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“Dollars, dollars.” Under the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a country long used to saving in the greenback.

“The best time for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a devaluation of the national currency after the voting is over. The president has placed a limit on the peso to control triple-digit inflation and now it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, such as the powerful Peronism, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to wrestle back command of economic management from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally to the north, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to bring price rises in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months after a shaky result in provincial elections and multiple graft allegations. Solely large-scale economic support by the US has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of the establishment’s horror.

Farage has so far outlined limited plans in writing except for proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He wants to rein in the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: concerned about being accused of proposing a Liz Truss-style splurge, he recently abandoned a promise to make significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

Labour hopes this stance will enable it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

Jo Michell notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by very wealthy people calling for tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension here between rich backers who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence indicates populists of any stripe often perform poorly when confronting real-world challenges (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, 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 erosion of institutions usually go hand in hand under populist governments,” argue the researchers.

A further interesting result of the research, though, is despite their economic costs, these leaders are often effective at holding on to power, remaining in power for eight years, compared with four for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.