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“Cambio, cambio.” Beneath the scorching heat, scores of money changers are selling US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October congressional elections in a nation long used to holding the greenback.

“The best time for purchasing is now,” states a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds expect a depreciation of the national currency after the voting concludes. President Javier Milei has imposed a cap on the peso to control triple-digit price increases and currently it is overvalued and reserves are depleted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has frequently been racked by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing muscular policies to wrestle back command of economic management 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 the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for contributing to bring price rises under control. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be defeated, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project lately after a poor performance in provincial elections and a series of graft allegations. Only massive economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader to date outlined limited plans in writing aside from a call for mass deportations, that he later seemed to adjust on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about being accused of proposing reckless spending, he lately dropped a pledge to make large tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict Farage as planning to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform is funded by affluent backers demanding lower taxes and reduced rules, yet also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict here between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, the Argentine people have already paid a heavy price.