Equally importantly, the boundary loops around the issue of the environment. Consider a river polluted by industrial waste. When the polluter pays to clean it up, the expenditure is treated as a cost which reduces profits and GDP. But when the government pays another company to clean up the river, the expenditure adds to GDP because paying workers adds value. If the cost of cleaning up pollution is borne by someone other than the polluter it is called an externality–the cost is ‘outside’ the polluter’s profit-and-loss account–and increases GDP.
