Brexit, 2016. Markets plunged overnight. The pound fell to its lowest level in thirty years. Traders scrambled. By morning, economists were shouting across cable news sets about irrationality, hysteria, overreaction. And then, almost immediately, the market started to climb back.

There is a subtle (if telling) contrast between the response of the ballot box and the response of the financial system. One offered a binary signal, yes or no, remain or leave, nationalism or globalism. The other flinched, recalibrated, tested its hypotheses, and revised its beliefs with remarkable speed. Whatever you think of the result, you have to admire the machinery of adjustment.

Financial markets are often dismissed as irrational, herd-driven, short-termist. But democracy is not so different. Voters are influenced by narratives, emotions, framing effects, and media ecosystems just as surely as traders are by liquidity, Fed policy, and Bloomberg terminals. The distinction is tempo. One moves in cycles of years, the other in milliseconds.

If you want to know what people believe, watch elections. If you want to know what people fear, watch the markets.

Traditional polling attempts to predict behavior by asking questions: Will you vote for X? Do you support Y? How important is Z to your decision? Markets don’t ask. They infer. They generate a signal not by declaration, but by exposure. The price of a stock, the spread on a bond, the volatility in a futures contract - these are all records of risk-adjusted conviction.

In 2022, FiveThirtyEight gave Democrats about a 40% chance of holding the Senate. Election bettors, on PredictIt and Polymarket, priced it much closer to 55% the night before votes were cast. They were right. The polls were wrong. The difference wasn’t methodological - it was structural. Polls aggregate stated preferences. Markets aggregate consequences.

That distinction matters. When a respondent tells a pollster they support border security, there’s no cost to lying, exaggerating, or hedging. But when a trader takes a position on a Mexican cement supplier based on likely immigration policy, they are literally invested in being right. They have skin in the game, and skin changes everything.

The economist Friedrich Hayek described the price system as a distributed mechanism for encoding information. He wasn’t being metaphorical. Hayek understood markets as a form of collective perception - an epistemic tool. Not perfectly rational, but boundedly intelligent.

Think of the market like a brain. Neurons fire. Synapses strengthen. Noise gets filtered. A signal emerges, not because any one actor is omniscient, but because the system itself is structured to learn.

This is not an idealization. We can track it empirically. When Russia invaded Ukraine, wheat prices spiked within hours. Oil volatility responded to the geopolitical consequences long before formal policy analysts issued white papers. When Trump hinted at steel tariffs, South Korean equities adjusted within the hour. When COVID-19 cases surged, the Taiwanese stock index dropped weeks before WHO issued global alerts.

Markets are not omniscient. But they are fast, and in many domains, they are first. When incentives are aligned, the signal is sharper than any headline, pundit, or push notification.

Democratic systems are powerful. They are also coarse. A vote is a snapshot. It collapses nuance into choice. It doesn’t ask how strong your belief is, or how likely it is to shift. It is designed for legitimacy, not resolution. And because of this, it struggles to adapt quickly.

In political science, responsiveness is a term of art. It refers to how tightly political outputs track citizen preferences. In theory, democracies are responsive. In practice, they’re throttled by time: election cycles, legal frameworks, institutional drag. The result is latency.

Compare this to the credit default swap market during the Eurozone crisis. Sovereign bond spreads widened months before parliaments acknowledged the depth of the Greek fiscal collapse. Yields on Italian debt forecasted Berlusconi’s fall long before his approval ratings did. The feedback loop was brutal, but tight. You could watch belief collapsing in real time.

This kind of responsiveness is unnerving. It lacks ceremony. It doesn’t wait for consensus. It punishes error without debate. But it works.

A spike in volatility is not unlike a protest. It is the system rejecting a narrative, flailing in the face of uncertainty, refusing to price in what it no longer believes. And like a protest, it is a sign of engagement. Apathy does not cause swings in bond yields. Disagreement does.

Volatility is the market version of dissent. It tells us where the tension lives. It shows us where the consensus is fraying. And because it’s indexed to capital, it forces precision. You can’t flinch at shadows when your portfolio is at stake. You have to ask hard questions. What do I know? How do I know it? What is priced in, and what is not?

In 2023, when Silicon Valley Bank collapsed, markets moved faster than regulators. Credit lines were pulled. Tech stocks fell. Regional bank shares evaporated. It was an information shock, but it wasn’t irrational. It was revelation. For years, everyone had known low interest rates were distorting balance sheets. But only when reality cracked did the beliefs reprice.

This isn’t faith. It’s updating.

There are obvious dangers in treating markets as oracles. They overreact. They do herd. They can be gamed. But elections have similar vulnerabilities: gerrymandering, misinformation, turnout suppression, name recognition. The issue is not which is cleaner, but which is sharper.

Prediction markets = a useful middle ground. By attaching cost to belief, they bridge the gap between opinion and exposure. They are far from perfect. But as tools for aggregating information, they outperform pundits, panels, and pollsters consistently.

Robin Hanson, the economist behind the "futarchy" proposal, has argued for a system in which policies are chosen by voting, but evaluated by markets. Let people decide what they value. Let markets decide what works. It sounds dystopian, until you realize we already do this in miniature. We vote for the Fed chair, indirectly. But we let the bond market evaluate the results.

None of this is to say the market sees everything. It doesn’t. It misses distributional effects. It ignores externalities. It fails to model long-term risk with any consistency. It is ruthlessly present-tense.

The climate crisis is a case in point. Markets have been slow to price in catastrophe. Not because they are dumb, but because the incentives aren’t structured to reward early warning. When everyone holds the same risk, and no one has a clean hedge, there is no trader left to place the bet.

Democracy retains a moral edge. It must. It allows for solidarity, sacrifice, and coordinated action even when the incentives are fuzzy. But moral edge is not the same as epistemic edge. When the question is "what is happening?" the price mechanism is more honest than the press release.

There is no oxygen in pretending markets are a replacement for democracy. They are different species. One enshrines participation. The other enforces exposure. But we should be clear-eyed about which is better at forecasting, and when.

A vote tells you what a coalition wants. A price tells you what a distributed intelligence believes. The former has legitimacy. The latter has accuracy. Neither is sufficient. Both are necessary.

The future may belong to systems that can hybridize these inputs: democratic in values, market-driven in diagnostics. We already see traces of this in carbon markets, catastrophe bonds, and ESG investing. They are clumsy, contested, and compromised. But they are a start.

If we want to govern complex societies in a world of accelerating shocks, we may need institutions that move at the speed of volatility without losing the legitimacy of the vote. Which is a hard design problem. But not an impossible one.

Democracy is the conscience. Markets are the nerves. We ignore either at our peril.