🔗 Share this article Can Populist Governments Inevitably Wreck the Economy? “Cambio, cambio.” Under the blazing sun, dozens of currency traders are selling American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a nation accustomed to saving in the US dollar. “The optimal moment for purchasing 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, economic experts across the spectrum expect a depreciation of the Argentine peso after the election is over. President Javier Milei has placed a cap on the currency to control soaring inflation and now it is artificially high and reserves are exhausted, causing the national economy sluggish as consumers turn to cheap imports. Ideal Conditions Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the powerful Peronism, and now Milei’s conservative populism. The president is a textbook populist: charismatic, unconventional, vowing forceful policies to reclaim control of economic management from the establishment on behalf of the people. These key characteristics are shared by his political partner to the north, and by the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a privately educated ex-finance professional. Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for helping to control inflation under control. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a monster to be defeated, regardless of the consequences. However investors started to doubt in the government’s agenda lately after a shaky result in provincial elections and multiple graft allegations. Only large-scale financial intervention by the US has averted what seemed destined to be a major monetary collapse. Inconsistencies The vote for Brexit several years ago likely contained some of the same logic, and its leader, Boris Johnson, dismissed concerns about economic detail with a bullish determination to implement public demand in the face of the establishment’s horror. The Reform leader has so far committed few policies in writing except for a call for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric. His tax and spending policies appear to be in flux: concerned about being accused of planning a Liz Truss-style splurge, he lately dropped a pledge to make significant tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure. The opposition hopes this stance will allow it to portray Farage as intending to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment. Jo Michell notes there are contradictions within the populist platform, such as it is. “The party is funded by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he says. “There’s a tension there between rich backers who want Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.” Holding on to Power Realistically, research indicates populists of any stripe tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer distinct solutions). A recent paper from a leading journal examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, GDP per capita is often 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 typically go hand in hand with populist rule,” argue the researchers. A further interesting result of the research, though, is despite their economic costs, these leaders tend to be good at retaining office, 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 in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past everyday financial matters. Yet back in Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.