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“Dollars, dollars.” Under the blazing sun, scores of currency traders are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to saving in the US dollar.

“The optimal moment for purchasing is now,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a depreciation of the national currency after the election concludes. The president has imposed a limit on the peso to tame soaring inflation and currently it is artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s conservative populism.

The president is a textbook populist: charismatic, iconoclastic, promising forceful measures to reclaim command of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and severe budget reductions – had won plaudits from the IMF for contributing to control price rises in check. This plan shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

However investors started to doubt in the government’s agenda lately following a shaky result in provincial elections and a series of corruption scandals. Only massive economic support from abroad has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, Boris Johnson, swept away doubts about economic detail with a bullish determination to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for mass deportations, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: wary of being accused of planning reckless spending, he recently abandoned a pledge for large tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict the populist as intending to bring back austerity – a point the chancellor has emphasized often, contrasting it with her strategy of boosting public investment.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by affluent backers demanding tax cuts and deregulation, but also talking a lot about the grievances of working people and the loss of industrial jobs,” he explains. “There is a conflict there among wealthy supporters who want Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when confronting real-world challenges (although every populist leader promises something unique).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often 10% lower in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result from the study, though, is even with their negative impacts, populist figures tend to be good at retaining office, lasting on average a considerable time, compared with four for mainstream politicians.

In other words, it is not clear that even when their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.