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“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are hawking US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation long used to holding the US dollar.

“The optimal moment for purchasing is currently,” states a arbolito, declining to give her name. “[The dollar] dropped 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 election is over. President Javier Milei has placed a limit on the peso to tame soaring inflation and currently it remains artificially high and reserves are exhausted, leaving the national economy sluggish as consumers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has frequently been hit by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, such as the influential Peronism, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, unconventional, vowing forceful measures to reclaim control of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and severe budget reductions – had earned praise from international lenders for contributing to bring inflation in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a dragon to be slain, regardless of the consequences.

However investors began losing confidence in the government’s agenda lately following a shaky result in provincial elections and a series of graft allegations. Only large-scale economic support by the US has prevented what looked set to become a full-blown monetary collapse.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans to paper except for a call for mass deportations, that he later seemed to adjust on the hoof. He wants to rein in the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans appear to be in flux: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will allow it to depict the populist as planning to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her approach of increasing public investment.

Jo Michell says there exist inconsistencies within the populist platform, as it stands. “The party is funded by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the grievances of working people and the loss in manufacturing employment,” he says. “There is a conflict here between rich backers seeking Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” contend the researchers.

Another intriguing finding of the research, however, is that despite their economic costs, these leaders are often effective at retaining office, remaining in power for a considerable time, compared with four for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, such leaders immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction extends past everyday financial matters.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.