Why would God punish a nation?

We often hear people ert that God is punishing our nation for our failure to do this or that. (Take Fred Phelps as an example.) To me, this is saying that God is limited, and must group people into clusters (a.k.a. nations) to punish them, rather than to distribute judgment on a person-by-person basis. I would like to hear someone explain why God would punish a nation, which would no doubt include innocent people into the mix.