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“Exchange, exchange.” Beneath the scorching heat, scores of money changers are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a country long used to saving in the greenback.

“The best time for purchasing is now,” states one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the voting concludes. President Javier Milei has imposed a limit on the currency to tame triple-digit inflation and now it remains artificially high and foreign reserves are depleted, leaving Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has frequently been hit by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the influential Peronism, and now the president’s rightwing version.

The president is a textbook populist: charismatic, iconoclastic, promising muscular measures to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his ally to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to control inflation in check. This plan has something in common with the policies of his political hero the former UK prime minister, who also saw rising prices as a dragon to be slain, no matter the cost.

However financial markets started to doubt in Milei’s radical project in recent months following a poor performance in local polls and a series of graft allegations. Only large-scale economic support by the US has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed 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 has so far committed few policies in writing aside from proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make significant tax cuts. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

Labour aims this stance will enable it to depict the populist as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people demanding lower taxes and reduced rules, but also talking a lot about the grievances of working people and the loss of industrial jobs,” he says. “There is a conflict there among wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual promises distinct solutions).

Recent research from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, though, is that despite their economic costs, populist figures are often effective at holding on to power, lasting on average a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

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