> Reduce spending by 40% would reduce US GDP by almost 10%.

No, it wouldn't, because most of that would go straight back to labor and result primarily in increased consumer spending, and secondarily in increased consumer investment (which leads to increased business spending.)

It's not like the money not being spent on healthcare inefficiencies is going to just vanish out of the system.

I'm not sure. At what point does automation lead to a big drop in GDP?

Never; except perhaps when the fact that it results in greater concentration of wealth isn't mitigated and leads to destructive, violent revolution, which cuts GDP.

But that's not really analogous to eliminating health care inefficiencies.

That's why GDP is a pretty bad yardstick. Spending on inefficiency is spending so it raises GDP, but GDP doesn't indicate whether money was spent making people better off, or just spent.

It's like a natural disaster or oil spill: there is good chance a natural disaster or actually increases GDP short term. People aren't better off for it however, since that money could have been spent better elsewhere.

Isn't that just a classic example of the broken window fallacy?

http://www.investopedia.com/ask/answers/08/broken-window-fal...

I doubt the money not spent on inefficiencies would equate to money effectively burnt away. That 40% would probably be spent in other, more productive ways.

Not to mention you're actually making a point for not giving GDP too high a value when looking at economies.

GDP is like capitalism - a terrible measure but better than all the alternatives.

Its a great sale, it means american citizens will be vastly richer. Its also a great incentive for lobby, but politically its tremendously good.