🔗 Share this article Can Populist Administrations Always Wreck the Economic System? “Exchange, exchange.” Beneath the blazing sun, scores of currency traders are hawking US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation accustomed to saving in the US dollar. “The best time to buy is currently,” states a arbolito, declining to give her name. “[The dollar] went down a little but it is a fake-out – it will rebound.” Similar to her, economists across the spectrum expect a depreciation of the national currency after the election concludes. President Javier Milei has imposed a limit on the currency to control soaring price increases and currently it remains artificially high and reserves are depleted, leaving the national economy sluggish as buyers opt for cheap imports. Fertile Ground The nation represents a unique situation. Argentina has frequently been racked by sovereign defaults and economic crises and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s rightwing version. Milei epitomizes populist leadership: captivating, iconoclastic, vowing forceful measures to reclaim command of the economy from the establishment for the benefit of the people. These key characteristics are also seen in his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker. Up until lately, the president’s strategy – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme has something in common with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost. But investors started to doubt in the government’s agenda lately following a shaky result in local polls and multiple graft allegations. Only large-scale financial intervention by the US has averted what seemed destined to be a full-blown currency crisis. Inconsistencies The 2016 referendum several years ago arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed doubts about economic detail with confident resolve to implement the “will of the people” despite the establishment’s horror. Farage has so far committed few policies to paper except for proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric. His tax and spending policies seem in flux: concerned about facing criticism for planning a Liz Truss-style splurge, he recently abandoned a promise for significant tax cuts. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts. The opposition hopes this position will enable it to portray Farage as intending to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her approach of boosting public investment. An economics professor says there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.” Maintaining Control In truth, research suggests populists of any stripe often perform poorly when confronting real-world challenges (although every populist leader claims to offer distinct solutions). Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist leaders than in comparable countries with more mainstream regimes. “Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” argue the paper’s authors. Another intriguing finding of the research, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, versus four for their more moderate equivalents. In other words, it remains uncertain that even when their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics. But returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.