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“Dollars, dollars.” Beneath the blazing sun, scores of money changers are selling American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a nation long used to saving in the greenback.

“The optimal moment for purchasing is now,” states a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economic experts across the spectrum anticipate a depreciation of the national currency after the election is over. President Javier Milei has imposed a cap on the currency to control soaring inflation and currently it is overvalued and reserves are depleted, causing the national economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, promising muscular policies to wrestle back control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his ally to the north, as well as Nigel Farage, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to control price rises under control. This plan shares similarities with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project lately after a shaky result in local polls and a series of graft allegations. Solely massive economic support by the US has prevented what looked set to become a major monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans to paper except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

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

The opposition hopes this position will allow it to depict Farage as planning to reintroduce austerity – a point Rachel Reeves has emphasized often, contrasting it with her strategy of boosting public investment.

Jo Michell says there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, yet also talking a lot about the grievances of working people and the decline in manufacturing employment,” he says. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, GDP per capita tends to be 10% lower in countries governed by populist leaders compared to similar economies under conventional leadership.

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

A further interesting result from the study, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid significant costs.