One has to be crazy to disagree with Brad DeLong. Then, I must be crazy. He said…

“After being wrong for eight straight years, critics of expansionary macro policies in a high-slack low-inflation economy–” Link

It is true that if we look across America, we will see lots of slack and underemployment. Labor force participation is low. Labor hours are at the same level as 15 years ago. (link) Part-time work is higher than in the past.

So why do I disagree with Brad?

Monetary policy is coordinated with the hope that the high-slack will eventually be utilized. In the words of my daughter, “Not gonna happen”. Much of the labor force is simply not going to be needed for the equilibrium economy. Much of labor has been cut out (marginalized) from the equilibrium economy.

The reason is growing inequality… more concentrated wealth and income = more concentrated consumption demand = more concentrated production

We need fewer labor hours to serve those with the concentrated wealth. The equilibrium level of labor is lower. So we will now always see slack and more underemployment, because the labor force is being concentrated due to income inequality.

The hope of low interest rates is for lower-level businesses to hire the marginalized labor and tighten the labor market so that inflation will return. But the larger marginalized labor force sitting outside the equilibrium economy helps keep wages down. So inflation will stay weak. The low Fed rate is in a delusional attempt. The Fed rate will stay low for a long time until it recognizes that a significant portion of the high-slack is simply gone causing inflation to remain weak.

The Two Groups within Slack

When you look at the high-slack, a relatively smaller portion of it currently will be utilized to bring the economy into an “equilibrium” state of full-employment. The slack that we see is comprised of two groups.