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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are selling US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a country long used to holding the greenback.

“The optimal moment for purchasing is currently,” states a arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso after the election is over. President Javier Milei has imposed a cap on the peso to control soaring price increases and now it is overvalued and foreign reserves are depleted, causing the national economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and now the president’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, promising muscular policies to reclaim control of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his ally in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from international lenders for helping to bring inflation in check. This plan has something in common with that of his political hero Margaret Thatcher, who also saw rising prices as a monster to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months following a shaky result in provincial elections and multiple graft allegations. Solely large-scale economic support by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, Boris Johnson, swept away doubts about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies in writing aside from a call for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of planning reckless spending, he lately dropped a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to portray Farage as planning to bring back austerity – a point the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, yet also talking a lot about the grievances of working people and the loss in manufacturing employment,” he says. “There’s a tension there between rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader promises something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” argue the researchers.

A further interesting result of the research, though, is even with their negative impacts, these leaders are often effective at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.