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“Cambio, cambio.” Under the scorching heat, scores of money changers are hawking American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a country accustomed to saving in the US dollar.

“The best time to buy is currently,” says one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds expect a devaluation of the national currency once the voting is over. The president has imposed a cap on the currency to tame soaring inflation and now it remains overvalued and reserves are depleted, causing the national economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly hit by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to reclaim command of the economy from the establishment for the benefit of the people.

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

Up until lately, the president’s strategy – including extensive privatisations and severe budget reductions – had won plaudits from international lenders for helping to bring inflation in check. The programme has something in common with that of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda lately after a shaky result in provincial elections and multiple corruption scandals. Solely massive financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader to date committed few policies in writing except for a call for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the Bank of England, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem unsettled: concerned about facing criticism for planning reckless spending, he recently abandoned a pledge for significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this position will allow it to depict Farage as intending to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her approach of increasing government spending.

An economics professor says there are contradictions within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and reduced rules, yet also talking a lot about the complaints of working people and the decline of industrial jobs,” he explains. “There is a conflict here between rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with real-world challenges (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be a tenth less in nations run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance usually 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, these leaders tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.