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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are offering US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the US dollar.

“The optimal moment to buy is now,” states a arbolito, declining to give her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economists from all backgrounds expect a devaluation of the Argentine peso once the election is over. President Javier Milei has imposed a cap on the peso to control soaring inflation and currently it remains artificially high and foreign reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and now the president’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, promising muscular policies to reclaim control of the economy from traditional elites on behalf of the people.

These defining traits are shared by his ally to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for contributing to bring inflation under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, regardless of the consequences.

However investors began losing confidence in the government’s agenda in recent months following a shaky result in provincial elections and multiple corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader to date committed few policies in writing except for a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for proposing reckless spending, he recently abandoned a pledge to make large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to depict Farage as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her strategy of increasing government spending.

An economics professor notes there are contradictions within the populist platform, such as it is. “The party is funded by affluent backers calling for lower taxes and deregulation, yet also emphasizing the complaints of working people and the loss of industrial jobs,” he explains. “There’s a tension here between wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research suggests populists of any stripe often perform poorly when confronting real-world challenges (although each charismatic individual claims to offer distinct solutions).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist rulers than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” argue the paper’s authors.

A further interesting result from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, remaining in power for eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, Argentina’s citizens have already paid significant costs.