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“Cambio, cambio.” Under the blazing sun, scores of money changers are offering US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a nation long used to holding the US dollar.

“The optimal moment to buy is now,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economic experts across the spectrum anticipate a devaluation of the Argentine peso after the election concludes. The president has placed a cap on the currency to tame soaring price increases and currently it remains artificially high and reserves are depleted, leaving the national economy stagnant as buyers turn to low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, such as the powerful Peronism, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful policies to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his political partner to the north, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to control price rises in check. This plan has something in common with the policies of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, no matter the cost.

But investors began losing confidence in Milei’s radical project in recent months following a shaky result in provincial elections and multiple corruption scandals. Solely large-scale financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact public demand despite elite opposition.

Farage has so far outlined limited plans in writing aside from proposals for mass deportations, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, possibly replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem in flux: wary of facing criticism for proposing reckless spending, he lately dropped a pledge for significant tax reductions. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict Farage as planning to bring back austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he explains. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (although every populist leader claims to offer distinct solutions).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” argue the researchers.

A further interesting result from the study, however, is even with their negative impacts, these leaders are often effective at holding on to power, remaining in power for eight years, compared with four for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.