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“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a nation accustomed to holding the US dollar.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso once the voting concludes. President Javier Milei has placed a limit on the currency to tame triple-digit price increases and currently it is overvalued and foreign reserves are depleted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, vowing forceful policies to wrestle back control of the economy from the establishment for the benefit of the people.

These defining traits are shared by his political partner to the north, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme shares similarities with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a monster to be defeated, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months following a poor performance in provincial elections and a series of corruption scandals. Solely large-scale economic support 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 leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to enact public demand despite the establishment’s horror.

Farage to date committed few policies to paper aside from a call for mass deportations, that he later appeared to revise on the hoof. He aims to curb the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem in flux: concerned about being accused of proposing reckless spending, he lately dropped a pledge to make significant tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will enable it to portray Farage as planning to reintroduce fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of increasing 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 calling for lower taxes and deregulation, but also talking a lot about the grievances of working people and the decline in manufacturing employment,” he says. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

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

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often a tenth less in countries governed by populist leaders than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

In other words, it remains uncertain that even when their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.