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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are hawking US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation long used to saving in the greenback.

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

Like her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso once the voting concludes. President Javier Milei has placed a cap on the peso to tame soaring price increases and now it is overvalued and reserves are depleted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been racked by sovereign defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to reclaim command of economic management from the establishment for the benefit of the people.

These key characteristics are shared by his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and severe budget reductions – had earned praise from the IMF for contributing to bring inflation under control. This plan shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But investors started to doubt in Milei’s radical project lately following a shaky result in provincial elections and multiple graft allegations. Solely massive financial intervention by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader to date outlined limited plans in writing aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to rein in the Bank of England, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be unsettled: concerned about being accused of proposing reckless spending, he recently dropped a pledge to make significant tax cuts. His Reform party deputy, Richard Tice, 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 strategy of increasing public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party is funded by affluent backers calling for tax cuts and deregulation, but also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Maintaining Control

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

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head is often a tenth less in countries run by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, however, is despite their economic costs, populist figures are often effective at retaining office, lasting on average a considerable time, compared with four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But back in Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people have already paid significant costs.