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“Cambio, cambio.” Under the scorching heat, scores of money changers are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is now,” states one arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Like her, economists across the spectrum anticipate a depreciation of the national currency after the voting concludes. The president has imposed a cap on the currency to tame soaring price increases and currently it is artificially high and foreign reserves are depleted, causing the national economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and now the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, vowing forceful policies to wrestle back control of economic management from traditional elites for the benefit of the people.

These defining traits are shared by his political partner to the north, and by the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for helping to control inflation in check. The programme shares similarities with the policies of his political hero Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences.

However financial markets started to doubt in the government’s agenda in recent months following a poor performance in local polls and a series of graft allegations. Only massive financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to enact public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he recently dropped a promise to make significant tax cuts. His second-in-command, the party chairman, said they would focus instead on public spending cuts.

Labour aims this stance will allow it to portray Farage as planning to bring back fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita is often 10% lower in nations run by populist leaders than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result of the research, though, is even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people are already bearing significant costs.