"It would be a mistake to believe that the voters, in rejecting social democrats, are rejecting the middle-class welfare state that social democratic parties built in the 20th century. On the contrary, center-right parties like David Cameron’s Conservatives and the ruling Moderate party in Sweden have been forced to limit their libertarianism in order to win office.
The truth is that voters have not turned against the old-fashioned social democracy of the mid-20th century. In Europe as in the U.S., universal social insurance programs for the middle class, as opposed to means-tested welfare programs for the poor, remain popular among voters on the right as well as the left. Voters in Europe are not voting against public pensions and universal healthcare. Instead, they are tossing out a more recent generation of social democrats who went too far in their embrace of markets.
The greatest assault on traditional social democracy in the last generation has come from "Third Way" leaders of center-left parties like Tony Blair, and their continental European counterparts. Like the Clinton Democrats, these "modernizing" social democrats embraced free markets with a convert’s zeal, celebrating globalization and deregulating finance, while seeking to privatize or dismantle parts of the older welfare state. The politicians of the Third Way were far more libertarian than the voters in their own parties and their actions helped to make possible the global economic crisis.
Having given up traditional social democratic economics for a watered-down version of libertarian conservatism, the Third Way social democrats in Europe, like the Clinton and Obama Democrats in the U.S., sought to replace the traditional bread-and-butter concerns of working-class voters with idealistic campaigns about multiculturalism, climate change and obesity that appealed to more affluent, college-educated voters.
In general the parallels between the U.S. and Europe are striking. In the U.S., as in Europe, the right is divided between a pro-business right promoting policies of austerity and a populist, nativist right energized by opposition to immigration and multiculturalism, particularly where Muslims are involved. In the U.S., as in Europe, the upper-middle-class activists and intellectuals of the center-left devote far less energy to traditional social democratic issues like social insurance and the minimum wage than to non-economic causes like renewable energy, mass transit, the new urbanism, gay marriage, identity politics and promotion of amnesty for illegal immigrants. On both continents, conservatism is becoming more downscale while progressives are increasingly upmarket."
DSGE models — overconfident macroeconomic story-telling
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