Revisiting the 1930s

Cole & Ohanian were deceptive in even more ways given their own data:
http://thefaintofheart.wordpress.com/2011/09/30/more-evidence-on-how-cole-ohanian-were-deceptive/

"But increasing aggregate demand is supposed to increase output by increasing labor, not by increasing productivity, which is typically considered to be outside the scope of short-run spending/monetary policies."

That is another departure of AD "theory" from reality.

In the 1930's in order to meet the "demand" for well drilling capacity, but seeing the need to hold down the labor requirement to a limited "contingent" to which he could assure subsistence, my father designed and developed "mobile" or "portable" drilling rigs that progressively eliminated the need for erecting and dismantling drilling towers, among other advantages. Work was created at the aviation engineering facility that constructed his designs and subsequent modifications. But his crews became more effective without increase in numbers and by elimination of "pick-up" labor when setting up or taking down.

In an "efficient economy" true demand will be met by the most effective (usually highest margin) means, which generally would not expand increase of labor inputs. More shoes from better leather cutting tools,faster stitching machines, better glues, etc.

Increased demand does not, per se, generate increased labor input by generating product output.

Note that both Hoover and FDR believed in high wages. Both had policies that kept wage rates higher than the equilibrium. The logical response on the part of a business to high wage rates would be to increase productivity.