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“Cambio, cambio.” Under the scorching heat, scores of money changers are offering US dollars on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is now,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the election is over. The president has imposed a limit on the peso to control soaring price increases and currently it remains artificially high and reserves are depleted, causing the national economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising muscular policies to wrestle back command of economic management from traditional elites on behalf of the people.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who presents himself as a pint-swilling champion of the common man even though he is a privately educated ex-finance professional.

Up until lately, the president’s strategy – involving widespread sell-offs and severe budget reductions – had won plaudits from international lenders for helping to bring inflation under control. The programme shares similarities with the policies of his political hero the former UK prime minister, who also saw inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda lately following a shaky result in local polls and multiple graft allegations. Only massive economic support by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage to date outlined limited plans to paper aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies appear to be in flux: wary of being accused of planning reckless spending, he recently abandoned a promise to make large tax reductions. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as planning to bring back austerity – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by very wealthy people demanding lower taxes and deregulation, yet also emphasizing the grievances of working people and the decline in manufacturing employment,” he explains. “There is a conflict here among wealthy supporters seeking Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

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

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in countries governed by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, however, is that even with their negative impacts, populist figures are often effective at retaining office, remaining in power for a considerable time, compared with four for mainstream politicians.

In other words, it is not clear that even when their plans crash, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, the Argentine people are already bearing significant costs.