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“Exchange, exchange.” Under the blazing sun, dozens of money changers are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a country long used to saving in the US dollar.

“The optimal moment to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds expect a depreciation of the national currency after the voting is over. President Javier Milei has placed a cap on the currency to tame soaring inflation and currently it remains artificially high and reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. Argentina has frequently been racked by sovereign defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, such as the influential Peronism, and now the president’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to wrestle back command of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are shared by his ally to the north, and by the UK politician, who styles himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits from international lenders for contributing to bring price rises under control. This plan has something in common with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

However financial markets started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and multiple corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be 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, swept away doubts regarding fiscal impacts with confident resolve to implement the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge to make large tax cuts. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

The opposition hopes this position will enable it to portray the populist as intending to reintroduce fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by affluent backers demanding lower taxes and reduced rules, yet also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita is often a tenth less in nations governed by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, 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 from the study, though, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for a considerable time, versus four for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, whether the government’s agenda collapses or is sustained through foreign assistance, the Argentine people are already bearing significant costs.