The Paradigms of Complexity and Chaos and the Economy: Some Evidence and Clues

The world has been shaken by crises of unusual intensity: first there was the financial crisis of 2007/2008, soon followed by the sovereign debt crises of the countries of Southern Europe. Because the economic recovery was not consolidated and inflation remained at dangerously low levels, it was necessary for central banks to implement unprecedented unconventional monetary policy programs, the so-called quantitative easing. Finally, in a phenomenon only partly explainable by the COVID-19 pandemic and Russia’s invasion of Ukraine, inflation soared, forcing monetary policy to make upward adjustments to official interest rates, also unparalleled in decades. Given all this, the question arises: if science and economic analysis are increasingly sophisticated and use very powerful predictive and explanatory tools, why are economists unable to predict these mega-crises? As Queen Elizabeth II said after the financial crisis, “It’s awful—why did nobody see it coming?” The purpose of this paper is to demonstrate the fragility of the traditional tools of economics and economic policy in explaining a reality that is increasingly less linear and, furthermore, to demonstrate the important contribution of the theories of complexity and chaos in this explanation and in opening horizons for a less linear approach to economic phenomena. We divide the paper in four sections: we begin stating the economic mainstream (Sect. 1); in Sect. 2 and Sect. 3, respectively, we analyze the complexity theory (or paradigm) and the chaos paradigm and its relations with economics; and, finaly, in Sect. 4 we present our conclusions.