Labour's loss: Why macroeconomics matters

Electoral support for social democracy in Western Europe is in free fall. The implosion of social democracy is largely self-inflicted, because 'Third Way' social democracy alienated its traditional supporters by (a) a deliberate move to the non-reformist, status-quo oriented macroeconomics of the New Keynesian consensus, which de-politicizes macro management and legitimises macro control by technocratic central banks; and (b) its promotion of a middle-class oriented ‘cultural liberalism’, as compensation for a lack of achievements on the economic front. As a result, Western European social democratic parties became responsible for austerity, rising inequality, social and economic disempowerment, and heightened insecurity—factors which contributed to a hardening of attitudes on cultural issues and migration. Social democracy has to return to its earlier reformist roots. The paper outlines what is needed in terms of fiscal and monetary policy as well as social concertation to create sufficient space for a reformist, productivist, and egalitarian strategy oriented toward full employment— based on a reimagined Keynesianism in which a prominent role is given to the economy's supply side.