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“Dollars, dollars.” Beneath the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a nation long used to saving in the US dollar.

“The optimal moment to buy is currently,” says a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the national currency after the election is over. The president has imposed a limit on the currency to control triple-digit price increases and now it remains artificially high and reserves are depleted, leaving the national economy sluggish as consumers turn to cheap imports.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and now the president’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, vowing forceful policies to wrestle back control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation under control. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months after a poor performance in local polls and a series of graft allegations. Solely large-scale economic support by the US has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies in writing except for a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to curb the central bank, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make significant tax cuts. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour aims this stance will enable it to depict the populist as planning to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor says there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people demanding lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension here between wealthy supporters seeking radical free-market policies, and this story of restoring British jobs and industrial revival.”

Maintaining Control

In truth, research suggests populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual promises something unique).

Recent research in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations run by populist rulers than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, however, is even with their negative impacts, these leaders 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 immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.