This is nicely done, but I think I’m going to disagree in a few places. The problem, or feature, is that your argument is pretty tight—meaning that an adjustment to a fact or projection or two, could change the entire picture.

First, it’s entirely logical that as countries repaired themselves after the devastation of WWII, competition would increase—which is another way of saying that American economic hegemony would decline. By itself, this would not lead to volatility. However, the fluctuating demand and supply of certain raw materials would cause less certainty, less predictability—which is another way of saying volatility. Included in this uncertainty is the invention of new materials, the continued technological innovations, and the real life ability of people and nations to adapt. In other words, prediction past a certain point is just not possible. In fact, it’s not even possible to identify the point.

Second, I’m not sure that a good analogy can be made between the present and the world economy of the 1870s. There are key differences—such as a much much better understanding of finance and the growth of the state in various forms, all of which end up as a regulatory mechanism for each national economy. The regulatory function of national governments is not going away, and may increase.

Third, the next election might be a huge disappointment for anyone expecting a rise in Tea Party sentiment, as these guys could easily get clobbered. In fact, I expect this to happen. If the Democrats are able to properly frame the real issues that face us, then the Congressional election of 2014 might result in the entire Republican party becoming marginal. This is also a possibility, equally as compelling as your hypothesis.

And finally, the participation rate in the economy is based on a fixed technological state, and we all know that the technological state of being is far from fixed. Therefore, as it is possible to have another technological revolution (and certain world events and inventions point in this direction), it is also possible that the participation rate will increase in ways that are presently unexpected.

Anyway, so you see how a little tweaking here and there changes the entire picture.