> It's not like the government destroys that 27% when it spends it: the money is just redirected
It's easier to think about these things in terms of labor than in terms of money - money is too abstract and it's easy to make logical errors.
Imagine we have a 100% labor/service economy. Each time money changes hands, it means that that much "value" of labor has been exerted. In this sense, it is clear that the GDP is an accurate representation of precisely how much "value" or labor is being exerted in total across the country each year.
If each time money changes hands, the government takes 27%, that means that 27% of all labor exerted in the economy goes to the government, and is spent, permanently. Money is finite in the same sense that labor is finite in this example.
> But if a competitor offers a generic version of the same drug at ten dollars a year, putting me out of business, that $10k / year diaappears from the GDP figure.
No, then the consumer would put that 10k / year towards some other purpose instead, and it would still show up in the GDP.
> If each time money changes hands, the government takes 27%, that means that 27% of all labor exerted in the economy goes to the government, and is spent, permanently.
But the labour goes towards a government program. If the program is absolutely worthless, then you're right: nothing of value was created and 27% of GDP was "spent". But if the service was just as valuable as what each worker would have done, then nothing is lost. The reality is probably somewhere in-between. Some work is wasted as a result of bureaucracy, but otherwise the government makes good use of its taxes.
> No, then the consumer would put that 10k / year towards some other purpose instead, and it would still show up in the GDP.
GDP measures value added to an economy. If the price of a product drops, it adds less value. Consider the cost of adding a column of numbers in the era before computers (done by a trained clerk) vs today, where the cost is effectively zero. We don't account for all clerical work that has been automated away in the GDP figures anymore because it's essentially free.
> But the labour goes towards a government program.
I agree. I'm not saying government programs are useless. The person you replied to was simply saying that we only have $62,000 a year to spend on each person (and that's all of the resources in the entire economy) and it sounded to me like you were disagreeing and saying we had more than that.
> GDP measures value added to an economy.
I agree.
> If the price of a product drops, it adds less value.
By what definition of value? Are you just defining value as being equal to the price? In a utility-based sense, I think GDP does measure value added to the economy.
> We don't account for all clerical work that has been automated away in the GDP figures anymore because it's essentially free.
In some cases, the GDP might not change if the cost of goods has only gone down, sure, but GDP is a useful figure only relative to the cost of goods. This is how we compare the GDPs of different countries with different currencies.
In utility based sense, GDP is not a measure because one dollar has zero utility if you cannot spend it on something you need.
Even $100k can have zero utility if you need cancer treatment that is more expensive than this.
This is because service costs are usually not negotiable, and especially not privately if you have zero power.
Deriving utility from money directly is an exercise in futility.
In comparison, items can be used for the intended purpose, meaning they have utility for that and related purposes.
Money has unknown utility depending on prices and other various factors.
Without specifying purpose and other constraints you cannot actually talk about utility of any asset.
PPP adjusted GDP is better, because it relates money value to a certain basket of goods which have utility for certain common life purposes.
However, the basket typically skips critical pieces like shelter (housing), clothing or indeed weighted averages of medical care.
(Medical care is especially tricky because it is very heavy tailed in cost. Low probability events have huge costs, which means in normal average they're hidden. What is needed is the likelihood of a person hitting any of the expensive conditions, which can be had by binning expensive ones together.)
Not to mention if a service is paid by taxes, PPP essentially should count the cost by using the tax value split among all the free services. If it is gated conditionally, then likelihood of that condition has to be counted in. (E.g. free for people making $x or less.)
It's easier to think about these things in terms of labor than in terms of money - money is too abstract and it's easy to make logical errors.
Imagine we have a 100% labor/service economy. Each time money changes hands, it means that that much "value" of labor has been exerted. In this sense, it is clear that the GDP is an accurate representation of precisely how much "value" or labor is being exerted in total across the country each year.
If each time money changes hands, the government takes 27%, that means that 27% of all labor exerted in the economy goes to the government, and is spent, permanently. Money is finite in the same sense that labor is finite in this example.
> But if a competitor offers a generic version of the same drug at ten dollars a year, putting me out of business, that $10k / year diaappears from the GDP figure.
No, then the consumer would put that 10k / year towards some other purpose instead, and it would still show up in the GDP.