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“Dollars, dollars.” Beneath the blazing sun, dozens of currency traders are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a country long used to holding the US dollar.

“The best time to buy is now,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum expect a depreciation of the Argentine peso once the voting concludes. President Javier Milei has imposed a limit on the currency to tame soaring inflation and now it remains overvalued and foreign reserves are depleted, leaving the national economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has frequently been racked by sovereign defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the powerful Peronism, and now the president’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to wrestle back command of the economy from traditional elites on behalf of the people.

These defining traits are also seen in his ally in the United States, and by Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and severe budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be defeated, regardless of the consequences.

But financial markets started to doubt in the government’s agenda in recent months after a poor performance in provincial elections and multiple graft allegations. Only large-scale financial intervention by the US has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper except for a call for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he recently dropped a promise to make significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

Labour aims this position will enable it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor 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 is funded by affluent backers calling for lower taxes and reduced rules, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head tends to be a tenth less in nations run by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.