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“Exchange, exchange.” Under the scorching heat, dozens of currency traders are hawking American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the 26 October midterm elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” states a arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the voting concludes. President Javier Milei has imposed a limit on the peso to control soaring inflation and now it remains artificially high and foreign reserves are depleted, causing Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, in the form of the powerful Peronism, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising muscular measures to reclaim control of economic management from the establishment on behalf of ordinary citizens.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from international lenders for helping to bring price rises under control. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be defeated, no matter the cost.

However investors started to doubt in Milei’s radical project lately following a shaky result in provincial elections and a series of corruption scandals. Solely large-scale financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

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 confident resolve to enact public demand despite the establishment’s horror.

Farage to date outlined limited plans in writing except for a call for mass deportations, which he subsequently appeared to revise on the hoof. He aims to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem unsettled: wary of being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge for large tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition hopes this stance will allow it to depict the populist as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting public investment.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, yet also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension there between rich backers who want Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when faced with real-world challenges (though of course each charismatic individual claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be a tenth less in countries run by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” contend the researchers.

A further interesting result of the research, however, is despite their economic costs, populist figures tend to be good at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear whether even if their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, the Argentine people are already bearing a heavy price.