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“Cambio, cambio.” Under the blazing sun, dozens of currency traders are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a country long used to holding the US dollar.

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

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso once the voting is over. The president has placed a cap on the currency to control soaring inflation and now it is overvalued and reserves are depleted, causing the national economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has frequently been hit by sovereign defaults and financial turmoil and the electorate have been receptive for decades to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing muscular measures to reclaim control of the economy from the establishment for the benefit of the people.

These key characteristics are shared by his political partner to the north, as well as the UK politician, who styles himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to bring inflation under control. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months after a poor performance in provincial elections and multiple corruption scandals. Solely large-scale economic support from abroad has averted what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies to paper except for a call for mass deportations, that he later seemed to adjust spontaneously. He aims to rein in the Bank of England, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he lately dropped a promise to make large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

Labour aims this position will allow it to depict Farage as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers demanding tax cuts and reduced rules, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

In truth, research suggests neither left nor right populists often perform poorly when faced with practical difficulties (though of course every populist leader claims to offer something unique).

Recent research from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist rulers compared to comparable countries under conventional leadership.

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

Another intriguing finding from the study, however, is even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

But back in Buenos Aires, regardless of if the government’s agenda collapses or is sustained through foreign assistance, the Argentine people have already paid significant costs.