America’s long-standing political conflicts increasingly carry an economic cost that is rarely discussed. Research on economic policy uncertainty suggests that sustained political instability can readily reduce national economic output by 1–2 percent or more of GDP through reduced investment, hiring delays, and lower productivity.
In an economy the size of the United States, that represents hundreds of billions of dollars every year — roughly the economic output of an entire mid-size U.S. state.
In prior essays, I argued that America’s political division has become so deep that a peaceful separation into two sovereign nations — one broadly red and one broadly blue — is something Americans should start to discuss and consider seriously.
I also argued that fears of mass migration in an American Union are overstated. If two successor nations were able to govern themselves according to their own political preferences, each would likely move toward its own political center, which would make it easier — not harder — for most Americans to remain where they are.
The United States has long been a complicated political marriage — one held together more by history and economic benefit than any truly shared political vision.
This essay focuses on the economic damage caused by that reality, arguing that 330 million people living under constant political and policy whiplash destroys economic value that could otherwise be created.
A peaceful transformation into a cooperative American Union — two sovereign countries sharing a currency, integrated markets, free movement of people and goods, and a unified defense — could preserve the economic strengths that have made the United States prosperous while reducing the political instability that increasingly undermines that prosperity.
The Cost of Policy Uncertainty
A large body of economic research shows that policy uncertainty discourages investment, distorts hiring decisions, and reduces economic output.
Economists have developed widely used measures of economic policy uncertainty and found that spikes in uncertainty are associated with measurable declines in investment, output, and employment.
When businesses face a substantial risk that major policies may reverse every four to eight years, they behave as rational any actors would — namely, they delay investment, demand higher returns to compensate for risk, and focus on shorter-term strategies, all of which reduce economic efficiency.
These costs are not theoretical or far-fetched. They appear repeatedly in American economic life.
Climate regulation expands, contracts, and expands again. Tax regimes swing sharply. Immigration rules shift repeatedly. Each major reversal forces businesses to cancel projects, redirect capital, and retrain workers — often at enormous cost.
Economic modeling suggests that uncertainty shocks can reduce output by around one percent of GDP or more in the years following a shock, largely through reduced investment and slower productivity growth.
In effect, the American economy operates below its potential because long-term planning is impossible.
The Productivity Cost of Political Stress
Behind institutional uncertainty lies a quieter but also meaningful cost — the effect of constant political conflict on individual productivity. Public health and labor economics research shows that chronic stress impairs cognitive performance, decision-making, and workplace productivity.
Modern political polarization — amplified by social media and 24-hour news cycles — exposes Americans to a near-constant stream of political outrage and perceived threat. In a knowledge economy like that of the U.S., mental bandwidth matters. Time and attention consumed by political anxiety are resources not devoted to innovation, problem-solving, or leadership. Political stress also disrupts sleep, increases burnout, and reduces the mental clarity required for creative work.
In a cooperative American Union, much of this chronic stress would dissipate. Citizens in each country would no longer feel that distant and adverse political majorities control their lives.
Political conflict would still exist — but its scope would be narrower and healthier, and its stakes lower.
Transaction Costs and Wasted Resources
Every political conflict generates economic costs. Businesses and institutions devote enormous resources to less productive activities such as lobbying, litigation, and contingency planning in response to unstable policy environments.
Consider health policy since 2010. Businesses spent years adapting to the Affordable Care Act, then preparing for repeal efforts, then adjusting again to regulatory changes. Similar cycles have occurred in environmental regulation, financial policy, and immigration.
These activities keep lawyers and consultants busy, but they often produce little real economic value.
A more stable political structure could dramatically reduce these wasteful transaction costs.
Social Capital as Economic Infrastructure
Another economic cost of political polarization is the erosion of social trust, with scholars having documented the long decline in American civic participation and social capital. Further, economists have since shown that interpersonal trust plays a measurable role in economic performance.
Cross-country research finds that higher levels of social trust are strongly associated with higher GDP per capita and faster economic growth. Trust lowers transaction costs, simplifies contracts, and facilitates knowledge sharing. Political polarization undermines that trust. When citizens increasingly view neighbors and colleagues as ideological enemies, cooperation declines and partnerships fracture.
Those micro-level breakdowns eventually show up as macro-level economic underperformance.
A political reorganization into two coherent democratic communities could allow social trust to rebuild within each society while allowing relations between them to become less hostile and more pragmatic. When people believe their neighbors share basic values, engagement rises.
Economic Ecosystems Require Policy Coherence
Modern economic growth depends heavily on regional ecosystems — networks of specialized firms, skilled workers, and supporting institutions. Economists have shown how these ecosystems generate powerful economic spillovers and productivity gains.
But such ecosystems depend on stable rules. Silicon Valley, for example, depends on consistent policies governing capital gains taxation, intellectual property, immigration, and bankruptcy law. Sudden policy reversals disrupt those systems and reduce efficiency.
The current American political system increasingly oscillates between incompatible policy visions: Blue America tends to favor aggressive climate policy, industrial policy, and social welfare programs; Red America tends to favor lower regulation, fossil fuel development, and smaller government.
Both approaches have internal logic and can make economic sense. The problem is that neither is implemented consistently. In an American Union, each nation could pursue a coherent strategy that provides clearer long-term signals to markets.
How Much Growth Are We Really Talking About?
Even after a peaceful separation, each successor nation would remain a major global economy.
Based on Census and Bureau of Economic Analysis data, an illustrative “Red America” would have roughly 170 million people and GDP exceeding $13 trillion, while an illustrative “Blue America” would have roughly 165 million people and GDP exceeding $14 trillion.
Both would remain among the largest economies in the world.
Economists routinely find that uncertainty reduction and institutional stabilization alone can raise growth by 0.5 to 1.0 percentage points over sustained periods, with conservative projections suggesting that reduced policy uncertainty, improved productivity, stronger social capital, and more coherent policy environments could increase annual economic growth by roughly 0.3 to 0.5 percentage points.
Even small improvements in growth compound dramatically over time. Over 20 years, a 0.3 percentage point increase in annual growth produces roughly 6 percent higher GDP, while a 0.5 point increase produces 10 percent or more.
Applied to an economy the size of the United States, those differences translate into trillions of dollars in additional economic output. Spread across American households, the implications are substantial. For typical households, this implies roughly $100,000 to $175,000 in additional lifetime income, depending on how much of the additional national output ultimately flows to wages and household income.
Economic history provides examples of similar growth accelerations following institutional stabilization. Sweden’s structural reforms in the 1990s were followed by stronger economic performance. Ireland’s “Celtic Tiger” period combined policy reform with rapid growth. And the peaceful separation of Czechoslovakia was followed by major economic restructuring and recovery in both successor states.
Financial Transfers Between Blue and Red America
A common objection to the idea of an American Union is that today’s “blue states” subsidize today’s “red states” through the federal budget.
While there is some truth to this claim, it’s not nearly as one-way as many think and would largely offset by the increased economic growth of an American Union structure.
Under the current system, federal taxes are collected nationally while federal spending flows back to states through programs such as Social Security, Medicare, federal grants, and government procurement.
For fiscal year 2024, estimates show that 19 states paid more to the federal government than they received, while the remainder received more than they paid. Even in the most extreme donor and recipient states, recent balance of payments estimates show net flows on the order of only a few thousand dollars per resident per year — significant for state budgets, but modest relative to overall state level income and output.
Many blue states are net contributors under these measures, while many red states are net recipients — though the pattern is not absolute. Large red states such as Texas and Florida also send more to Washington than they receive.
If the United States were reorganized into two sovereign nations, these cross-state transfers would stop. Each nation would operate its own fiscal system.
Programs heavily dependent on federal grants — particularly Medicaid — could face the greatest adjustment pressures. However, much of the spending counted in these analyses consists of payments to individuals — such as Social Security and Medicare — rather than subsidies to state governments. And the potential growth dividend from reducing policy instability is large by comparison.
Even a 0.3 to 0.5 percentage point increase in annual growth implies tens of thousands of dollars in additional cumulative income per resident over a few decades, far exceeding the typical per capita net transfer implied by current federal balance of payments data, and even modest increases in economic growth would expand the tax base available to both nations.
Conclusion
America’s economic underperformance increasingly reflects political dysfunction. Businesses hesitate to invest because policy environments are unstable. Workers devote mental energy to political conflict rather than productive activity. Transaction costs accumulate as laws and regulations oscillate.
An American Union could preserve the institutions that have long made the United States economically successful — strong property rights, entrepreneurial culture, integrated markets, and free movement of people and capital — while reducing the political instability that increasingly undermines those advantages.
The economic case for such an arrangement is not ideological. It is practical. Americans likely would become wealthier, more productive, and less politically hostile in a cooperative American Union than under the current system of perpetual policy warfare.
The views expressed in this opinion article are those of their author and are not necessarily either shared or endorsed by the owners of this website. If you are interested in contributing an Op-Ed to The Western Journal, you can learn about our submission guidelines and process here.
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