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“Cambio, cambio.” Under the blazing sun, scores of currency traders are selling US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a nation accustomed to saving in the US dollar.

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

Similar to her, economists from all backgrounds expect a devaluation of the Argentine peso once the election concludes. President Javier Milei has placed a cap on the currency to tame soaring price increases and now it is overvalued and foreign reserves are exhausted, causing the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has frequently been racked by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the influential Peronist movement, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, promising forceful policies to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to bring inflation in check. This plan has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

But investors began losing confidence in the government’s agenda in recent months after a poor performance in local polls and multiple corruption scandals. Solely massive financial intervention by the US has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts about economic detail with a bullish determination to enact the “will of the people” despite the establishment’s horror.

Farage has so far outlined limited plans to paper aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to curb the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem in flux: wary of being accused of planning a Liz Truss-style splurge, he lately dropped a pledge for 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 reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the complaints of working people and the decline of industrial jobs,” he explains. “There’s a tension there among wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result from the study, however, is that despite their economic costs, populist figures tend to be good at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing significant costs.