Markets tend to misread populism's sway

AT three in the morning, the day after the United Kingdom referendum on EU membership, I was on the UBS trading floor (where else would an economist be at three in the morning?). The near universal reaction of colleagues matched friends' reactions on social media: "I don't know anyone who voted to leave." That sense of bewilderment reflects a trend in global politics and economics. It is a trend in the United States and in Europe. Most importantly, it is a trend that is a challenge for financial markets.

One warning sign in the UK was the pre-referendum betting. The value of bets placed favoured a "remain" vote. The number of bets placed favoured a "leave" vote. A democratic decision is not one pound, one vote, it is one person, one vote. Betting signalled a plutocratic outcome that differed from the democratic outcome.

The economic expansion of the last 20 years produced a group in society that has been "left behind". This group is lower-skilled, older and more rural. In the United States, a typical high-school dropout has a lower nominal income today than in 2010 (a position made worse by the corrosive effects of inflation). A high-school dropout is less likely to own a home, less likely to own a car, and spends a higher share of his or her income on food (at home) and housing than in 2010. A high-school dropout has less access to credit than in the past.