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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to saving in the US dollar.

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

Like her, economists from all backgrounds anticipate a depreciation of the national currency once the voting is over. President Javier Milei has imposed a cap on the peso to tame soaring inflation and now it is overvalued and foreign reserves are depleted, causing the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronism, and currently Milei’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, vowing forceful measures to reclaim command of economic management from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his ally to the north, and by Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Up until lately, the president’s strategy – including extensive privatisations and deep budget reductions – had earned praise from the IMF for contributing to control inflation under control. The programme shares similarities with that of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be slain, no matter the cost.

However financial markets began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and multiple corruption scandals. Solely large-scale financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, the former prime minister, swept away concerns about economic detail with confident resolve to enact the “will of the people” in the face of elite opposition.

Farage to date committed few policies to paper aside from proposals for mass deportations, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for proposing reckless spending, he recently abandoned a pledge for significant tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray Farage as planning to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting public investment.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers demanding tax cuts and reduced rules, yet also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there between wealthy supporters who want radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, research indicates neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, GDP per capita is often a tenth less in countries run by populist leaders compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

A further interesting result of the research, though, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, versus four for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, Argentina’s citizens are already bearing significant costs.