ALTERNATIVE APPROACHES IN MACROECONOMICS Essays in Honour of John McCombie Edited by Philip Arestis Alternative Approaches in Macroeconomics Philip Arestis Editor Alternative Approaches in Macroeconomics Essays in Honour of John McCombie Editor Philip Arestis Department of Land Economy University of Cambridge Cambridge, United Kingdom ISBN 978-3-319-69675-1 ISBN 978-3-319-69676-8 (eBook) https://doi.org/10.1007/978-3-319-69676-8 Library of Congress Control Number: 2018930525 © The Editor(s) (if applicable) and The Author(s) 2018 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and trans- mission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Springer International Publishing AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Foreword It is a pleasure and privilege to write a short Foreword to this volume edited by long-standing mutual friend Philip Arestis in honour of my long-standing friend, John McCombie. John McCombie is one of the finest scholars I have ever met. Most of all, I admire his integrity, independence and courage in taking on the entrenched mainstream use of aggregate production functions, culminat- ing in his definitive volume with Jesus Felipe, The Aggregate Production Function and the Measurement of Technical Change: ‘Not Even Wrong’ (Edward Elgar 2013). He is also internationally respected for his writings on regional economics. John McCombie is a shining example of what university and commu- nity citizenship should be, and so it is fitting that he should now be hon- oured in this splendid volume, with contributions from friends and colleagues. GC Harcourt Emeritus Reader in the History of Economic Theory, Cambridge (1998) Emeritus Fellow Jesus College, Cambridge (1998) Professor Emeritus, Adelaide (1988) Honorary Professor, UNSW Sydney (2016–) v Contents 1 Introduction 1 Philip Arestis 2 John McCombie’s Contribution to the Applied Economics of Growth in a Closed and Open Economy 23 A. P. Thirlwall 3 Why Neither Samuelson’s Neoclassical Synthesis Keynesianism Nor New Keynesianism Theory Is Compatible with Keynes’s General Theory Explanation of the Cause of Unemployment 57 Paul Davidson 4 The Role of Commercial Banks and Financial Intermediaries in the New Consensus Macroeconomics (NCM): A Preliminary and Critical Appraisal of Old and New Models 77 Giuseppe Fontana and Marco Veronese Passarella 5 Microeconomics, Mesoeconomics and Macroeconomics 105 Malcolm Sawyer vii viii Contents 6 A Coherent Approach to Macroeconomic Theory and Economic Policies 127 Philip Arestis 7 Is the Share of Income of the Top One Per cent Due to the Marginal Product of Labour or Managerial Power? 155 Marta R. M. Spreafico 8 Macroeconomic Lessons from the Financialisation Process 183 Jesús Ferreiro 9 Financial Instability and Speculative Bubbles: Behavioural Insights and Policy Implications 209 Michelle Baddeley 10 Sophistication, Productivity and Trade: A Sectoral Investigation 235 João P. Romero and Gustavo Britto 11 Urban Growth in South Asia: A View from Outer Space 269 Mark Roberts 12 Production Functions, the Kaldor- Verdoorn Law and Methodology 303 Marc Lavoie 13 Is the Balance of Payments Constrained Growth Rate Time-Varying? Exchange Rate Over Valuation, Policy-Induced Recessions, Deindustrialization, and Long Run Growth 331 Mark Setterfield and Selen Ozcelik Index 355 Notes on Contributors Philip Arestis is Professor and Director of Research, Cambridge Centre for Economics and Public Policy, Department of Land Economy, University of Cambridge, UK, and Professor of Economics at the Department of Applied Economics V, University of the Basque Country, Spain. He is also Distinguished Adjunct Professor of Economics, University of Utah, USA, and Research Fellow, Levy Economics Institute, New York, USA. He served (2005–2013) as Chief Academic (External) Adviser to the UK Government Economic Service (GES) on Professional Development in Economics. He is holder of the ‘Queen Victoria Eugenia’ award of the British Hispanic Chair of Doctoral Studies and has been awarded ‘homage’ by the Brazilian Keynesian Association (AKB) for his contri- bution to Economics in Brazil. He is holder of the FAcSS (Fellow of the Academy of Social Sciences). He has published as sole author or editor, as well as co- author and co-editor, a number of books and papers in academic journals. Michelle Baddeley is Professor at the Institute for Choice, UniSA Business School, University of South Australia, and was Professor in Economics and Finance of the Built Environment at UCL; previously she was Fellow and Director of Studies (Economics) at Gonville & Caius College, Cambridge. She has undergraduate degrees in Economics and Psychology from University of Queensland and an MPhil/PhD (Economics) from University of Cambridge. She has written books and articles and papers across a range of topics, including behavioural economics, neuroeconomics, cybersecurity, applied macroeconom- ics, regional economics and development economics. She is on the editorial ix x Notes on Contributors boards of the Journal of Cybersecurity, the American Review of Political Economy and the Journal of Behavioral Economics and Policy, as well as the Society for the Advancement of Behavioral Economics (SABE)’s advisory board. She has an active interest in public policy and was a member of DEFRA’s Hazardous Substances Advisory Committee 2013–2017, is an Associate Fellow—Cambridge Centre for Science and Policy—and was a member of the Blackett Review Expert Panel: FinTech Futures 2014–2015. Gustavo Britto obtained a PhD from the University of Cambridge in 2008, where he worked at the Land Economy Department. He is currently a professor at the Department of Economics, Universidade Federal de Minas Gerais (UFMG), Brazil, where he lectures Development Economics to undergraduate and post- graduate students. He was the Head of the Department of Economics (UFMG) from 2014 to 2016. Currently, he is the vice-coordinator of the Postgraduate Programme in Economics at the Center for Development and Regional Planning (Cedeplar-UFMG). He has carried out research and supervisions on development economics and growth, balance-of-payments constrained and cumulative causa- tion growth models, increasing returns to scale and regional productivity growth, regional development and planning, global innovation networks and university- industry interactions and on economic complexity and structural change. The results of these efforts can be seen in journals such as the Cambridge Journal of Economics, Journal of Post Keynesian Economics, Metroeconomica and Scientometrics. Paul Davidson holds a bachelor’s degree in Biochemistry from Brooklyn College, a MBA degree from the Baruch School of Business at City College of New York, and a PhD from the University of Pennsylvania. Davidson has the Emeritus Chair of Excellence in Political Economy at the University of Tennessee. He has held professorships at the Wharton School of Business, the University of Pennsylvania and at Rutgers University where he was also the Head of the Economics Discipline. He also held visiting appointments at the University of Bristol and Cambridge University in the UK, as well as Visiting Professorships at the University of Nice and the University of Strasbourg. He was the co- founder of the Journal of Post-Keynesian Economics. He is a member of the Advisory Board of the Institute for New Economic Thinking. Davidson is the author or co-author of 31 books and more than 200 professional articles. Jesús Ferreiro is Professor of Economics at the Department of Applied Economics V, the University of the Basque Country UPV/EHU, in Bilbao, Notes on Contributo rs xi Spain; he is also an Associate Member of international research centres, like the Centre for Economic and Public Policy, University of Cambridge (UK), and the Núcleo de Investigação em Finanças Públicas e Política Monetária (NIFIP), at the University of Porto. His main research interests are in the areas of fiscal and monetary policies, labour market and wages and incomes policies, finan- cialisation processes, Eurozone, European economies and international econ- omy. He has published a high number of papers on these topics in edited books and also in international journals such as American Journal of Economics and Sociology, Applied Economics, Economic and Industrial Democracy, European Planning Studies, International Labour Review, International Review of Applied Economics, Journal of Economic Issues, Journal of Economic Policy Reform, Journal of Post Keynesian Economics, Panoeconomicus and Transnational Corporations, among others. Giuseppe Fontana is Professor of Monetary Economics at the University of Leeds (UK), Associate Professor at the University of Sannio (Italy), Research Associate at the Levy Economics Institute (USA) and Associate Member at the Cambridge Centre for Economic and Public Policy (University of Cambridge, UK). He is a member of the co-ordinating team and work-package leader of the €8 million EU FP7 research project FESSUD (http://fessud.eu/). He is an expert of the Endogenous Money Theory and the New Consensus Macroeconomics Theory and of monetary and fiscal policies. He has authored and co-authored over 30 book chapters and over 50 international journal papers. He has also co-edited several books, including Macroeconomic Theory and Macroeconomic Pedagogy (Palgrave/Macmillan, 2010) with Mark Setterfield and The Global Economic Crisis: New Perspectives on the Critique of Economic Theory and Policy (Routledge, 2011) with Emiliano Brancaccio. He has also published the monograph Money, Time, and Uncertainty (Routledge, 2010). Marc Lavoie holds a senior research chair from the University Sorbonne Paris Cité, located at the University of Paris 13. He has previously taught for 37 years at the Department of Economics at the University of Ottawa. He is also a research fellow at the Macroeconomic Research Institute of the Hans Böckler Foundation in Düsseldorf and a research associate at the Broadbent Institute in Toronto. Lavoie has published close to 200 articles or book chapters in a wide variety of fields, in particular macroeconomics and monetary economics. With Wynne Godley he has written Monetary Economics: An Integrated Approach to Money, Income, Production and Wealth (2007). He has recently edited Wage-led