I see a third option, and that's a combo of your #'s 1 and 2.
To writ: I think that we're rapidly approaching the point where there are not enough producers from which government may extract money - either at metaphorical or physical gunpoint. They'll either run out of money, or run out of means to create wealth.
Or, they'll just leave. Something that Liberals don't understand is that people with wealth, or even just with some smarts, are not limited to staying in their neighborhoods and taking their lumps. They can leave the city, state, country...pretty much at will (for now).
Take my case, for example. The city in which I live was sticking me up for an (IMHO) inordinate amount of taxes every year. It frosted me to no end, to watch crime increase, while the police force was cut, and simultaneously the city spent 10's of millions on new museums for the politically correct and massive swimming pools (voted in, mostly by people who DIDN'T pay property taxes....). So, I left for a place that was more rural, with lower taxes, less crime, better schools, etc etc etc. Easy Peasy, a no-brainer decision.
At any rate, once that tipping point is reached, then children *will* starve in the street. Not by choice, but because there's nothing left and no means to obtain more. The cupboard, quite literally, will be bare.
I'm hoping that the current political cabal comes to its senses before that point it reached. I'm not optimistic. I also think that the slide will take a couple of generations, but once that "tipping point" is reached, then its a point of no return.
YMMV. Just my $0.02
That may be a bit optimistic.
Glenn Beck is presently talking about how the Marxists always kill the farmers.