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“Cambio, cambio.” Under the blazing sun, scores of money changers are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the US dollar.

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

Similar to her, economists from all backgrounds expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the peso to tame soaring price increases and now it is artificially high and foreign reserves are depleted, causing the national economy stagnant as buyers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and now the president’s rightwing version.

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

These defining traits are also seen in his ally to the north, as well as the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing to control price rises in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be slain, no matter the cost.

But financial markets began losing confidence in Milei’s radical project in recent months following a poor performance in provincial elections and a series of corruption scandals. Solely massive economic support from abroad has prevented what looked set to become a major currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, Boris Johnson, swept away doubts about economic detail with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans to paper except for a call for mass deportations, which he subsequently seemed to adjust on the hoof. He wants to curb the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem in flux: wary of being accused of planning reckless spending, he lately abandoned a pledge to make significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

Labour aims this stance will allow it to depict Farage as planning to reintroduce austerity – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, as it stands. “The party is funded by very wealthy people calling for tax cuts and deregulation, but also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension here among rich backers seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe tend to fare well when faced with real-world challenges (though of course each charismatic individual claims to offer 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, after 15 years, GDP per capita tends to be a tenth less in nations run by populist rulers compared to similar economies with more mainstream regimes.

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

Another intriguing finding from the study, however, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for eight years, versus four for mainstream politicians.

Put simply, it is not clear that even when their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.