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“Dollars, dollars.” Under the scorching heat, scores of currency traders are offering American currency on 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 nation long used to saving in the US dollar.

“The optimal moment to buy is currently,” states a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists from all backgrounds expect a depreciation of the Argentine peso after the election concludes. President Javier Milei has placed a limit on the currency to control soaring inflation and currently it is overvalued and foreign reserves are exhausted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, vowing muscular measures to wrestle back control of economic management from the establishment on behalf of the people.

These key characteristics are shared by his ally to the north, and by the UK politician, who presents himself as a beer-drinking people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for helping to control price rises in check. This plan has something in common with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately after a poor performance in provincial elections and a series of corruption scandals. Solely large-scale financial intervention from abroad has averted what seemed destined to be a major currency crisis.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He aims to curb the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he recently dropped a pledge for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this stance will allow it to portray the populist as intending to bring back fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among wealthy supporters seeking Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita is often a tenth less in countries run by populist rulers than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand with populist rule,” contend the paper’s authors.

Another intriguing finding from the study, however, is despite their economic costs, these leaders are often effective at holding on to power, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project collapses or is sustained by external aid, the Argentine people have already paid significant costs.