Almost all markets have slack—unemployed workers, unsold goods, idle employees and machines, empty seats, tables, or rooms. This book builds a theory to explain why. It finds that slackish markets operate differently from Walrasian markets: they adjust through slack instead of prices and are generally inefficient. Slack also helps us understand business cycles: it lets us measure full employment, identify the shocks that disturb the economy, explain movements in unemployment and inflation, and detect recessions early. Finally, the book describes how monetary and fiscal policy should stabilize the economy when slack surges.

Front matter

Part I. Introduction

Part II. Slackish markets

Part III. Application to the labor market

Part IV. Slackish business cycles

Part V. Policies to stabilize slackish cycles

Part VI. Conclusion

Technical appendix

Citation

Michaillat, Pascal. 2026. “A Theory of Economic Slack.” Draft manuscript. https://pascalmichaillat.org/18/.

@unpublished{M26,
author = {Pascal Michaillat},
year = {2026},
title = {A Theory of Economic Slack},
note = {Draft manuscript},
url = {https://pascalmichaillat.org/18/}}