I'm not so sure calculating GDP by production would capture this. It should, mind you, as all GDP calculations should get the same answer, but a silly/stupid example of two LLMs digging and filling in a hole may not fit in a production calculation.
> the production approach estimates the total value of economic output and deducts the cost of intermediate goods that are consumed in the process (like those of materials and services)[1]
This is a very rough definition of it, but role with it. There is no economic value since the hole was dug only to be filled back in. There was a service paid for on each end of the project, but those are services that could fall into the category of intermediate goods consumed that is actually deducted. The transaction could actually have a negative GDP when using the production calculation approach.
[1] the production approach estimates the total value of economic output and deducts the cost of intermediate goods that are consumed in the process (like those of materials and services)
In both income and expenditure-based GDP calculations income or consumption by households are part of the calculation (which means the calculations will not give the same result).
You can make an argument that if the hypothetical workers are salaried they're not technically paid for any given task, while I'd argue that there was an opportunity cost (they could have done other work than digging/filling it in), so there's some subjectivity to it.
My stance is that if it was done as part of paid work, they were paid to carry out the task as there's at least in aggregate if not per every one individual event an opportunity cost in having them do that work instead of something else, and so part of their consumption was paid for by the labour for those tasks, and hence they affect GDP.
That the output does not add value for the procurer of that labour does not nullify the expenditure on that labour. Whether you're calculating GDP on income or expenditure, those add to GDP either as income for the workers or an expenditure for the employer.
Sounds like you prefer expenditure or income calculations over production. That makes sense and I think I'd agree.
I'm not sold on tying it back to opportunity cost though. That may require knowing the potential value of work that could have been done instead. It also means that we could view GDP as the potential economic value if everything is optimized, regardless of what is actually produced. That feels wrong to me at first glance but I'd have to really dig into it further to have a more clear argument why.
Production will only change things there if both tasks are carried out as part of the same service, charged as one. Otherwise, there will still be two outputs that nullify each other but both cause GDP to increase. But even then, if you charge someone for a service to dig and fill in holes, that there is no tangible product at the end does not mean there isn't an output that has a price, and that so increases GDP, just the same as, say, performing a dance does not leave a tangible product at the end, but the service still has a price and a value, and paying for it still increases GDP.
With respect to the opportunity cost, the point is not being able to quantity it, but that whether or not the task is productive, because it takes time, it has a cost.
> even then, if you charge someone for a service to dig and fill in holes, that there is no tangible product at the end does not mean there isn't an output that has a price, and that so increases GDP, just the same as, say, performing a dance does not leave a tangible product at the end, but the service still has a price and a value, and paying for it still increases GDP.
That blurs the line between the different calculation methods though, doesn't it? If nothing is produced then the production method of calculating wouldn't account for the transaction.
This method would also open the possibility for fraud. If the government wanted to boost GDP, for example, they could hire a bunch of people to dig a whole and fill it in all year. Would they? Probably not, they have easier ways to waste money and game GDP. But they could and that seems like a problem.
> because it takes time, it has a cost.
I don't know of any economic metrics that quantify the cost of time like this though. People like to point to unpaid labor as a huge blindspot for GDP precisely because of that - when your day is spent taking care of your home, children, or elderly parents the time is spent but GDP isn't impacted.
> the production approach estimates the total value of economic output and deducts the cost of intermediate goods that are consumed in the process (like those of materials and services)[1]
This is a very rough definition of it, but role with it. There is no economic value since the hole was dug only to be filled back in. There was a service paid for on each end of the project, but those are services that could fall into the category of intermediate goods consumed that is actually deducted. The transaction could actually have a negative GDP when using the production calculation approach.
[1] the production approach estimates the total value of economic output and deducts the cost of intermediate goods that are consumed in the process (like those of materials and services)