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“Dollars, dollars.” Beneath the blazing sun, dozens of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the October 26 congressional elections in a nation long used to saving in the US dollar.

“The optimal moment to buy is currently,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the national currency once the election is over. President Javier Milei has imposed a limit on the currency to control triple-digit inflation and currently it remains artificially high and reserves are exhausted, leaving the national economy sluggish as consumers opt for cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has frequently been hit by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing muscular measures to reclaim control of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his ally in the United States, and by Nigel Farage, who styles himself as a beer-drinking people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to bring price rises in check. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

But investors started to doubt in Milei’s radical project lately following a shaky result in provincial elections and a series of corruption scandals. Solely massive economic support from abroad has averted what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies in writing except for proposals for mass deportations, that he later seemed to adjust on the hoof. He wants to curb the central bank, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make large tax cuts. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to portray the populist as planning to bring back austerity – a point Rachel Reeves has emphasized often, contrasting it with her approach of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by affluent backers demanding tax cuts and deregulation, yet also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict there between rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in nations governed by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, populist figures are often effective at retaining office, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.