The economic meltdown continues into the new year. TARP extended to the Fall, Fannie Mae and Freddie Mac get blank checks to cash, $800 billion for stimulus part 2, multi-trillion dollar healthcare package rushed through Congress. There is no end in sight. That 'loud sucking sound from Washington' (Ross Perot), has turned into a roar.
At some point, domestic capital accumulation will collapse as corporations accelerate outsourcing, and individuals move their money abroad for better investment opportunities. The added pressure on government entitlement programs will lead to even higher taxes. We are not far from 1970s Britian where the top tax rate exceeded 90%.
What is more frightening about this recession is that we are simultaneously fighting a long war against terrorism, with its implied direct and indirect economic costs, as this article from the New York Times points out.
The way out is to provide incentives for investment in innovation, education, and productive assets. Unfortunately, in 2010 it appears the political tides will make this unplatable.