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“Cambio, cambio.” Under the scorching heat, dozens of money changers are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a country long used to holding the greenback.

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

Like her, economists from all backgrounds expect a devaluation of the national currency once the election concludes. The president has placed a limit on the peso to control triple-digit inflation and now it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has been repeatedly racked by sovereign defaults and economic crises and the electorate have been receptive over the years to leftwing populism, such as the influential Peronism, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, unconventional, vowing forceful policies to reclaim command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to control inflation in check. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple graft allegations. Solely massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” despite the establishment’s horror.

Farage to date outlined limited plans in writing aside from a call for large-scale removals, that he later appeared to revise spontaneously. He aims to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make large tax reductions. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will allow it to depict the populist as planning to bring back austerity – an argument the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

An economics professor notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by affluent backers calling for lower taxes and reduced rules, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict here between wealthy supporters who want Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research indicates neither left nor right populists tend to fare well when confronting practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often a tenth less in nations governed by populist rulers compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the researchers.

A further interesting result of the research, however, is that despite their economic costs, populist figures tend to be good at retaining office, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear that even when their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.