This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didnt all these public works amount to a major fiscal stimulus?
Well, it wasnt as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects werent felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level. (snip)
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economys needs.
This history offers important lessons for the incoming administration.