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“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are offering US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a country long used to holding the US dollar.

“The best time to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the national currency after the election concludes. President Javier Milei has placed a cap on the peso to tame soaring inflation and now it remains overvalued and reserves are exhausted, leaving the national economy stagnant as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been racked by sovereign defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, such as the powerful Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to reclaim command of the economy from the establishment on behalf of the people.

These defining traits are shared by his ally to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and severe budget reductions – had won plaudits from the IMF for helping to bring price rises in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and a series of graft allegations. Solely large-scale economic support from abroad has prevented what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to enact public demand in the face of elite opposition.

Farage has so far outlined limited plans in writing except for proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge for significant tax reductions. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour aims this stance will allow it to depict the populist as intending to bring back austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

Jo Michell says there exist inconsistencies in Farage’s economic programme, such as it is. “The party are bankrolled by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “There is a conflict here among wealthy supporters seeking Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer something unique).

A recent paper from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be 10% lower in nations governed by populist rulers than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is that despite their economic costs, these leaders are often effective at retaining office, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.