I don't always agree with Will Hutton, but in his column today in the Observer he said this:
Great news. All three party leaders are now talking about responsible capitalism. But we need much more than invocations to John Lewis (Nick Clegg), a boost to the Co-operative movement (David Cameron) or a redress against predatory pricing (Ed Miliband) – welcome though these words are.
Central should be the question of how capitalism deals with unknowable risk; this gets to the heart of why the system is so seriously malfunctioning. The Conservative, free-market view is that capitalism can deal with unknowable risk all by itself and that rewards will always be proportional to risks. But if this is not true, as even David Cameron began to recognise in last week's speech, though he quailed before the full logic of his new position, then everything changes.
And he's bang on: this is absolutely right. The fundamental difference between neoclassical (and so neoliberal economics) and even neo-Keynesianism economics and what Keynes actually wrote is that Keynes was perhaps the first economist to truly realise that we have no idea what is going to happen in the future.
Now I know that might sound crass to a non-economist but as I put it in The Courageous State:
To summarise briefly: the difference between the risk which is assumed to underpin all future behaviour in neoclassical economics (including it must be stressed, neo-Keynesian economics) and the uncertainty that is assumed to exist around all future behaviour in truly Keynesian economics is that in neoclassical economics it is assumed that all future possibilities are known. Keynes said that that is wrong: the future is uncertain and we simply cannot predict what might happen.
Nassim Nicholas Taleb captured the essence of what Keynes argued in his now famous ‘Black Swan Theory’.[i] His metaphor is a powerful one: the existence of a black swan was simply unknown and unimagined in Europe until its discovery. Then, something previously unimaginable was known to be possible. This is uncertainty explained: uncertainty is about the unknown that we know must exist, although of course we do not know what it is. All we can say is that because the unknown is possible we cannot predict the future probabilistically, and yet all neoclassical economics assumes that we can. Clearly the consequence is enormous for economics.
[T]here are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know there are some things we do not know.
But there are also unknown unknowns – there are things we do not know we don't know.