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“Dollars, dollars.” Under the scorching heat, scores of money changers are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation long used to saving in the greenback.

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

Like her, economic experts across the spectrum expect a devaluation of the Argentine peso once the voting concludes. The president has placed a cap on the currency to control triple-digit price increases and currently it remains overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as buyers opt for cheap imports.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by debt defaults and economic crises and the electorate have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and now Milei’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful policies to wrestle back control of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to control inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and multiple corruption scandals. Solely large-scale economic support from abroad has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns about economic detail with confident resolve 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 except for proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to curb the Bank of England, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make significant tax cuts. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

Labour hopes this stance will allow it to portray Farage as intending to reintroduce fiscal tightening – a point the chancellor has emphasized often, contrasting it with her approach of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by affluent backers calling for lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension here between wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, research indicates populists of any stripe tend to fare well when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be 10% lower in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

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