[tylerdurden]

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Digging a ditch is a service, and DOES count towards GDP.

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Only the labor paid to the ditch digger counts toward GDP. The ditch itself does not count as economic production. No resources were transformed into output. The ditch itself even subtracted value from the land. The economy did not become any more productive and so the example has no relevancy to what began to happen in 1940.

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Land value may or may not be changed. The point is, paying a guy to dig a ditch and fill it in DOES increase GDP, even though, as you point out, the economy is not "more productive" in any meaningful way.

In a broader sense, if you grasp this point, you should see that in a full-blown WWII-style wartime economy, even though there are lots of people working and making money, they aren't really better off, mostly because there's not very much for them to spend money on, as the war is consuming almost all of the production beyond basic sustenance.