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“Cambio, cambio.” Beneath the scorching heat, scores of money changers are hawking US dollars 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 country accustomed to holding the US dollar.

“The optimal moment for purchasing is now,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economists across the spectrum expect a devaluation of the national currency after the election is over. President Javier Milei has imposed a limit on the peso to control triple-digit price increases and now it remains overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has frequently been racked by debt defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now the president’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, vowing forceful policies to wrestle back control of the economy from traditional elites on behalf of the people.

These defining traits are also seen in his ally to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and severe public spending cuts – had won plaudits from international lenders for helping to bring inflation under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, no matter the cost.

But financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of corruption scandals. Only large-scale financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact public demand despite the establishment’s horror.

Farage to date outlined limited plans to paper except for a call for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the central bank, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem in flux: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge for large tax reductions. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this stance will allow it to portray Farage as intending to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor notes there are contradictions within the populist platform, such as it is. “Reform is funded by affluent backers calling for tax cuts and reduced rules, but also talking a lot about the complaints of working people and the decline in manufacturing employment,” he says. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this story of restoring UK employment and reindustrialisation.”

Holding on to Power

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

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often a tenth less in countries governed by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, though, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens have already paid significant costs.