>> Heilbroner's argument assumes the government is spending on investment. 
>> That is the funds are going into roads, airports, education, etc. This 
>> is not neccesarily the case. Government investment need not occur. For 
>> instance National Defense spending, transfer payments, etc are not 
>> investment.
 
> Depends what you mean by "investment."  Few investments are less
> profitable than a military that is not strong enough to deter attack;


The military is not investment it does not provide capital or 
infrastructure that makes the economy more productive. Investment refers 
to purchase capital. This means actual machines and infrastructure. It 
can also refer to funding ideas that increase productivity. The military 
falls under neither. Military research could be investment in that alm 
military research can have civilian spinoffs. For instance a new jet 
engine can be used on civilian airliners as well.


>> What Heilborner argues is that the deficit is not a big 
>> deal. Unlike a household the government and often corporations do not 
>> have credit limits. So borrowing today could be financed in the future 
>> by more borrowing. This is a possibility. Bonds can be financed by bonds 
>> for some time. There is a limit interest compounds exponentially while 
>> GDP grows in a linear fashion.

> That is most certainly false.  GDP growth compounds pretty much like
> interest.


Look at the data. GDP per capita grows steadily about 1-2%. GDP grows a 
little faster but the trend is still linear. It has a linear trend. 
Interest has an exponential trend. Continous compounding is calculated 
by e^r.


>> If the governement continued to run 
>> deficits forever at some point the interest payments would exceed GDP 
>> and they would have to default.

> Only if the combined interest rate and sustained deficit fraction is
> higher than the GDP growth rate.


Which would be the cases because compounding interest implies using 
exponential growth. GDP growth  is linear.