Repeating the Past: Why the U.S. Economy Looks Alarmingly Familiar
Dr. Rana AlBahsh
The United States is walking a precarious path that mirrors one of the darkest periods in modern history, which lead to the Great Depression. Although the world today is more complex, digitized, and globalized than it was a century ago, the structural forces now of the American economy resembles those that triggered the 1930s collapse, including massive debt levels, dangerous income inequality, and a changing global power order.
Today, America’s national debt exceeds $36 trillion, with a debt-to-GDP ratio above 125%. That’s the highest level in U.S. history, even surpassing the debt ratios seen in the aftermath of World War II. What’s more alarming is the mechanics of what economists call a debt spiral, where when the government borrows heavily to meet expenses; interest payments grow; to keep up, the government must borrow more; and this in turn fuels inflation and forces interest rates higher. Eventually, if debt grows faster than national income, it makes it harder to escape without harsh measures like austerity or default. If interest rates on federal debt stay around 4.5%, the U.S. could soon spend over $1.6 trillion annually just on interest payments, a burden that would crowd out investment in education, military, infrastructure, or health care.
When pairing this situation with rising inequality, the scenario entitles more similarities to that in 1920s, before the great depression. In the 1920s, the wealthiest 0.1% of Americans owned about 25% of national wealth, a concentration of power that destabilized the economy when the system cracked. Today, the richest 0.1% control nearly 20% of wealth, while the bottom half of Americans share just 3% of national wealth. Since 1978, CEO pay has jumped over 1085%, while typical worker wages rose just 24% after inflation as per Forbes. This signals a risk of reduced consumer spending, increased political polarization, and long-term instability. It means that, with inflation, regardless of how hard a person work, he will stay poor as they were in the 1920s. what’s worse is that the current concern is not only inflation and it’s diminishing effect of wages, but it is securing one’s job amongst the increased layoffs.
Then comes geopolitics and the changing global order. In the 1930s, Britain’s decline made space for new challengers like Germany and Japan, ultimately setting the stage for World War II. Today, the United States finds its global leadership challenged by China, not only in goods trades, but in strategic technologies like artificial intelligence, semiconductors, big data and telecommunications. Global institutions like the United Nations or the World Trade Organization, created to ensure cooperation and peace, are losing credibility. The same existed when the League of Nations before WWII was ineffective in solving problems around the globe. Moreover, USA trade barriers of 2025, tell a similar story of the Smooth Howley Tariff act of 1930, triggering in both times a fierce global trade war.
What’s the way out? The deficit, now about 6% of GDP (roughly $1.8 trillion and GDP $29.2 trillion), must be reduced enormously, which certainly will comprise politically painful decisions, about raising taxes, cutting spending on healthcare, education, and defense, or trimming entitlements like Social Security, a very difficult and unpopular path. Such decisions will take long time to apply until harvesting their fruits, they also depend on the ability to reinforce the internal economy to, at least, reduce interest on debt demand, where even a modest 1% drop-in interest rates on federal debt could save over $360 billion a year.
While current events seem to have a rhythmic repetition in history, one cannot know how it will reveal. Can the USA stabilize its economy within the current struggle between the government and the Fed, rebalance wealth, and renew its role as a credible leader in a rapidly evolving world? Or should we prepare for more history to reveal?
