If the ALP were a party of the left the argument might hold. In many ways they seem to the right of most Coalition governments before Howard as far as my experience goes. The Overton window has moved substantially rightward.

Paul
yes. The ALP has increasingly moved to the right. They've been outflanked by The Greens.

If the ALP has shifted to the right, as Paul claims (and I agree), then social democracy is not traveling well.

"social democracy is not traveling well these days."

isn't social democracy meant to be a counterweight to market fundamentalism?

while a certain suspicion of capitalism is inherent to social democracy, it is the suspicion of an unrestrained capitalism not forced by government. Capitalism is to be civilised, through policies such as higher taxes on the wealthy, generous welfare provision, public ownership, and legal protections for employees –so as to meet certain standards of social justice.

In practice, however, social democrats have frequently failed to implement such policies in government, and have instead ended up enacting policies beneficial to Big Business and the wealthy.

Alex Callinicos in ‘Where Does Political Power Lie?’(Socialist Review, March 2007) highlights why social democracy is not traveling well:

They are confronted with the following dilemma. Reforming capitalism necessarily means interfering either directly or indirectly with the economy. Even limited improvements in social welfare imply increases in public expenditure and taxation. Such interference may well produce adverse reactions from big business –for example, the flight of capital from the country –which will weaken and may even destroy the government. But if the social democratic ministers therefore avoid reforms for fear of annoying the bosses, then parliamentary democracy turns out after all to be incapable of even moderating the inequities of capitalism

What is novel with Gillard Labor is the refusal to even try to reform capitalism, and their support instead for ‘neo-liberal’ or free- market policies.

"Neoliberals wanted to limit government, but the upshot of their policies has been a huge expansion in the power of the state."

While a reduced role for government is the outcome of nearly all neo-liberal policies, in practice neo-liberals may support free market policies at one time, but at a different time embrace policies that conflict with market principles so long as they meet the needs of big business.

"If the ALP were a party of the left the argument might hold. In many ways they seem to the right of most Coalition governments before Howard as far as my experience goes. "

The ALP's social democrats no longer stand for policies such as higher taxes on the wealthy, public ownership, strong labour market regulations, a generous welfare state, and significant spending on areas such as health and education, and have instead embraced free market policies, then they can be social democrats only in name.

I with Paul on this, "...they seem to the right of most Coalition governments before Howard as far as my experience goes." Funny that old Malcolm Fraser sounds so much like a a "bleeding-heart" these days.

Based on what I see down my end of the swamp, right-wing ideology snares the masses (to a large extent) through fear and ignorance. Or, is it just a coincidence that the left-leaning people I know are all well informed and avoid the mass media for their news?

That's a reasonable summary of naked capitalism and the specific example of the GFC by Gray.
I would nitpick about the phrase "huge expansion in the POWER of the state" where, IMO, it should be noted that the state's ROLE has been entrenched as the protector of capitalism at the expense of the people and that the POWER of the state has been diminished in that it can only respond to the demands of capitalism, made public through academics and the media, and has shown itself, in the US, Europe and here in OZ, to be submissive and obedient [as George points out above].
The 'austerity' measures and the obssession with balanced budgets illustrate that the state is not powerful as the voice of the people but primarily as the tool of corporatism.