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“Cambio, cambio.” Under the scorching heat, scores of currency traders are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is now,” says a arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso after the voting concludes. The president has imposed a limit on the peso to tame soaring price increases and now it remains artificially high and foreign reserves are depleted, leaving the national economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by debt defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronism, and now the president’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, promising forceful measures to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had earned praise from the IMF for contributing to control inflation under control. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost.

However investors started to doubt in Milei’s radical project lately after a poor performance in local polls and multiple corruption scandals. Solely massive economic support by the US has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed concerns about economic detail with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper aside from proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a promise for significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict Farage as intending to reintroduce austerity – an argument Rachel Reeves has emphasized often, contrasting it with her approach 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 calling for tax cuts and deregulation, yet also emphasizing the complaints of working people and the loss of industrial jobs,” he explains. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual promises something unique).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations governed by populist rulers compared to similar economies under conventional leadership.

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

A further interesting result from the study, however, is that despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

But returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, the Argentine people are already bearing significant costs.