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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a nation accustomed to saving in the US dollar.

“The best time for purchasing is now,” says a arbolito, refusing to provide her name. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the election is over. The president has imposed a limit on the peso to control soaring price increases and currently it is artificially high and reserves are exhausted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, vowing muscular policies to reclaim command of the economy from the establishment on behalf of the people.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to control price rises under control. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, regardless of the consequences.

However investors began losing confidence in the government’s agenda lately following a poor performance in local polls and multiple corruption scandals. Only massive financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement public demand despite the establishment’s horror.

The Reform leader has so far outlined limited plans in writing aside from proposals for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the Bank of England, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: wary of being accused of planning reckless spending, he lately abandoned a pledge to make large tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to depict the populist as intending to reintroduce fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of boosting government spending.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “The party is funded by very wealthy people demanding tax cuts and reduced rules, yet also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting real-world challenges (though of course every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be a tenth less in countries governed by populist leaders than in similar economies with more mainstream regimes.

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

Another intriguing finding of the research, however, is even with their negative impacts, these leaders are often effective at holding on to power, lasting on average a considerable time, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.