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Containing the Populist Contagion

Contagion is a well understood process in finance: a shock in one place produces tremors elsewhere, because pattern-seeking market participants perceive fundamental forces at work. Today’s populist political revolt across the West is exhibiting a similar dynamic.

PRINCETON – With populism seemingly going viral in the advanced economies, the political establishment is in retreat. Outsiders are achieving significant political victories by making dramatic promises to shake up or overthrow the system. The populists’ enemies are members of the “global elite,” who have betrayed national values; and yet their revolt against what US President-elect Donald Trump calls “globalism” also aspires to be a global phenomenon, and actually depends on its own brand of internationalism.

Contagion is a well-understood process in finance. A shock in one place produces tremors elsewhere, even when there are no direct financial links, because pattern-seeking market participants perceive fundamental forces at work.

Today’s populist revolt is exhibiting a similar dynamic. Trump promised in advance that his victory would be Brexit in spades; and, indeed, when he won, Dutch and French far-right political forces immediately saw his election as a portent of what is to come. So, too, did the “No” campaign in Italy’s upcoming constitutional referendum – upon which Italian Prime Minister Matteo Renzi has bet his political future.

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