[orwin]

Consider a city, paying two gardeners 25k each per year, and an extra 5k for two month. Spending is 55k+oil+chemicals+tool maintenance (that the gardeners usually do). Let's say the annualized cost is 75k. So this service contributions to GDP is 75k.

Now, the city wants to show GDP/capita growth. Simple : let's pay a company X that will pay the gardeners. It'll cost 95k. Now the GDP is 95k+ 55k (let's say the gardeners are on the same pay and have the same work). But wait, maintenance can be done by the company Y! Now the GDP is 95k+55k+20k (maintenance fixed cost 10k+worker time 7k+ 3k profit). But wait, now during winter, our gardeners have nothing to do! That eat into our profits!

Now the GDP is 95k + 50k (what is paid to the temp company)+20k+45k, and gardeners are both paid 20k/year gor this job, and can do other stuff during winter (I hear a repair shop need temp workers during inter to fix gardener tools).

The GDP grew from 75k to 160k, a bit more than 100% growth, and we optimized the economy as now gardeners can keep specializing and do gardener stuff during winter instead of learning about motors and mechanics. Great!

[Rexxar]

It doesn't work like that at all. You add GVA (https://en.wikipedia.org/wiki/Gross_value_added) of each entities. Adding more intermediate entities doesn't increase GDP as the GVA of each entities is reduced.

[rightbyte]

Is each transaction added to GDP? In that case it is a really BS number.

[jahnu]

https://www.smbc-comics.com/comic/2013-01-14

[refurb]

Where does the extra money come from? Out of thin air?

[raincole]

GDP isn't money. It's production.

There is an assumption behind GDP: people generally pay production for a fair amount of money. The more untrue this assumption is, the less meaningful GDP is.

[mrguyorama]

It's not even production because of that assumption. It's "sum of prices paid" basically

[refurb]

I’m talking in the example ” let's pay a company X that will pay the gardeners. It'll cost 95k.”

Where does that 95k come from?

[raincole]

For this specific example? Just like any company's 95k. They got the initial capital from investors, they sold things to customers, they got loans from a bank, etc.

Or you're asking generally where money comes from? It's a good (and complicated) question. Google monetary and banking. In multiple senses, money DOES come out of thin air.

[orwin]

City budget or loans. Easy enough if your mayor have a friend who want to start a gardening company !

I'm joking: even without corruption, you can find an ideological reason, as a company will surely be more efficient than public servants!

But more likely because of incertitude: what do we do if a gardener resign? Paying an existing company 95k/year instead of spending 75k/year directly isn't a huge expense increase, and if 20k/year is the price for peace of mind (no new equipment to buy, no HR issues...) it can very well be worth it.

I'm not saying this is good or bad by the way, i'm saying this is how GDP work. It's factual. Yes, there is a left-wing slant about how i presented it, but it wasn't heavy, and a liberal could use the same example in the same way and justifying a better distribution of work and concerns (while still finding that GDP is worthless in this case)

This is interesting as an indicator, it's meaningless as a target.

[refurb]

But borrowing that money has implications for the economy and other businesses.

This is the mistake the OP made. You can't "goose" GDP by borrowing because that money has to come from somewhere. And the money used to "goose" GDP is money that doesn't go to other productive uses.

[ta988]

This is exactly what GDP means... take everything multiply by price and sum.