🔗 Share this article Do Populist Governments Always Wreck the Economy? “Cambio, cambio.” Under the scorching heat, scores of money changers are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a country accustomed to saving in the US dollar. “The best time to buy is now,” states a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.” Like her, economists from all backgrounds anticipate a devaluation of the national currency after the election concludes. The president has placed a cap on the peso to control triple-digit price increases and now it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as consumers opt for cheap imports. Ideal Conditions Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version. Milei is a textbook populist: charismatic, iconoclastic, promising muscular policies to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens. These defining traits are also seen in his ally to the north, as well as the UK politician, who presents himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional. Up until lately, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had won plaudits from international lenders for contributing to control price rises in check. The programme shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be slain, regardless of the consequences. However investors started to doubt in Milei’s radical project lately following a shaky result in provincial elections and multiple corruption scandals. Solely large-scale financial intervention from abroad has prevented what looked set to become a full-blown monetary collapse. Contradictions The 2016 referendum in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of the establishment’s horror. Farage to date outlined limited plans in writing aside from a call for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package. His fiscal plans appear to be in flux: wary of facing criticism for planning a Liz Truss-style splurge, he recently abandoned a pledge to make large tax cuts. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts. Labour hopes this stance will enable it to portray Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her approach of increasing public investment. Jo Michell says there exist inconsistencies in Farage’s economic programme, such as it is. “Reform is funded by affluent backers demanding tax cuts and deregulation, but also talking a lot about the complaints of working people and the decline of industrial jobs,” he says. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.” Holding on to Power In truth, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader promises something unique). Recent research from a leading journal examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, after 15 years, gross domestic product per head is often 10% lower in nations run by populist rulers than in similar economies under conventional leadership. “Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors. Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents. Put simply, it remains uncertain that even when their plans crash, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters. But returning to Buenos Aires, regardless of if the government’s agenda fails or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.