Let’s say you believe in secular stagnation and you believe that the prior “short run” of macroeconomics now can stretch for ten, twenty years or more. In the meantime sufficient adjustments will not occur.
And let’s say you believe workers have lost bargaining power and are paid less than their marginal products in a systematic way, as has been argued by many Progressives.
And let’s say you believe nominal wages are quite sticky for extended periods of time, not just a year or two.
Does not a bit of price deflation help to set things right again? The resulting increase in real wages might even — heaven forbid — boost real consumption. And yet there should not be many layoffs, as employers are still earning extra profits on these workers.
Please note that I do not in general believe in the above propositions as stated, I am simply wondering how all of the pieces fit together. It seems to me that if you believe workers are significantly underpaid relative to marginal product, nominal wage stickiness should be a much smaller problem than otherwise. Deflation too.