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“Cambio, cambio.” Under the scorching heat, dozens of currency traders are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving before the October 26 midterm elections in a nation accustomed to holding the greenback.

“The best time to buy is now,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a devaluation of the national currency once the voting concludes. The president has placed a limit on the peso to control soaring inflation and currently it is artificially high and reserves are depleted, causing the national economy stagnant as consumers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has frequently been hit by sovereign defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful policies to wrestle back command of the economy from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his ally to the north, and by Nigel Farage, who styles himself as a pint-swilling people’s champion despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from international lenders for contributing to bring inflation in check. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project lately after a shaky result in provincial elections and multiple corruption scandals. Only massive financial intervention by the US has averted what looked set to become a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with confident resolve to implement the “will of the people” despite the establishment’s horror.

Farage to date committed few policies to paper except for proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: wary of being accused of proposing reckless spending, he recently dropped a promise to make significant tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour aims this stance will allow it to portray the populist as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, contrasting it with her approach 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 reduced rules, yet also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There’s a tension there among wealthy supporters seeking radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research suggests populists of any stripe tend to fare well when confronting real-world challenges (though of course each charismatic individual claims to offer something unique).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, GDP per capita tends to be 10% lower in nations run by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

A further interesting result of the research, however, is that even with their negative impacts, these leaders tend to be good at holding on to power, lasting on average a considerable time, compared with four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their attraction extends past everyday financial matters.

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