The market will solve the problem as it always does. Customers the world over will cease relying on American software and data services, which will cause enough pain in the U.S. that pressure will finally be brought to bear on Congress to act, and the surveillance will be reined in, albeit probably too little too late to lure back much of the business.
Ultimately, we'll have a more dispersed and diversified industry with more infrastructure and offices in places that are beyond the reach of government spies. New cryptographic techniques will help protect data, and there will be a new transparency among companies that guarantee data privacy: they'll need to prove it to increasingly skeptical customers.
The internet will map around this problem as it always has.
People have made fun of the first steps: the undersea cable that avoids the US, for example. Yeah, yeah, we have multi-billion-dollar titanium submarines to tap that. It's not the first such cable that's significant. It's when the cables to the US don't get replaced it will start to sting.
But the real break with the US will happen when you can buy telecom infrastructure and enterprise gear that runs buildable open source software, and when Internet portals start offering secure-by-default communications products like Tox for their customers (or customers adopt such products with or without support from their service providers).
An economist would like this answer, but I would like to think a little document called the Constitution could also -- eventually -- put a stop to things.
The US government and people seem to be capable of deluding themselves that they are world-class in a wide range of endeavors where they actually rank below relatively poor, relatively new republics like Lithuania.
The technology industry, despite being far larger, has been led by the nose by a corrupt old-school rent-seeking content publishing industry. What chance do you give it against the Security State and the revenue gravy train behind it. Nobody fought back. Are there any YC startups making secure services for end-users?
As for the Constitution? That's been sidelined. Only the naive think it still offers any protection. There will be no meaningful change until collapse and/or insurrection break the current system. At best we might swerve at the brink.
That's because the Supremes finally got past the post-Civil War keep guns from blacks and other official undesirables (like your non-Anglo-Saxon immigrant parents, although that burst of gun control was back around the turn of the previous century vs. none I know of post-WWII till the '60s), took the 2nd Amendment seriously (e.g. 9-0 an individual right), and then applied the 14th Amendment to it. And then a 7th Circuit Court panel led by a judge who dislikes the Right to Keep and Bear Arms, but who's honest, enforced shall issue on the whole state.
Same thing's happening right now in California (https://en.wikipedia.org/wiki/Peruta_v._San_Diego), and San Diego and Orange Counties have surrendered. No doubt San Francisco and other counties will engage in Massive Resistance, but the Supremes seem to be supremely disinterested in the subject, or at least they've denied cert in 2 of the 4 possible Circuits that went the other way, with the New Jersey and Massachusetts cases still in progress. We'll see.
"There will be no meaningful change until collapse and/or insurrection break the current system. At best we might swerve at the brink."
I'm certainly hoping for the latter, but in the meanwhile, we're getting really well armed for the former two, as you note not mutually exclusive, options. Hard to see how things won't get ugly when the Feds can no longer borrow money at negative real interest rates or thereabouts or debase the dollar so much it doesn't matter.
Don't underestimate the possibility, and the horror, of just muddling through. The US is in an oil boom, which would feel like an actual boom if it wasn't propping up an economy that was really very badly damaged by the 2008 bust. That means we can pay down the wars without learning that we're on track to get dragged down by a bloated security state. Heck, we managed to spend ten years in the Graveyard of Empires and all we learned were some cheesy anecdotes in a fraudulent book about tea drinking. And that generals shouldn't date their hagiographers.
"Don't underestimate the possibility, and the horror, of just muddling through."
Indeed, and I don't, for that's the worst case I'm likely to survive for medical reasons. I label it "Argentina".
I do think you obsess a bit too much on the costs of our 21st Century foreign adventures. To take FY 2007 as an example,simply because Wikipedia provides some details and the Iraq war was hot, that was famously the year of the "surge": https://en.wikipedia.org/wiki/2007_United_States_federal_bud..., the total Defense and Iraq and Iran war costs were less than Social Security + Medicare ... which can't get "turned off" like these, and which are going to rise dramatically as the Baby Boomers continue to retire.
Near the end of that fiscal year the CBO "estimated that "war-related defense activities" in 2007 were "roughly $115 billion." (Or call it 230 Solyndras.) You have more than a passing familiarly with WWII and the Cold War, and their costs. We aren't talking about Maximum Efforts like the former where, I just randomly looked up yesterday, we peaked at building a B-24 Liberator heavy bomber every hour, 650 per month (curiously close the total number of all airplanes Imperial Japan could make in a month), and 18,482 total units ("it still holds the distinction as the most-produced American military aircraft.")
The "surge" itself wasn't that big in historical terms (although this is more expensive volunteer army), 18,400 troops in 5 Army brigades, 4,000 Marines had their stays extended, etc., evidently 28,000 "additional troops" (https://en.wikipedia.org/wiki/Iraq_War_troop_surge_of_2007#O...).
Unless the CBO was smoking something powerful, this wasn't a budget buster; not a small cost, but I can't see how you can reasonably claim it's a proportionally bankrupting cost, unless everything I've heard from secondary or worse sources is wrong, plus what I just looked up.
Ultimately, we'll have a more dispersed and diversified industry with more infrastructure and offices in places that are beyond the reach of government spies. New cryptographic techniques will help protect data, and there will be a new transparency among companies that guarantee data privacy: they'll need to prove it to increasingly skeptical customers.
The internet will map around this problem as it always has.