The UK govt is increasing defence spending to 2.5% of GDP. Why do they base spending on this figure?
As I understand it, if I make a widget and sell it for £100 then the contribution to GDP is £100. If someone then sells that widget to someone else for £110 then the total contribution to GDP is £210. There’s still only one widget.
How can you base a spending commitment on something that can vary wildly depending on how many times things are bought and sold. There’s not £110 of extra value added to the economy from that second transaction is there? Why isn’t spending based on a % of tax revenue or something.
Or have I fundamentally misunderstood something?