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“Dollars, dollars.” Beneath the blazing sun, dozens of money changers are hawking US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is now,” states a arbolito, declining to give her identity. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso after the voting is over. President Javier Milei has placed a limit on the currency to tame triple-digit price increases and now it remains artificially high and reserves are depleted, causing Argentina’s economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by sovereign 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 now the president’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to wrestle back command of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are also seen in his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from international lenders for contributing to bring price rises in check. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and a series of corruption scandals. Only large-scale financial intervention by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, Boris Johnson, swept away concerns about economic detail with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper except for proposals for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the Bank of England, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies seem unsettled: wary of being accused of proposing reckless spending, he recently dropped a pledge for large tax reductions. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

The opposition hopes this position will allow it to depict the populist as intending to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There’s a tension there between rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when faced with real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together with populist rule,” contend the researchers.

A further interesting result from the study, however, is that even with their negative impacts, these leaders are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.