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“Exchange, exchange.” Under the blazing sun, scores of currency traders are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is now,” says one arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency once the voting is over. The president has imposed a cap on the currency to tame soaring inflation and now it remains artificially high and reserves are depleted, leaving the national economy sluggish as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now Milei’s rightwing version.

The president is a textbook populist: captivating, unconventional, promising muscular policies to wrestle back control of economic management from the establishment on behalf of the people.

These defining traits are also seen in his ally in the United States, as well as 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 deep public spending cuts – had won plaudits from international lenders for contributing to bring price rises in check. The programme shares similarities with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

But investors began losing confidence in the government’s agenda lately after a poor performance 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 major currency crisis.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to implement public demand despite elite opposition.

Farage has so far committed few policies to paper aside from proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the central bank, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make large tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

Labour hopes this position will allow it to depict the populist as planning to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by affluent backers calling for tax cuts and reduced rules, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension there between rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists tend to fare well when faced with practical difficulties (though of course each charismatic individual promises distinct solutions).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head is often 10% lower in countries governed by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is that even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.