🔗 Share this article Can Populist-Led Governments Always Crash the Economic System? “Cambio, cambio.” Under the scorching heat, dozens of money changers are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation long used to holding the greenback. “The best time for purchasing is currently,” says a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.” Like her, economic experts across the spectrum expect a depreciation of the Argentine peso once the voting is over. The president has placed a limit on the peso to tame soaring price increases and currently it remains overvalued and foreign reserves are depleted, causing Argentina’s economy sluggish as consumers opt for cheap imports. Fertile Ground Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s rightwing version. The president is a textbook populist: captivating, unconventional, promising muscular policies to reclaim command of economic management from traditional elites on behalf of the people. These defining traits are also seen in his political partner to the north, and by the UK politician, who presents himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional. Up until lately, the president’s strategy – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for helping to bring inflation in check. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a dragon to be defeated, regardless of the consequences. However investors started to doubt in Milei’s radical project in recent months after a poor performance in provincial elections and a series of corruption scandals. Only large-scale financial intervention by the US has prevented what looked set to become a major currency crisis. Contradictions The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand despite the establishment’s horror. Farage has so far outlined limited plans in writing aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package. His tax and spending policies seem in flux: concerned about being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge for significant tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts. The opposition hopes this position will enable it to portray the populist as planning to bring back austerity – a point the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending. Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “The party is funded by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.” Holding on to Power In truth, research indicates neither left nor right populists often perform poorly when confronting real-world challenges (though of course every populist leader claims to offer distinct solutions). Recent research in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be a tenth less in countries run by populist leaders than in similar economies with more mainstream regimes. “Economic disintegration, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” 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, remaining in power for eight years, compared with four for mainstream politicians. Put simply, it remains uncertain whether even if their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics. Yet back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people are already bearing a heavy price.