US political history and their implications for America’s present circumstances and prospects.

Roughly every eighty years, the United States reinvents itself following a decisive meta-crisis: the Revolution, the Civil War, and the Great Depression followed by World War II.

These three prior decisive meta-crises resolved core national disputes by forcing binary choices between opposing ideological factions: patriots versus loyalists, abolitionists and unionists versus secessionists, and internationalists versus isolationists.

During the decades before each meta-crisis, Americans tried to have it both ways, striking compromises to delay resolution between unreconcilable ideas. But ultimately, as Abraham Lincoln put it, the nation was compelled to become “all one thing or the other.”

A crucial but often overlooked point is that, before these decisive crises, the winning and losing factions were minorities, usually viewed as fringe.

The Revolutionary War resolved a core national dispute over reconciling colonists’ political and economic rights with loyalty to a British monarch and parliament. Neither patriots demanding complete independence nor loyalists prioritizing fealty to the crown commanded strong public support before the shooting started at Lexington and Concord. Historians estimate that Patriot sympathizers accounted for roughly 30–40 percent of the population. About 20 percent were loyalists, and the rest remained neutral.

Patriots with French help vanquished British troops and the loyalists, and America 1.0 settled the core national dispute in favor of independence.

Slavery was the next core national dispute—an “irrepressible conflict” that decades of centrist compromises failed to resolve. Before Fort Sumter, both abolitionism and secession were radical solutions. The Civil War gave birth to America 2.0, with formerly rogue abolitionists ascending to the new normal, while defeated Confederates joined the loyalists in the loser’s box of U.S. history.

America’s next core rift concerned its global role—whether to avoid “foreign entanglements,” as George Washington had counseled, or to assert its increasing economic and military power globally. Unlike earlier national debates over sovereignty and slavery, which were defined by deep sectional conflict, the struggle to settle America’s global role evolved in reaction to the outside world.

The United States tried colonialism and intervention, but after World War I, it recoiled from global entanglements and burrowed into isolationism. Until December 7, 1941, anyone who supported raising and deploying millions of troops to fight the Axis powers and thereafter become the world’s policeman, lender, and economic anchor sat on the lunatic fringe of the political spectrum. By lunchtime of that fateful day, the Japanese raid on Pearl Harbor had vaporized isolationism, united the country, and forged America 3.0, a global superpower in the making.

Eighty years after World War II, the United States will soon need to resolve another core national dispute—the size of government. For decades, Americans have enjoyed growing, generous, subsidized social benefits and low taxes—a welfare state on the cheap. The bond market will not let us have it both ways for much longer.

Since 1930, federal spending has grown from 9 percent of GDP to 23 percent in 2024. The lion’s share of federal spending now goes to subsidized health and social security benefits, primarily for retirees. These entitlements far surpass all federal outlays, although soaring debt service is catching up.

Voters reward candidates who promise generous and subsidized social benefits without raising taxes to pay for them. So, rather than raising payroll taxes to account for longer lifespans and fund increasingly costly retirement payouts, Congress has racked up towering debts that will be passed on to future generations.

The frequently cited $36 trillion in publicly held Treasury debt grossly understates the fiscal reckoning. Over the next thirty years, Social Security and Medicare will run deficits totaling $124 trillion. These liabilities aren’t hypothetical; they are baked in and will structurally and automatically balloon the outstanding debt.

For many decades, the United States has been able to easily increase its debt, partly because the U.S. dollar is the world’s reserve currency. However, market commentary and actions from major fixed-income players suggest that Washington’s era of easy borrowing is coming to an end. Warning signs include rising Treasury yields even after the Federal Reserve cut short-term rates last September and shifts in investor allocations away from U.S. debt.

Despite the red flags, Congress refuses to correct course and avert a fiscal crisis by tightening fiscal policy. On the contrary, Washington is increasing speed toward a debt crisis. On January 5, President Biden signed a bipartisan bill granting more Social Security benefits, which will hasten the program’s insolvency by six months.

Inevitably, if tragically, America’s debt addition arising from its inability to reconcile generous social benefits with low taxes will be resolved in a crisis rather than a compromise.

The crisis will likely begin in the bond market, where lenders will react to swelling deficits by demanding higher Treasury yields to offset rising inflation risks or an outright default. Higher rates will trigger a debt spiral, increasing debt service and widening budget deficits. As Treasury yields rise, so too will mortgage rates and capital costs, undermining financial stability and threatening a recession.

As the financial crisis hammers the real economy, it will engulf politics and compel elected officials to make the hard choices they have avoided for decades. While balanced compromises including higher taxes and lower benefits are theoretically possible, the hour is too late, the cumulative debt too big, and the public too divided and polarized to expect one.

As in past meta-crises, resolution will likely come from today’s fringe hardliners, who each blame opposite causes for the fiscal crisis and prescribe opposing, radical cures.

The fringe Left will blame the crisis on under-taxation and call for sweeping tax hikes and asset seizures to expand and entrench federal benefit programs.

Fringe-right, libertarian fiscal conservatives will blame congressional mismanagement and incompetence and call for shifting retirement income and healthcare from government to individual and market control, thereby dramatically reducing, if not abolishing entirely, the federal role in providing social benefits to retirees.

Whichever extreme faction prevails will become the new normal and dominate the country’s trajectory for generations to come.

If the Left wins, the once-dismissed Green New Deal would become the foundation of U.S. policy—far beyond climate. Washington will implement its sweeping income redistribution, labor reforms, and social programs, framing them as an urgently required wartime-scale mobilization akin to the New Deal and World War II.

If the Right were to win, America 4.0 would be a leaner, market-driven republic in which power and responsibility for retirement income and healthcare would shift from Washington to states and individuals.

Debt, demographics, and math cannot be denied forever. Americans must choose between a centrally planned economy organized to fund a welfare state and a capitalist economy with a limited federal government. We must become “all one thing, or the other.”

By: Robert McNally

Robert McNally is an energy consultant and author of Crude Volatility: The History and the Future of Boom-Bust Oil Prices. He served as a special assistant to the president on the National Economic Council, 2001-03.