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“Dollars, dollars.” Under the blazing sun, scores of money changers are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the US dollar.

“The best time to buy is currently,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

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

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, in the form of the powerful Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, promising muscular policies to reclaim control of the economy from the establishment for the benefit of the people.

These defining traits are shared by his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and severe public spending cuts – had earned praise from the IMF for contributing to control price rises in check. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

However investors started to doubt in the government’s agenda lately after a poor performance in provincial elections and multiple graft allegations. Solely large-scale economic support by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader to date outlined limited plans to paper aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of proposing reckless spending, he lately dropped a pledge for significant tax reductions. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

Labour hopes this stance will enable it to depict Farage as intending to reintroduce austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by affluent backers demanding lower taxes and reduced rules, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he explains. “There is a conflict here between wealthy supporters who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe often perform poorly when faced with real-world challenges (though of course every populist leader 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. It found that on average, after 15 years, gross domestic product per head is often 10% lower in countries run by populist rulers than in comparable countries with more mainstream regimes.

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

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders tend to be good at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.