more than $1. A person hired by the WPA or the CCC not only increased the GDP by the value of the goods or services he/she provided but also spent their wages in local business contributing more to GDP when those local goods and services were added into the total. Local farmers, businesses, etc. then had more income which they could use to buy goods and services which added more to the GDP.
If the additional $1 in federal spending were just taken home and buried in the back yard then it would only create that $1 in additional GDP (the value of the goods and services that the WPA worker produced, let's say.) GDP would only increase by the value by that $1. OTOH, if that $1 is spent locally, the additional $1 in federal spending had a greater than $1 effect on GDP - a multiplier effect.
Yet despite New Deal programs and some aid to the states,
total government spending — federal, state and local — as a share of the economy throughout the 1930s remained at just under 20 percent. (Today, total government spending is more than 35 percent, a larger buffer against weakness in the private sector.)
It would not be until the early 1940s, with the beginning of World War II, that a strong dose of Keynesian medicine was administered to the American economy. By 1942, total government spending as a share of the economy rose to 52 percent, and peaked at nearly 70 percent in 1944, when unemployment fell to 1 percent.
http://www.nytimes.com/2009/01/27/business/economy/27fdr.html?pagewanted=all&_r=0The reasons for the discrepancies in the unemployment data that have historically arisen out of the New Deal are that the current sampling method of estimation for unemployment by the BLS was not developed until 1940 (for more detail see here). If these workfare Americans are considered to be unemployed, the Roosevelt administration reduced unemployment from 25 per cent in 1933 to 9.6% per cent in 1936, up to 13 per cent in 1938 (due largely to a reversal of the fiscal activism which had characterized FDR’s first term in office), back to less than 1 per cent by the time the U.S. was plunged into the Second World War at the end of 1941.
In fact, once the Great Depression hit bottom in early 1933, the US economy embarked on four years of expansion that constituted the biggest cyclical boom in U.S. economic history. For four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 largely caused by renewed fiscal tightening ... .
This economic relapse has led to the misconception that the central bank was pushing on a string throughout all of the 1930s, until the giant fiscal stimulus of the wartime effort finally brought the economy out of depression. That’s factually incorrect. Most accounts of the Great Depression understate the effect of the New Deal job creation measures, because they don’t show how much of the decline in official employment was attributable to the multiplier effect of spending on direct job creation.
http://www.rooseveltinstitute.org/new-roosevelt/real-lesson-great-depression-fiscal-policy-works
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