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“Dollars, dollars.” Under the scorching heat, scores of currency traders are selling US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a country long used to holding the US dollar.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the national currency once the voting concludes. President Javier Milei has imposed a cap on the currency to control soaring price increases and currently it remains overvalued and foreign reserves are exhausted, causing the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation is a very special case. The country has frequently been hit by debt defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing muscular policies to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – involving extensive privatisations and severe budget reductions – had won plaudits from the IMF for helping to bring price rises under control. This plan has something in common with that of his political hero Margaret Thatcher, who also saw rising prices as a monster to be defeated, no matter the cost.

But investors started to doubt in Milei’s radical project in recent months after a poor performance in local polls and multiple graft allegations. Only massive economic support by the US has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to implement the “will of the people” despite the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from proposals for large-scale removals, that he later seemed to adjust on the hoof. He wants to rein in the central bank, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans seem unsettled: wary of being accused of planning reckless spending, he lately dropped a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour hopes this position will enable it to depict the populist as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her strategy of increasing government spending.

An economics professor 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 talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, research indicates populists of any stripe often perform poorly when confronting practical difficulties (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. It found typically, over the long term, gross domestic product per head is often a tenth less in nations governed by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand under populist governments,” argue the paper’s authors.

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

In other words, it remains uncertain whether even if their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.