To be honest, I don't know, I am just trying to find some optimism here.
Understood. But just for sake of argument:
Of course it should be. But still somehow here we are today
Yes. That's the definition of malfunction. You don't change your approach to an essential device if the device decided to quit on you. It remains the device, and it needs to be repaired or replaced with a new one. If a fuse blows I do not start learning to live in darkness (that would be a compromise) - I fix the fuse and whatever caused it to blow.
"What compromise can you suggest here?" -- Restore liberty, restore the Bill of Rights, kick out the corruption [...]
I don't see a compromise here. Those are your wishes. Why the government should do any of these things? Who or what forces it to do so? All three branches of the government are now under the same roof, and the fourth one (the media) has been bought out.
I guess government can either do this the easy way or the hard way.
There are other factors at play. The USA is facing an imminent economic collapse because of chronic mismanagement and because the level of consumption does not even nearly match the level of production. I very much doubt that an averaged american even works enough to buy his daily bread. His food comes borrowed abroad, in form of free money that the USA prints to finance the ever-growing international trade (and the inflation of the USD.) Technically speaking, the USA can feed itself - this is one of few areas where the country is good. But the food cannot be produced without fertilizers, fuel, machinery, water, power, and it cannot be delivered without oil and trucks. Lacking those, the agricultural output will drop to the levels of 19th century - and we don't even have enough horses and other domestic cattle to pull the plow, except Amish.
As soon as the collapse happens, the government will be forced to establish martial law and a rigid system of food distribution (for those lucky enough to be under such a system.) Therefore, what's the point of trading political power for being nice if a few years down the road the government will still be forced to do the unpopular move?
But even if we pretend that no collapse is ever going to happen and everything is just peachy, let's consider why the government would want to step back and relax the fascist rules and regulations that it imposed on the country? The only reason is to prevent the uprising. (With the collapse out of the picture, the oppressive rule would be the only cause.) What is the upside and what is the downside for the government if it doesn't step back? The upside is that the government gets absolute control over the country. The downside is that some troublemakers with guns are killed. Hey, why is this a downside? It's an advantage; we don't need no stinking troublemakers here. So what is the real downside then? Bad PR abroad? Hardly a concern when you sit on a good stash of nuclear weapons. Attrition among the peasants and grunts of your own army? Hah, that's what they are here for - to die for their masters. Some shooting around, some cities ravaged? Big deal, who needs those cities anyway? On the other hand, a lot of "disadvantaged folks" (a.k.a. ghetto dwellers) will be summarily destroyed, cleaning the slate for the new society where work is not a luxury and not a privilege, it's the back-breaking duty, and FSM forbid you slack in that.
So if you think cynically enough you see that the government *wants* the civil war, as long as they can win it easily enough. This will scrap the old USA and will create a completely new country; the term USSA is not new, but perhaps it will be fitting. This country will be renewed (the current society of slackers is hopeless) and everyone will be given his daily food (just like in USSR.) This new country will be actually viable, for a while, because 100 million free laborers are bound to make something useful, after all. The old USD will be abandoned; its current holders will be advised to procure a paper and wood based handheld aeronautical toy and launch it on a windy day. The new currency will be probably modeled after USSR, such as it will be for domestic use only, and posession of foreign currency will be a serious crime. Members of the current government will all get positions in the new ruling class ("nomenklatura") and will be living at expense of peons.
When the opponent wants a fight you don't have too many choices. You can give up - and then the other side enslaves you, or you can accept the fight and see what happens. The government's advantage is that none of those bureaucrats have to actually fight. They only make speeches that denounce domestic terrorism, and the pocket MSM creates any visual that fits the story (see "The Running Man" - we have that technology for a long time already.)
You may say that I read and watched too much SciFi. Guilty as charged. However not all those futuristic societies are thought up by writers just to earn a quick buck. Most of them follow the well known rules and principles by which human societies evolve.