I see this claimed all the time, but I don't understand why this is assumed to be the case.
GDP rises and falls with economic progress and innovation. If new LLM startups make a bunch of money, GDP goes up accordingly.
But government spending is primarily geared towards defense, infrastructure, and benefits/entitlements. What makes those costs go up proportionally to GDP? A fighter jet doesn't directly cost more because Amazon rolls out a new Alexa device, does it? America doesn't suddenly grow thousands of miles of new coastline because Google opens a data center in Iowa, right? If Rivian builds 10,000 new EV trucks, how much more interstate highway must be built?
I would expect government spending to ebb and flow as market prices fluctuate, and I get that they might be loosely correlated, but why is spending assumed to be so closely linked that we should expect it to be a function of GDP?
What's the intuition I'm missing?
GDP rises and falls with economic progress and innovation. If new LLM startups make a bunch of money, GDP goes up accordingly.
But government spending is primarily geared towards defense, infrastructure, and benefits/entitlements. What makes those costs go up proportionally to GDP? A fighter jet doesn't directly cost more because Amazon rolls out a new Alexa device, does it? America doesn't suddenly grow thousands of miles of new coastline because Google opens a data center in Iowa, right? If Rivian builds 10,000 new EV trucks, how much more interstate highway must be built?
I would expect government spending to ebb and flow as market prices fluctuate, and I get that they might be loosely correlated, but why is spending assumed to be so closely linked that we should expect it to be a function of GDP?
What's the intuition I'm missing?