America 4.0 is coming

We're caught up in the next iteration of the Phoenix Cycle

I’ve been getting prompts on my computer to upgrade to Windows 11. On one hand, as someone who recalls the launch of Windows 95, it makes me feel old. On the other, it’s a reminder that upgrades are a routine part of keeping a system stable and up-to-date with the latest innovations.

The United States is due for an upgrade; the operating system has become so buggy that only about 1 in 10 Americans think our democracy is working well. Most people are living paycheck to paycheck, and life expectancy is falling. It’s no wonder that 71% of Americans say we’re headed in the wrong direction!

Clearly, this isn’t a sustainable path. For better or worse, American history suggests that big changes are coming, as a result of the Phoenix Cycle. This radical reshaping of the way our government works and who it serves occurs every four generations, or roughly every 80 years. Our existing way of doing things will be burned up, and another version will rise from the ashes like phoenix, to give us America 4.0. At each stage, Congress has upgraded the nation’s money and banking system as well.

To build on the technological metaphor, the Constitution is the hardware the United States runs on. Our hardware limits what can be accomplished; even though it can be upgraded with amendments, as a practical matter, Congress hasn’t proposed anything that the states have ratified since before I was born. However, the software—the lines of the US Code that determine how our country is run – can be changed relatively easily by Congress. The American Union, a nonpartisan bloc of swing voters, is crowdsourcing the legislation to do this in 2024.

Let’s look at what the first three iterations of the Phoenix Cycle produced.

Forming a nation - America 1.0

• Years developed: 1776-1791

• Bug crashing the system: Unresponsive government

• Installation method: Violent (Revolutionary War)

• Code authors: The Framers/Federalists

• Fastest form of communication: Messenger on horseback

  

“We hold these truths to be self-evident, that all men are created equal," wrote Thomas Jefferson in the Declaration of Independence. The birth certificate of the United States put an end to the unresponsive British government and taxation without representation. Like a phoenix, the new nation arose from the ashes of our colonial status.

Thirteen of the British colonies formed the United States under the Articles of Confederation, “a firm league of friendship.” I’ve written about some of the shortcomings in the first attempt at creating a national government, but the relevant one to the Phoenix Cycle is that Congress was authorized to create money (“continentals”), but prohibited from creating the taxes that would have pulled the notes back out of circulation! That design flaw led directly to massive inflation and indirectly to Shays' rebellion a few years later, when Massachusetts farmers couldn't use the currency they'd earned serving during the war to pay their taxes.

That insurrection then led to the 1787 Constitutional Convention in Philadelphia. The 4,400 words of the new operating system substituted the top-down power structure of King George III's reign with a government elected by the people. The new framework for government—America 1.0—outlined five duties for Americans in the preamble, enumerated numerous powers, including the ability to tax, and created a system of checks and balances between the three branches of government to distribute power.

The design necessarily reflected the technological limitations of the time. Group deliberations had to take place in person; members of the legislative branch would squeeze into a single room, as the Framers did when drafting the Constitution. The District of Columbia would house all three branches, to facilitate communication.

Facilitating commerce was also essential for uniting the states. The Secretary of the Treasury, Alexander Hamilton, asked Congress to charter a national bank as part of a multi-faceted solution, which they did in 1791. The bank notes it issued had a major advantage over those created by state chartered banks; they could circulate nationally and the government would accept them for payment of taxes.

The new nation quickly found its financial feet, although Hamilton was limited in how he could manage the economy by mail. When Thomas Jefferson and the anti-Federalists took power, they blocked renewal of the bank’s charter, and it ceased to exist in 1811. 1812 revealed their shortsightedness, when credit was needed for the “Second War of American Independence,” with the resentful British.

Ending slavery - America 2.0

• Years developed: 1857-1870

• Bug crashing the system: Racial injustice

• Installation method: Violent (Civil War)

• Code authors: The Republicans

• Fastest form of communication: The telegraph

  

Different historians can find different triggers for historical events, but I’ve selected 1857 primarily for the Supreme Court’s disgustingly racist Dred Scott decision as setting off the second iteration of the Phoenix Cycle. After declaring Blacks were “so far inferior, that they had no rights which the white man was bound to respect,” the court’s decision established a new national standard: “the negro might justly and lawfully be reduced to slavery for his benefit.”

It’s worth mentioning that the Panic of 1857 was the first nationwide (then international) financial crisis, thanks to the invention of the telegraph. When banks began to fail as a result of their speculative loans, that news quickly traveled long distances.

Three years later, the recently founded Republican Party saw Abraham Lincoln elected to the presidency, leading to the secession of southern states. After the Civil War, Congress pushed through the 13th, 14th, and 15th amendments to the Constitution, upgrading our operating system to prohibit chattel slavery and expand civil rights nationwide. Reconstruction empowered Blacks across the south, resulting in their election to the House and Senate.

This iteration of the Phoenix Cycle brought about an upgrade to the national banking system and our money. After Lincoln’s election, demand for government bonds dropped precipitously, with bidders demanding interest rates as high as 36%. Big banks promised to loan the United States hard currency, but soon reneged.

Congress then passed legislation to issue legal tender; paper money not generally redeemable for gold or silver, but required by law to be accepted for payments. ‘Greenbacks,’ as the notes printed with green ink became known, were our first national currency. Lincoln also signed the National Banking Acts, regulating the banking system from coast-to-coast as well as could be done with the telegraph.

Greenbacks, full employment, massive government spending, and supply shortages combined to double the cost of living over the five years of war.¹ To address these inflationary pressures, the United States established the first income tax on the top 3% of earners, imposed excise taxes on many goods and services, and encouraged people to put their money into government bonds instead of spending it.

While other nations all ended chattel slavery nonviolently, the forced install of America 2.0 left more than 700,000 dead and created such deep resentment that reverberations are still felt in the 21st century.

Economic despair - America 3.0

• Years developed: 1929-1938

• Bug crashing the system: Wealth inequality

• Installation method: Nonviolent (New Deal)

• Code authors: The Democrats

• Fastest form of communication: The telephone

When the Great Depression began in 1929, the third iteration of the Phoenix Cycle was triggered. The American people delivered a peaceful transfer of power to Democrats in 1932; Franklin Delano Roosevelt won all but six states, and more than 100 Republican Congressmen and 11 Senators were swept out of office. Armed with a mandate to act, FDR set about crafting a New Deal for the United States.

The underlying economic problem was deflation; the circulation of money in the economy had slowed dramatically. Prices fell in a desperate attempt to entice purchases, crushing many farmers who were unable to recover the cost of production. Factories slowed manufacturing and laid off workers, reducing their spending, so factories cut production further, and so on. This deflationary death spiral drove the unemployment rate in cities like Chicago and Detroit as high as 50%.²

FDR addressed this problem by taking the US off of the gold standard, which most countries had done by 1931, and stimulating the economy through government spending. The Civilian Conservation Corps put millions of young men to work, and Americans still benefit today from the park infrastructure they built.

Once again, the banking system was in need of an upgrade. Because the institutions are not required to actually keep customers’ money on hand, bank runs were common. In 1931 alone, 10% of the banks in the United States failed.³ FDR “solved” this problem by creating the FDIC with the 1933 Banking Act. With the telephone now as the fastest form of communication, he further regulated the banks in 1935.

Labor reforms in the New Deal were also a major contribution to America 3.0, such as prohibiting children from working in factories. Harnessing new efficiencies in productivity, most Americans soon enjoyed a 25¢ minimum wage, a 40-hour work week, and the promise of basic economic stability in old age with Social Security.

However, racial equality took a step back, on the insistence of southern Democrats. Agricultural and domestic workers (technically race-neutral occupations, but predominantly held by people of color) were specifically exempted from the Fair Labor Standards Act, which passed on the heels of the Marihuana Tax Stamp Act.

America was reborn again, but over the smoldering embers of racial injustice, which would flare up into the drug war decades later and engulf the criminal justice system.

How will America 4.0 come about?

Each of the bugs that triggered the last three cycles have returned and must be dealt with before our entire social structure crashes.

For nonviolent change to occur, it would have to occur through existing political channels. Because our political system is inherently adversarial, it is nearly impossible to imagine either party today gaining the large majorities that FDR had.

Martin Luther King Jr. famously said that we faced a choice between nonviolence and nonexistence. Violent change is a real possibility, as the events of January 6, 2021 showed. It’s a little harder to picture exactly how a second Civil War would occur, but at least one member of Congress is advocating for a “national divorce.”

Other outcomes are possible as well. I recall a Robert Heinlein novel written during the 3rd iteration of the Phoenix Cycle, about a 5th iteration revolt in 2100, after an oppressive theocracy took power during the 4th.

The best solution is a new political paradigm, one that can cut through Congressional gridlock to deliver transformational change in Washington and improve the quality of life for everyone. Here’s how to make it work.

Populism ascendant - America 4.0

• Years developed: 2016-2028?

• Bug crashing the system: Unresponsive government, racial injustice, wealth inequality

• Installation method: Nonviolent (Crowdsourcing Congress)

• Code authors: The American Union

• Fastest form of communication: The internet

I mark this iteration as starting in 2016 with a resurgence of populism. Bernie Sanders’ campaign for the Democratic presidential nomination tapped into the widespread desire to see productive solutions put forward, as the original populists (the People’s Party) did in 1891. Donald Trump tapped into a vein of general dissatisfaction, including an antiwar message, to win the November election over Hillary Clinton. The bitter feelings about his victory only worsened polarization.

Seven years later, Congress remains unresponsive to popular opinion. The racial injustice that was so apparent during the George Floyd protests has not been addressed with any meaningful criminal justice reform. Wealth inequality was actually exacerbated by the tax cuts passed under President Trump and the pandemic.

The need for banking and monetary reform has returned as well. Recent bank failures have demonstrated the unhealthy overlap between the regulators and the regulatees; after big red flags were ignored, the failed banks got bailed out in excess of what the law allows. Meanwhile, massive creation of bank money through speculative loans has contributed to inflation, driving up housing prices and rents.

In addition, the Federal Reserve plans to buy trillions in securities from the US Treasury, but by law, they’ll be purchased from middlemen at a markup. Meanwhile, the United States will pay over $1 trillion in interest on the national debt this year. (February 2024 update: I called it.)

Let’s look at how the American Union, by crowdsourcing Congress, would address these issues.

Wealth inequality

Abraham Lincoln was right: it’s smarter for the United States to issue money directly instead of borrowing it into existence. Congress would direct the Treasury to create “digital greenbacks,” a 0% interest sovereign currency. To address the Cantillon effect, this legal tender would be distributed to all citizens as unconditional basic income (UBI), in sufficient amounts to lift every American family above the poverty line: $16,800/year for adults, plus $5,600 for children. These digital greenbacks can circulate across a public payment infrastructure, reducing the dependence on for-profit banking institutions. The national debt would be repaid in a decade or so.

Besides the fact a growing economy needs additional money continually added to it, UBI transforms socially beneficial taxes from regressive into progressive. Consider a carbon fee, which many experts say is “the most effective tool there is to transition to a low carbon economy.” In isolation, low-income households could be be hurt by increased taxes, but when combined with UBI, they would be “prefunded” for those costs. The American Union proposal would have pollution taxes not just on carbon, but on plastic as well, so that consumption more accurately reflects the true cost of harming the planet our children will inherit.

Similarly, the American Union plan would include a 12% value added tax (VAT) to address wealth inequality. While many rich families disguise their income in a variety of ways, such as hiding it in trusts or borrowing against stock gains, a VAT is a consumption tax. (Those who buy super-yachts, pay lots.) This captures a slice of the spending done across the whole economy, including on the productivity gains being made by AI which are not necessarily collected in traditional income taxes.

As some level of consumption, these taxes will “claw back” a person’s UBI. For a family of four, the break-even point comes around $300,000 of spending. Those below that would come out ahead, those above would be net payers, addressing wealth inequality in a progressive fashion. These taxes also counteract inflationary effects, while stimulating the economy from the bottom up, producing considerable cost savings when poverty is ended.

Racial injustice

The United States has a larger prison population than any other nation on the planet. Of the nearly two million people waking up behind bars every morning, a disproportionate number are people of color. The moral stain of mass incarceration is widely recognized; more than 70% of Americans agree it is important to reduce the prison population, with a similar number saying the criminal justice system needs ‘major changes’ or a ‘complete overhaul.’

According to Michelle Alexander, author of The New Jim Crow, the root cause of the explosion of injustice over the last five decades is the war on drugs. Accordingly, she concludes, “If we become serious about dismantling the system of mass incarceration, we must end the War on Drugs. There is no way around it.” A 2021 poll found 83% of American recognize that the war on drugs has failed, but Congress fails to notice.

The American Union legislative package would end the federal war on drugs and offer the states an opt-in framework for legalization, taxation, and regulation. A 12% tax on retail sales will fund substance-use treatment for those who want it. This is in line with the common-sense approach favored by about 2/3rds of Americans, treating drug use as a public health problem and not a criminal one.

Many other criminal justice reforms are included, like fixing qualified immunity, ending civil asset forfeiture, restricting the use of no-knock warrants, and creating a police misconduct registry. It would also include prison reforms, such as restricting the use of solitary confinement.

Unresponsive government

The broken political system has two distinct (but related) problems. The first is legislative gridlock. Congress is the policy-setting branch, according to the Constitution, and they’ve managed to tie themselves in knots. The executive and judicial branches have picked up some of the slack, but Congress is failing to set national policy on countless issues. Even when it comes to basic functions like passing a budget, I can literally count on one hand the times Congress has done so in a timely manner during my lifetime.

The bulk of their work these days seems to revolve around manufactured crises, where a must-pass piece of legislation is assembled by leadership and presented to the membership for an up-or-down vote. There are many contributing factors to legislative gridlock, but the main point here is that this iteration of the Phoenix Cycle enables us to use communication and collaboration tools across the internet to crowdsource the process.

The American Union will open a people’s legislative assembly on January 15, 2024. Throughout 2023, members will have the opportunity to submit policy proposals, and organizers, who take responsible for growing the union, will be able to serve as delegates. The assembly will compile the lines of legislation representing the specific policy details into one ready-to-enact legislative package. This upgrade to the US Code will be presented to Congress and the American people on September 21, 2024, six weeks before the general election.

Now we come to the other half our political problem: making elections a meaningful mechanism for getting a response from Congress. A root cause is polarization; it makes the marginal cost of Congress doing nothing very small, because a supermajority of the electorate will always vote for a specific party even if candidates don’t keep their campaign promises. This leads to a negative feedback loop; the bar is now so low that no one expects Congress to actually do anything, including Congress, who knows they won’t be held accountable for their dysfunctional workplace.

By giving Congress a pre-written piece of legislation, a new metric for voting is created. Did the incumbent (regardless of party) enact it before the election? If not, they can be replaced with the challenger. A small percentage of swing voters, especially in key districts and states, can control the outcome of the 2024 election, gaining leverage over Washington DC. When this is recognized, the parties will choose to install America 4.0 in order to avoid yielding power to the other side.

The incumbent vs. challenger dynamic creates a win-win scenario, where incumbents of both parties are incentivized to cooperate in order to win the American Union’s key bloc of swing votes. The people’s legislative assembly can produce new legislative packages every two years, addressing other policy issues in depth. By the 2028 election, this pattern will be established and responsive government will have been restored.

Of course, if Congress refuses, the American Union might stage a general strike at the ballot box. More on that what that looks like for 2024 in my next post.

Conclusion

The Phoenix Cycle guarantees we are on the cusp of reinventing ourselves as a nation. Our old way of doing things will be burned up, and America 4.0 will arise from the ashes.

The process does not have to be peaceful.

The outcome does not have to be positive.

But the option for a bright future exists, one built on the principles of nonviolence. When you look back at the 2020s, which side of history will you want to have been on?

1. The Greenback Era, 1865-1879 (Irwin Unger, 1964) pp. 15-20

2. Ages of American Capitalism (Jonathan Levy, 2021) p. 381

3. Ages of American Capitalism (Jonathan Levy, 2021) p. 376