This webpage hosts the draft chapters of my book, A Theory of Slack: How Economic Slack Shapes Markets, Business Cycles, and Policies, which is under contract with Princeton University Press. So far only a few draft chapters are available, but additional chapters will be added over time. The chapters posted here are preliminary drafts circulated for scholarly feedback.
The book introduces a slackish model of the economy. The term “slackish” is used to describe a class of models where economic slack is not only prevalent but also the central mechanism to equalize supply and demand. In these models the amount of slack—measured by the market tightness—is the key mediating variable, irrespective of whether the market is inefficiently slack or tight. Slackish does not imply that markets are always too slack; rather, it refers to the structural mechanism through which markets operate. In these markets, the market tightness, not the market price, adjusts to equilibrate supply and demand and to determine allocations and welfare.
Economic slack is the key phenomenon modeled and analyzed here, but what is it exactly? Economic slack describes resources in the economy that are unsold and therefore unused. There are many forms of slack: people who cannot find a job and remain unemployed; machines left idle in a factory; employed workers left idle on the job; hotel rooms, restaurant tables, airplane seats that remain vacant; durable goods that cannot be sold and depreciate; perishable goods that cannot be sold and go to waste.
The book uses the slackish model to answer a range of questions: Why does slack exist and how does it affect markets and economic life? What is the socially efficient amount of slack? Why does slack vary over the business cycle? And how should monetary and fiscal policies respond to such cyclical fluctuations in slack?
I’m sharing these draft chapters to invite feedback from readers. Your comments are invaluable in helping me make the book as correct, clear, and complete as possible. Please don’t hesitate to email me with comments and corrections. As the book is a work in progress, the content and structure may change, so thank you for engaging with this preliminary version.