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“Exchange, exchange.” Under the blazing sun, scores of currency traders are offering American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 congressional elections in a nation accustomed to holding the greenback.

“The optimal moment to buy is now,” says a arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso after the election is over. President Javier Milei has imposed a cap on the currency to tame triple-digit inflation and now it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has frequently been racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and now the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, promising muscular policies to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits from international lenders for helping to bring price rises under control. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple graft allegations. Solely large-scale economic support from abroad has averted what looked set to become a major monetary collapse.

Inconsistencies

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to enact public demand in the face of elite opposition.

Farage has so far committed few policies in writing aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to rein in the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: wary of facing criticism for planning reckless spending, he recently abandoned a pledge for large tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this stance will allow it to depict the populist as planning to bring back austerity – an argument the chancellor has emphasized often, contrasting it with her strategy of boosting government spending.

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people demanding tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the decline of industrial jobs,” he explains. “There’s a tension here among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests populists of any stripe tend to fare well when faced with real-world challenges (although each charismatic individual claims to offer distinct solutions).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita tends to be a tenth less in countries governed by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” argue the researchers.

A further interesting result from the study, though, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

Yet back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.