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“Exchange, exchange.” Beneath the scorching heat, scores of money changers are offering US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a nation accustomed to saving in the greenback.

“The best time for purchasing is currently,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the peso to tame soaring inflation and currently it remains overvalued and reserves are exhausted, causing Argentina’s economy stagnant as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible for decades to leftwing populism, such as the powerful Peronism, and currently the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, vowing forceful measures to reclaim command of economic management from the establishment on behalf of the people.

These key characteristics are shared by his ally to the north, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to bring inflation under control. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed 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 provincial elections and multiple graft allegations. Only large-scale economic support from abroad has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact public demand despite the establishment’s horror.

Farage has so far committed few policies in writing aside from a call for mass deportations, which he subsequently seemed to adjust on the hoof. He wants to curb the Bank of England, possibly replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise to make large tax reductions. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition hopes this position will enable it to portray Farage as planning to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “The party is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates neither left nor right populists tend to fare well when faced with real-world challenges (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be a tenth less in nations governed by populist rulers compared to similar economies under conventional leadership.

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

Another intriguing finding from the study, though, is despite their economic costs, populist figures tend to be good at holding on to power, lasting on average a considerable time, versus four for mainstream politicians.

In other words, it is not clear whether even if their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.