The economy will likely depend greatly upon the policies this government passes. The stock market is finicky now because they aren't sure what policies will be passed, but the market seems to be guessing they will be anti-growth.
If they go into a tax and spend mode, and pass the Employee Free Choice Act, which will remove the workers's right to a secret ballot vote and make it a lot easier to unionize, and enact a carbon cap-and-trade system, the economy will likely be hamstringed. Take a look at what has happened to the state of California for an example. California is like the government equivalent of the Big Three right now. The state is on the fiscal cliff and is in a deadly spiral because to fund the public pension systems and employees keeps requiring higher and higher taxes and more debt (California already has the most debt of all the states). Taxes may have to double or triple in California. But this is having the nasty effect of sending businesses and high-earning individuals fleeing the state already, which decreases the tax base further, requiring higher taxes, etc...meanwhile entitlements are insane in the state. California punishes harshly hard work and financial success with high taxes, and their high regulation, unions, environmental groups, etc...make it very unfriendly for business as well. But they reward laziness with generous welfare policies. Which is very bad from fiscal standpoint.
Senator Obama has not once ever bucked organized labor from what I can see, and this is shown more by his choice for Labor Secretary. And the unions want payback for all that money they spent getting him elected. Senator Obama also expressed support for the Employee Free Choice Act during the campaign, so, time will tell. But if passed, it could add a burden to the economy for a generation.
The United States may well be becoming one of the most harsh countries for business. Once the Bush tax cuts expire, the top marginal income tax rate goes back up to 39.6%, which will hit many small businesses taxed at that rate, the tax on capital will return to 20%, which is a 33% increase from where it is now (15%), and Barack Obama may raise it even higher, and the tax on dividends will return to 39.6%, an over 100% increase from where it is now (15%).
The current tax on capital is already rather high, at 15% (Switzerland and Germany don't tax capital at all, and Australia and the UK have a graduated tax on capital that ultimately amounts to less than the U.S. rate I believe).
Increasing the tax on capital will devalue the stock market and also slow down venture capital investment, thus slowing down new business growth, and wage growth, which is tied to capital, further (wages are tied to productivity and productivity is increased through capital, i.e. computers, plants, equipment, etc...a worker with a forklift is far more productive than one carrying boxes on their back). Businesses that would expand will not do so or not do so to the extent they would have previously, and startups that might otherwise have received funding will not get it. Venture capital firms only make money from one out of multiple businesses they fund; the less capital is taxed, the more businesses they will risk money on. The more it is taxed, the less.
Also, historically cutting capital gains tax rates always has increased revenues, and increasing the tax has cut revenues. Some economists argue that revenues only increase initially, than decrease in the long run, but this view seems to forget that cheaper capital means more business expansion and new business, and thus job, creation.
But it probably isn't wise to enact a tax increase (or allow one to occur) that will cut revenues to the Treasury right now, meanwhile strain businesses more, all in the name of "fairness."
The Left like to claim that the capital gains tax cuts only benefit the rich and wealthy, because the wealthy own the majority of the stock, and thus raising it is only sticking it to the wealthy. But capital gains is a tax on capital period, whether it's stocks, a car, home, business, whatever, and whether owned by middle-class, wealthy, well-off, whatever (and many middle-class own stock too). Also, as shown above, capital is what affects wages and job growth. So taxing it more can inadverdently hurt the middle-class a good deal.
Senator Obama talked about wages supposedly being stagnant, well you don't increase the tax on capital if you want wages to increase.
We have one of the highest corporate income tax rates, which incentivizes businesses to go overseas to take advantage of cheaper rates and to use our incredibly convulted and complex tax code to loophole their way out of the corporate tax rate.
Europe is advertising itself as a "Sarbannes-Oxley-free zone," a piece of regulation that has made it very costly to startups wanting to go IPO.
Throw in giving the unions the biggest piece of pro-union legislation in decades possibly, and carbon cap-and-trade (powerful unions and carbon regulations, along with high taxes and out-of-control spending are destroying the California economy), and you have a recipe to make the U.S. highly anti-business.
The only way the U.S. may handle this is if the U.S. economy is rich and strong enough to take all of these measures if passed. If not, we may see a repeat of the high inflation, high uemployment, recessionary 1970s.
California itself has a large influence on the U.S. economy because it is the world's 7th largest economy alone. Just as when America sneezes and the rest of the world catches a cold (or maybe it's when America catches a cold, the rest of the world sneezes?), well when California gets sick, it affects the whole country.
Barack Obama may govern as a moderate, I mean he has chosen moderate economists, and he said recently that we don't want to enact heavy, burdensome regulations and ultra-high taxes, so I am hoping he will hold to this. But as said the unions want their payback and the unions, trial lawyers, environmental lobbyists, etc...will push for all of their policies, and the current Democrats in Congress are led by some very Left-leaning folk, i.e. Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid.
Jimmy Carter originally wanted to govern more to the center, but the Democrat Congress at the time pulled him more to the Left.
The economy performed okay with a tax increase in the 1990s, but the thing is that this was before many of the other countries had enacted their flat tax rates they have now and also under Clinton the capital gains tax rate was cut from 28% to 20% in 1997; this was when the economy really went into hyperdrive and the budget went into surplus. The Republican Congress at the time also kept Clinton more fiscally conservative, and because it was peaceful times, military spending was able to be kept to a minimum.
Had the Republicans not spent so much money like they did, we likely would have had a $100 billion plus surplus in 2007, so the deficit would be lower.
The traditional idea was that deficits are bad, but now the government seems to have the attitude that deficits don't matter, which isn't good.
The dollar will likely stay weak and grow weaker if foreign investment begins fleeing the country fast.
Since healthcare is about 16% of the economy, the economy will also likely depend somewhat upon how Senator Obama's universal healthcare plan works. Healthcare costs currently are exploding because 50% of healthcare is government-provided, the other 50% so heavily regulated it can't really be called a free-market, and without competition, costs are shooting up. This is bankrupting businesses and individuals.
Also infrastructure spending may lengthen the economic recovery period, because the money spent on public works is money that instead could be in the private sector creating new businesses and creating jobs.
A danger here is that Senator Obama is likely hoping the economy will be recovered by the time the Bush tax cuts expire, so that it can withstand these tax increases and no legislation is needed to actually "raise taxes," as it happens automatically. But if other policies, such as massive infrastructure spending, lengthen the time it takes for the economy to recover, the economy may still be rather stalled come the time the tax rates increase.
Also is the concern over free trade. Senator Obama spoke much against free trade during the election, and said he wanted to make free trade more "fair" (which there is no such thing; either it's free or "fair" (whatever that means); certain people will always lose their jobs from free trade, just as certain people will always lose their jobs from technological change). But on net, free trade creates millions more new jobs.
If free trade is infringed upon through say high tariffs, that could be big trouble. Time will tell though.
Also of great concern is the minimum wage. Increasing the minimum wage and indexing it to inflation as Senator Obama wants to (he wants to raise it to $9.50) will artificially increase the cost of labor to a business, which means they will higher fewer workers.
This especially hits hard the inner-city areas, the very areas it is meant to help. It also has other adverse effects, such as a business may take full-time jobs with benefits and divide them each into two part-time jobs that have no benefits, or employees will get less pay, or worse working conditions, etc...it greatly helps big monster firms like Wal-Mart though, which can easily afford a minimum wage increase and thus benefit from the increased stuggle of the small businesses, which may have to raise their prices, or offer less benefits, or whatnot. Wal-Mart supports a minimum wage increase as well (probably precisely for this reason).
Mom-and-Pop stores can't handle a minimum wage increase like a Wal-Mart can. A guy who say owns a small chain of stores, say five big Wal-Mart/K-Mart type stores, suffers more as well because he can't offer the prices like Wal-Mart can.
But right now, it's all speculation. I hope Senator Obama and the Democrats will govern as economic moderates, not overspending or overtaxing or regulating or anything like that.