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“Cambio, cambio.” Under the scorching heat, dozens of currency traders are selling American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to saving in the US dollar.

“The optimal moment to buy is currently,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the election concludes. The president has placed a limit on the currency to control soaring inflation and currently it is artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been hit by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, such as the influential Peronism, and currently Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising muscular measures to wrestle back command of economic management from the establishment for the benefit of ordinary citizens.

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

Until recent months, Milei’s approach – including widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for contributing to bring inflation under control. This plan has something in common with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be defeated, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately after a poor performance in provincial elections and a series of corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader has so far committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to curb the Bank of England, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge to make large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour hopes this position will enable it to depict Farage as intending to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

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 tends to be 10% lower in countries governed by populist rulers than in comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” argue the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

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