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“Cambio, cambio.” Beneath the scorching heat, dozens of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a nation long used to holding the US dollar.

“The optimal moment for purchasing is currently,” states one arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso once the voting is over. President Javier Milei has imposed a cap on the currency to control soaring price increases and now it is artificially high and foreign reserves are exhausted, causing Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has frequently been racked by debt defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to wrestle back control of economic management 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 the UK politician, who styles himself as a beer-drinking people’s champion despite being a privately educated former stockbroker.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits from international lenders for contributing to bring price rises in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months following a shaky result in local polls and multiple graft allegations. Only large-scale financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with a bullish determination to implement public demand despite the establishment’s horror.

Farage has so far committed few policies to paper aside from proposals for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the Bank of England, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he lately dropped a promise to make large tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to portray the populist as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers calling for tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there among wealthy supporters who want Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe tend to fare well when confronting real-world challenges (though of course each charismatic individual promises distinct solutions).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita tends to be 10% lower in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” argue the researchers.

A further interesting result from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

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