Chen, Ping. “China and the West：The Metabolic Nature of Changing World Order,” in Svejnar, Jan. and Justin Yifu Lin eds. China and the West，Chapter 9, Edward Elgar (2021).
Abstract:The view from inside improves our understanding on market failure and regulation failure in financial market. The EMH fails to understand the causes of financial bubbles and crashes. Behavioral finance introduces insight from psychology. The heuristic and biases (H&B) approach studied behavioral asymmetry in static environment that leads to market irrationality and information distortion. The fast and frugal (F&F) thinking in decision-making further explore more complex situation under changing environment. They argue that soft-paternalistic regulation is needed under information overload. The most critical issue is information uncertainty and complexity. Lacking information in frequency domain is the main barrier in managing business cycles. Data form inside reveals current limitations of financial data mainly in the short-term price changes. Microstructure studies show that pricing process is shaped by trading rules. Quantitative analysis reveals severe instability in high frequency trading (HFT) and derivative market. Feasible regulation should aim to encourage new technology and sustainable growth, rather than protect obsolete technology and short-term speculation. The most fundamental challenge to sustainable economic order is the excessive size of the derivative markets that crowding out investment in real economy. This is a more severe issue than the climate change.
Key Words: market uncertainty, information complexity, feasible regulation, financial crisis, regime switch.
Chen, Ping. “Market Uncertainty, Information Complexity, and Feasible Regulation: An Outside View of Inside Study of Financial Market” in Ippoliti, E. Ed. Methods and Finance, A View from Outside, Springer, Berlin (2019).
Abstract：The 2008 financial crisis shocked the equilibrium paradigm of neoclassical economics. According to the efficient market hypothesis and rational expectation theory, there is little possibility for a market crisis under the “invisible hand” of a self-stabilizing market. The disequilibrium school emphasizes the destabilizing effect of herd behavior, but falls short in policy recommendations if markets are governed by fat tail, fractal, unit root, power law, or Black Swan models. The study of economic complexity greatly extends our scope to nonlinear and non-equilibrium mechanism in economic dynamics.In this article, we will first study the origin and nature of the crisis that reveals the fundamental flaws in neoclassical economics and requires a paradigm change in economic thinking. Then, we will discuss alternative policies in complex evolutionary economics, which is capable of understanding the changing world after the crisis.
Chen, Ping. “Alternative Policies after the Financial Crisis:New Thinking from Complex Evolutionary Economics,” in Claudius Gräbner, Torsten Heinrich, and Henning Schwardt Eds. Policy Implications of Recent Advances in Evolutionary and Institutional Economics: Essays in Honor of Wolfram Elsner, Chapter 9, pp.155-172, Routledge, New York (2016).
The Hungarian economist Janos Kornai has warned the West of the possibility of a reversal of liberalization in Eastern Europe. He advocates a new policy of containment aimed at countries such as Russia and China. This prompts us to investigate the truth concerning the transition in Eastern Europe. After 1990 the West recalculated economic data from the former Soviet Union and Eastern Europe (FSUEE thereafter) before 1990, for creating an illusion that “shock therapy” had made progress in FSUEE. However, the Eastern Europeans including the Hungarians, who were enthusiastic for liberalization from socialism, soon discovered that joining the European Union (EU) was damaging the interests of the majority of people in Eastern Europe, while Western Europeans also came increasingly to oppose the financial burdens imposed by EU enlargement and immigration inflows. The short-sighted transition strategy carried out in Eastern Europe and the preoccupation with geopolitical interests have in fact exacerbated the EU’s economic crisis, triggering a civil war in Ukraine and causing Russia to become disillusioned with the West. Kornai’s theory of soft-budget constraints as well as his anti-Keynesian policies during the transition recession, is responsible for the economic downturn triggered by rapid liberalization in Eastern Europe. The reversal of the liberalization trend in Eastern Europe and the change in the mass psychology of Eastern Europeans towards the West together constitute an important rebuff to utopian capitalist thinking in China. Has capitalism defeated socialism, as Western propaganda claims? The success of China’s autonomous open-door policy and the failure of Eastern Europe’sunilateral opening indicate that the collapse of the FSUEE occurred mainly for political rather than economic reasons.
Keywords: Eastern Europe; transition; containment; real per capita GDP
Chen, Ping. “Has Capitalism Defeated Socialism Yet—Kornai’s Turnaround on Liberalism, and the Evaporation of Myths about Eastern Europe,” International Critical Thought, 5(1), 1-22 (2015).
Chen, Ping. “Reading Piketty in Peking: The Case Against Capitalist Inequality in Communist China,” Worldpost, Jun. 30, (2014).
Chen, Ping. “Disillusion in Utopian Capitalism and Lessons to the Development of China,” World Review of Political Economy, 5(3), 414-429 (2014).
Tang, Yinan, Wolfram Elsner, Torsen Heinrich, and Ping Chen, “Trend, Randomness, and Noise: Exogenous vs. Endogenous Explanation in Complex Heterodox Analysis (A Note on Nicolas Bouleau in RWER 60)”, Real World Economics Review, no.62 (2012).
Abstract：The Washington Consensus failed to recognize the need of the developing world and the limits of the western mode of industrialization. In last three decades, China experiments a new approach with self-determination, open-minded learning, decentralized experiments, and dual-track reform to simultaneously achieve high speed growth, social stability, and international partnership in peaceful evelopment.
Chen, Ping. “China Approach in a Changing World,” Invited Keynote speech at 6º. FORUM DE ECONOMIA DA FUNDAÇÃO GETÚLIO VARGAS, Sao Paolo, Brazil, Sept.22, 2009. In Bresser-Pereira, Luiz Carlos, ed. Depois da Crise. A China no centro do mundo? (After the Crisis, China in the Center of the World?), Rio de Janeiro: Editora FGV (2011).
Chen, Ping. “Three Dimensions of Current Economic Crisis,” in Looking for Solutions to the Crisis: The United States and the New International Financial System, Conference Proceedings, New York, Nov. 14, 2008, EPS (Economists for Peace and Security) and IRE (International Initiative for Rethinking the Economy), Published in Clamecy, France (2009).
Washington consensus and shock therapy forgot Keynesian lessons from the Great Depression: market instability and the active role of government in promoting growth. The severe output decline in East Europe and former Soviet Union (EEFSU) was triggered by simple-minded policy of liberalization and privatization, which ignored economic complexity and multiple equilibriums under division of labor. New fundamental issues, such as chain reactions between macro instability and micro behavior, the government role of creating learning space in development, interactions among economic openness, sustainable growth, social stability, can be revealed from comparative experiments between China and EEFSU, including exchange rate regime, price dynamics, trade policies, and reform strategies. The tremendous cost of the Transition Depression sheds new light on theoretical limitations of demand-supply analysis, hard-budget constraints, microfoundations theory in macroeconomics, and property right school in institutional economics. New development policy based on learning, innovation, and decentralized experiment will broaden our scope of economic thinking.
Chen, Ping. “Market Instability and Economic Complexity: Theoretical Lessons from Transition Experiments” in Yang Yao and Linda Yueh eds., Globalization and Economic Growth in China, Chapter 3, pp.35-58, World Scientific, Singapore (2006). Also, Chapter 15, pp.285-300, in Chen (2010).
Abstract：This paper argues that the success China’s economic reform, contrasted with the difficulties of Eastern Europe and Russia, stems mainly from China’s willingness to tolerate decentralized experimentation and a gradual evolution of new institutions, whereas in Eastern Europe and Russia a sense of urgency led to wholesale importation of foreign institutions. This contrast in turn has implications for the usefulness of non-linear, dynamic analysis over the traditional neoclassical paradigm.
Chen, Ping. “China’s Challenge to Economic OrthodoxyAsian Reform as an Evolutionary, Self-Organizing Process,” China Economic Review, 4, 137-142 (1993). Also, in Chen (2010), Chapter 11, pp. 231-235.
Abstract：Joseph Needham’s question Why did capitalism emerge in the West and not in China is discussed along with the sources to form a centralized state and the mechanism for perpetuating the Chinese bureaucracy. The relationship between the stability and complexity of socio -ecological systems is also analyzed. The potential application of nonequilibrium thermodynamics and nonlinear dynamics to social evolution in China is introduced. A brief survey of historical and contemporary issues relating to the transition of agricultural structure in China and the recent crisis in economic and political reform is given.
Chen, Ping. “Needham’s Question and China’s Evolution – Cases of Nonequilibrium Social Transition,” George Scott ed., Time Rhythms and Chaos in the New Dialogue with Nature, Chapter 11, pp.177-198, University of South Dakota at Vermillion, Iowa State University Press (1990). Also, in Chen (2010), Chapter 10, pp.217-230.
