Impact of the Economic Crisis in Portugal: Chaos, Forecasts and Conservatism

Abstract

This paper addresses the themes of forecasting and conservatism in the context of the current economic crisis and its impact in Portugal since 2008. The theme of the forecasts is presented through a metaphor, using the principles of chaos theory and of Edward Lorenz’s butterfly effect, usually applied in weather forecasting, to illustrate the economic and financial crisis in Portugal. The theme of conservatism is presented through an analogy with the thinking of Kuhn. Metaphor shows that the economic and financial forecasts fail, often in anticipation of a crisis, among other aspects, due to errors in the assessment and diagnosis of the problem because of the difficulty in identifying and understanding the often-complex signs and evidence. As for conservatism, analogy with the thinking of Kuhn illuminates resistance to change -- the denial of inconvenient facts for the careers of analysts and decision makers and persistence in following the model because of difficulty in answering for paradigmatic errors.