Populism May Be Losing Its Influence Over Markets

A popular tenet of investing wisdom is to focus on the long-term. This is usually applied to quantitative methods of investing, such as considering historical 10- and 20-year returns of global asset classes rather that looking at what specific sectors or companies did last year, and what analysts guess they will do next year.

A new report from the U.K.’s Cambridge University Centre for the Future of Democracy offers investors a rare chance to think about the overall economy over the next decade. The authors compiled a large global dataset that suggests some not-often-heard claims, such as that the tide of populism, nationalism and inequality has turned, and is rapidly receding in favor of a more prosperous, peaceful, egalitarian and cohesive globe in the next decade.

I am no starry-eyed optimist rebalancing my entire portfolio on the expectation of 10 years of peace, love and understanding. But a major focus of the last 10 years has been protecting against populism, war, depression and nationalism, so perhaps it’s time to broaden my attention. I don’t think the report’s authors, or anyone else, have a crystal ball. But they present us with a plausible, data-driven scenario. I know the post-pandemic economy will be very different from 2019, so thinking about what might happen is important.

Back in 2007 – 2009, when the financial world was collapsing, the story seemed to be governments seizing vast new powers. Central banks invented ad hoc rationales for inflating their balance sheets beyond anything contemplated in the past and choosing winners and losers, without clear legal authority. Governments disregarded budget constraints and claimed near war-time emergency powers. Courts mostly deferred to the changes. At that time, populist uprisings such as the Tea Party movement and Occupy Wall Street seemed to be sideshows to crisis management by top officials.

Key populist ideas are that the world is divided into ordinary people and a corrupt elite (the “deep state” for the right, “white supremacists” for the left), the will of the people trumps established norms and rule of law, and that the people’s will is revealed by protests and street battles rather than elections. Populists blame secretive special interests for blocking natural progress and think important information is deliberately concealed from the people.