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“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a nation accustomed to holding the US dollar.

“The best time to buy is now,” says one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum expect a devaluation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the currency to tame triple-digit price increases and currently it remains artificially high and foreign reserves are depleted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has been repeatedly hit by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the influential Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising muscular policies to reclaim control of economic management from the establishment on behalf of the people.

These key characteristics are also seen in his ally in the United States, as well as the UK politician, who styles himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep public spending cuts – had won plaudits from the IMF for contributing to bring inflation in check. This plan has something in common with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and multiple corruption scandals. Solely large-scale financial intervention from abroad has averted what looked set to become a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

Farage to date committed few policies in writing except for a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict Farage as planning to bring back fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of increasing government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people demanding lower taxes and reduced rules, yet also talking a lot about the grievances of working people and the loss of industrial jobs,” he says. “There’s a tension here among rich backers who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often a tenth less in nations governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” contend the paper’s authors.

A further interesting result from the study, however, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.