Is Fiscal Collapse of the American State Possible?

Possible, but not very probable

One comment on my inaugural post asked, what about fiscal crisis? After all, it’s one of the three chief drivers of instability (in addition to immiseration and elite overproduction), but lately I haven’t talked much about it. This is an important question.

Fiscal crisis of the state loomed very large in the original formulation of the structural-demographic theory by Jack Goldstone. Collapse of the state finances and the consequent loss of control over the coercive apparatus often served as a trigger for escalating violence.

However, unlike elite overproduction, which is a ubiquitous precondition for structural-demographic crises, fiscal weakness of the state was not a factor in several historical cases that we’ve studied so far. It did not play a role in mid-nineteenth century America in the run-up to Civil War, or in the first century BCE crisis of the Roman Republic. In both cases, there was little daylight between the state and the ruling elites; the state was not really an independent agent.

Today’s America is, of course, very different, as we have a huge governance structure (the so-called “deep state”) that consumes over 20% of GDP (compared to around 2% in the 19^th century). Still, currently fiscal state collapse, similar to those that triggered civil wars and revolutions in France in 1789, or England in 1642, doesn’t seem very likely to me.

Recently, Noah Smith discussed in detail trajectories potentially leading to fiscal meltdown, which could take two forms: hyperinflation or sovereign default (see Worst-case scenarios and endgames for the Trump economy). His conclusion is that such extreme scenarios are pretty unlikely, but not impossible.

Another economist, who has been sounding alarm over the US debt, is John Mauldin, the author of the weekly e-newsletter, Thoughts from the Frontline. Before 2025 his general attitude was that we would probably “muddle through,” but more recently he’s started sounding more and more pessimistic. Thus, in a January letter, A Possible Storm, he wrote, “The biggest risk, in my view, is that persistently higher interest rates could do serious damage to both the government’s fiscal outlook and economic growth prospects.”

I am not an economist, so take my words with a grain of salt, but to me “muddling through” still appears to be the most probable trajectory. This would mean relatively high inflation (but not hyperinflation), which would greatly erode the national debt, thus making a default unnecessary. I am also thinking about extra-economic considerations. For example, while the established, long-governing elites find it very difficult to cut the state budget, it is easier for counter-elites to do so. But that’s a big topic, which is best dealt with in another post.