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“Dollars, dollars.” Under the blazing sun, dozens of money changers are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to holding the greenback.

“The best time to buy is now,” says a arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economic experts across the spectrum expect a devaluation of the national currency once the election concludes. The president has imposed a cap on the currency to tame triple-digit inflation and now it remains overvalued and foreign reserves are depleted, causing the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. Argentina has been repeatedly hit by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to wrestle back control of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who presents himself as a pint-swilling champion of the common man despite being a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to control 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 investors started to doubt in the government’s agenda lately after a shaky result in provincial elections and multiple corruption scandals. Only large-scale financial intervention from abroad has averted what looked set to become a major currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, the former prime minister, dismissed concerns about economic detail with confident resolve to enact the “will of the people” despite elite opposition.

The Reform leader has so far committed few policies to paper aside from a call for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem unsettled: wary of facing criticism for proposing reckless spending, he recently dropped a promise for large tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this stance will allow it to portray the populist as planning to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of increasing government spending.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “Reform is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he says. “There is a conflict there between rich backers who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the performance 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 10% lower in countries governed by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the paper’s authors.

Another intriguing finding of the research, however, is even with their negative impacts, these leaders tend to be good at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear 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 everyday financial matters.

But back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.