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“Exchange, exchange.” Under the scorching heat, scores of money changers are offering US dollars on 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 country accustomed to saving in the greenback.

“The optimal moment to buy is now,” states one arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the Argentine peso after the voting is over. The president has imposed a cap on the currency to control triple-digit price increases and now it is artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, in the form of the influential Peronism, and now Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful policies to wrestle back control of the economy from the establishment on behalf of the people.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and deep budget reductions – had earned praise from international lenders for helping to control inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost.

But financial markets started to doubt in Milei’s radical project in recent months after a poor performance in local polls and a series of corruption scandals. Only massive financial intervention from abroad has averted what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, 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 has so far outlined limited plans to paper aside from a call for large-scale removals, that he later appeared to revise spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem unsettled: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

Labour aims this position will allow it to depict the populist as intending to reintroduce fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of increasing public investment.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, but also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension here between rich backers who want Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer something unique).

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 that on average, over the long term, GDP per capita tends to be 10% lower in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

A further interesting result from the study, though, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for a considerable time, versus four for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.