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

“The best time for purchasing is currently,” states one arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the national currency after the voting is over. President Javier Milei has imposed a limit on the peso to tame soaring price increases and currently it is overvalued and reserves are depleted, causing the national economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked 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 powerful Peronism, and currently Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising forceful measures to wrestle back control of the economy from traditional elites for the benefit of the people.

These defining traits are also seen in his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from the IMF for helping to control price rises under control. The programme shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda in recent months following a poor performance in local polls and multiple corruption scandals. Only massive economic support from abroad has prevented what seemed destined to be a major currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans to paper except for proposals for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he lately abandoned a pledge to make large tax reductions. His second-in-command, the party chairman, said they would focus instead on reductions in government expenditure.

Labour hopes this position will allow it to portray the populist as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “The party is funded by affluent backers calling for tax cuts and deregulation, yet also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader promises something unique).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be a tenth less in nations governed by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, though, is that even with their negative impacts, these leaders are often effective at retaining office, remaining in power for a considerable time, versus four for mainstream politicians.

Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, the Argentine people are already bearing significant costs.