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

“The best time for purchasing is now,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economic experts across the spectrum expect a devaluation of the Argentine peso once the election concludes. President Javier Milei has imposed a cap on the currency to control soaring inflation and now it is overvalued and reserves are depleted, leaving Argentina’s economy sluggish as consumers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the influential Peronism, and currently the president’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, promising forceful measures to reclaim control of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his ally in the United States, and by the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and deep budget reductions – had earned praise from the IMF for helping to bring price rises in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda lately following a shaky result in provincial elections and multiple corruption scandals. Only massive financial intervention by the US has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns about economic detail with confident resolve to implement the “will of the people” in the face of elite opposition.

Farage has so far outlined limited plans to paper except for a call for mass deportations, that he later appeared to revise spontaneously. He aims to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem unsettled: wary of being accused of proposing reckless spending, he lately abandoned a promise to make large tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts.

The opposition aims this position will allow it to depict Farage as planning to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing government spending.

An economics professor notes there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the grievances of working people and the decline in manufacturing employment,” he says. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when faced with real-world challenges (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head tends to be 10% lower in nations run by populist rulers compared to comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically occur together with populist rule,” contend the researchers.

Another intriguing finding of the research, though, is that even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, the Argentine people are already bearing a heavy price.