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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming 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, refusing to provide her name. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency after the election is over. The president has placed a limit on the currency to tame triple-digit inflation and currently it is overvalued and reserves are exhausted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronism, and currently the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, promising forceful measures to wrestle back command of the economy from the establishment on behalf of the people.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had won plaudits from international lenders for helping to bring price rises in check. This plan has something in common with that of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, no matter the cost.

However investors began losing confidence in Milei’s radical project in recent months following a poor performance in provincial elections and multiple corruption scandals. Only large-scale economic support from abroad has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to enact the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans in writing except for a call for large-scale removals, that he later appeared to revise spontaneously. He aims to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a pledge for significant tax cuts. His second-in-command, the party chairman, said they would focus instead on reductions in government expenditure.

The opposition hopes this stance will enable it to portray the populist as intending to reintroduce austerity – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor says there are contradictions in Farage’s economic programme, as it stands. “The party is funded by affluent backers calling for lower taxes and deregulation, but also emphasizing the grievances of working people and the loss of industrial jobs,” he explains. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, research indicates neither left nor right populists tend to fare well when confronting practical difficulties (although every populist leader claims to offer distinct solutions).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head tends to be 10% lower in nations run by populist leaders compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for eight years, compared with four for mainstream politicians.

Put simply, it remains uncertain that even when their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

But returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.