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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are offering US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a nation accustomed to holding the greenback.

“The optimal moment for purchasing is now,” says one arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the national currency after the voting is over. The president has imposed a cap on the currency to control soaring price increases and now it remains artificially high and reserves are exhausted, causing Argentina’s economy stagnant as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by debt defaults and economic crises and the electorate have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful policies to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had won plaudits from international lenders for contributing to bring inflation under control. This plan has something in common with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

But investors began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and a series of graft allegations. Solely massive financial intervention by the US has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, Boris Johnson, swept away concerns about economic detail with confident resolve to implement public demand despite the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: wary of facing criticism for proposing reckless spending, he lately dropped a pledge to make large tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to depict the populist as intending to bring back austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

An economics professor says there are contradictions in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people calling for lower taxes and deregulation, yet also emphasizing the grievances of working people and the loss of industrial jobs,” he says. “There is a conflict here among rich backers who want Thatcherism on steroids, 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 promises something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, gross domestic product per head tends to be a tenth less in nations run by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” contend the paper’s authors.

A further interesting result from the study, though, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average eight years, versus shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people are already bearing significant costs.