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“Dollars, dollars.” Under the blazing sun, scores of money changers are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a nation long used to holding the US dollar.

“The best time for purchasing is currently,” says a arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the election concludes. The president has imposed a limit on the peso to tame triple-digit inflation and currently it remains overvalued and foreign reserves are depleted, leaving the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been hit by debt defaults and economic crises and its voters have been susceptible over the years to leftwing populism, such as the powerful Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful measures to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from the IMF for contributing to control price rises in check. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately after a shaky result in provincial elections and multiple corruption scandals. Solely massive economic support from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact public demand in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he lately dropped a promise to make large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will allow it to portray the populist as planning to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension there among wealthy supporters who want radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when confronting real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, gross domestic product per head tends to be a tenth less in countries run by populist rulers than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” argue the researchers.

Another intriguing finding of the research, though, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.