Good one, Charlie. I agree, mostly, but I have a question. What happens if the economy doesn’t grow, but goes into a long term contraction?
Um, it sucks?
It’s an interesting question: there have certainly been good historical examples, like the Soviet Union and the Soveit-dominated Eastern block in history, or for a fictional version, the world of Atlas Shrugged.
Algebraically, the theorem is still a theorem: if the rate of growth of GDP (which is negative in your hypothetical situation) ir greater than the rate of growth of spending (which also now must be negative for this to hold) then you still eventually have a surplus and buy down debt. It doesn’t matter what the values are: as long as d(GDP)/dt < d(SPEND)/dt, you’re in good shape.
Politically, of course, this isn’t really likely: it’s much more likely that a government would attempt to restore a condition in which the economy is growing, while increasing expenditures temporarily to insulate its constituents from the economic contraction.
