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It is important to note that any major economy, such as the United States, is heavily influenced by a number of large industries operating in its market. The given analysis will primarily focus on the U.S. automotive industry’s economic impact with an emphasis on Keynesian macroeconomic principles and theoretical frameworks. Due to the highly quantitative nature of economics as a field of study, the focus will be put on the use and in-depth assessment of statistical data in the form of figures, such as charts, tables, or graphics. U.S. automotive industry’s economic impact was positively contributive in regards to employment and output, which was triggered by the U.S. government’s fiscal policies aimed at increasing aggregate demand in accordance with Keynesian principles of macroeconomics.
Keynesian Economics
In order to properly approach the selected subject of interest, it is critical to define and establish what the Keynesian theoretical framework is comprised of alongside its essential components. It is stated that “a Keynesian believes that aggregate demand is influenced by a host of economic decisions—both public and private—and sometimes behaves erratically” (Blinder, 2019, para. 2). In other words, aggregate demand is comprised of the total amount of spending in an economy, which heavily impacts both the inflation and economic output. The government can influence the aggregate demand in two main ways, which involve fiscal policy as well as monetary policy. In accordance with the theory, “changes in aggregate demand, whether anticipated or unanticipated, have their greatest short-run effect on real output and employment, not on prices” (Blinder, 2019, para. 3). Keynesians are primarily interested in the short-term effects of aggregate demand dynamics with economic yield and employment since long-term timeframes are practically impossible to predict due to a massive cumulative accumulation of a diverse range of factors. Although the theory is more extensive than what is listed above, these can be considered core pillars of Keynesian economics.
Automotive Industry: Size and Scale
The automotive industry in the United States is significant and influential, which is evident by the mere fact that even cities are designed around people owning or having automobiles with less reliance on public transportation. It is reported that “approximately 4.5 percent of all U.S. jobs are supported by the strong presence of the auto industry in the U.S. economy” (Hill et al., 2017, para. 6). In addition, “people in these jobs collectively earn over $500 billion annually in compensation and generate more than $70 billion in tax revenues” (Hill et al., 2017, para. 6). In other words, the automotive industry is massively responsible for employing around 1.7 million individuals directly and creating 8 million jobs overall (Hill et al., 2017). Therefore, the subsequent assessments of the industry fall in the category of markets capable of substantially altering the economic indicators.
Automotive Industry: Employment
When it comes to a practical application and understanding of Keynesian macroeconomic principles, it is essential to observe the dynamic relationships between aggregate demand stimulated by government interventions and responses in the industry of interest. The theory emphasizes that aggregate demand has a significant impact on short-term economic output and employment (Blinder, 2019). The statistical data on employment in the automotive industry from 2021 to the current month of June 2022 is presented in Figure 1 below. In both manufacturing and retail trade, employment figures show an increase by a significant margin. For example, in the case of motor vehicles and parts manufacturing, the total number of employed by the industry rose by 65000, whereas, for retail, the rise amounts to 39700 new jobs (U.S. Bureau of Labor Statistics, 2022). In other words, the employment rate in the U.S. automotive industry improved within a one-year period.
Automotive Industry: Output
A similar improvement trend can be seen in the output of the U.S. automotive industry in the last annual period. Figure 2 below shows the chart on the car production rate changes over the course of the last year. The graph shows the strong trend of increase in car unit production, which is indicative of improving economic output within the industry (Trading Economics, 2022). More cars are being produced this summer compared to the last one, which positively correlates with the previous observation of more people becoming employed as well.
Keynesian Economics at Play
On the basis of the statistical data provided above, it is important to understand that the impact of the U.S. automotive industry on the general economy is a reciprocal one. Despite the fact that the industry is massive, it still comprises around 5% of total GDP, which is why the theoretical framework is best understood as a feedback loop relationship (Hill et al., 2017). Since the COVID-19 pandemic and lockdowns began in 2020, the economy of the U.S. shrank and rebounded, where the demand for cars fell and started to rise again. During this period of 2020 and 2021, the United States government engaged in federal fiscal response to recent recessions (CITE). Figure 3 below shows the chart comparing the fiscal stimuli conducted by the U.S. government during 2001, 2008 & 2009, and 2020 & 2021. Even though the Great Recession was a major economic event or crisis, it became easily overshadowed by the COVID-19 pandemic, which experienced the highest amount of fiscal responsibility in recent American history (Dean, 2022). The fiscal policy of the government created massive aggregate demand, which, according to Keynesian principles, should create an increase in economic output and employment.
The analysis revealed that the U.S. automotive industry had increased both its output, such as car production rates, and employment, such as jobs, in the past year. These changes were preceded by the highest fiscal stimulus packages by the U.S. Federal government in the 21st century. These relationship dynamics between employment, output, and aggregate demand influenced by fiscal policies strongly support the theoretical framework of Keynesian macroeconomic principles. In other words, the government increased the aggregate demand of the U.S. economy, which impacted the automotive industry as well. In response, the industry raised its employment and output rates. Therefore, aggregate demand plays a major role in how fiscal policies influence industries, which, in return, impact the overall economy.
Conclusion
In conclusion, the extensive and in-depth analysis of the U.S. automotive industry showed the relationship between aggregate demand and an economic output coupled with employment in accordance with Keynesian principles of macroeconomics. The industry impacted the U.S. economy by contributing through an increase in the number of people it employed and general output, which was triggered by the U.S. government’s fiscal policies to increase aggregate demand. Thus, Keynesian economic forces prove to be true and plausible in explaining the importance of aggregate demand and how the government can regulate it through its policies.
References
Blinder, A. S. (2019). Keynesian economics.Econ Lib CEE: Government Policy, Schools of Economic Thought.
Dean, P. (2022). The unprecedented federal fiscal policy response to the COVID-19 pandemic and its impact on state budgets [PDF document].
Hill, K., Cooper, A., & Menk, D. (2017). Contribution of the automotive industry to the economies of all fifty states and the United States.Center for Automotive Research.
Trading Economics. (2022). United States car production.
U.S. Bureau of Labor Statistics. (2022). Automotive industry: Employment, earnings, and hours.
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