🔗 Share this article Can Populist-Led Governments Always Crash the Economy? “Dollars, dollars.” Under the scorching heat, dozens of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a nation accustomed to saving in the US dollar. “The optimal moment to buy is now,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it’ll rise again.” Like her, economic experts across the spectrum anticipate a depreciation of the Argentine peso once the voting concludes. The president has placed a limit on the currency to tame soaring inflation and now it is overvalued and reserves are depleted, leaving the national economy sluggish as consumers turn to low-cost foreign goods. Ideal Conditions Argentina is a very special case. The country has frequently been hit by sovereign defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s rightwing version. The president is a textbook populist: charismatic, unconventional, promising forceful policies to wrestle back command of the economy from traditional elites on behalf of the people. These defining traits are shared by his ally in the United States, and by the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional. Until recent months, the president’s strategy – involving extensive privatisations and deep public spending cuts – had won plaudits from international lenders for helping to bring price rises under control. The programme shares similarities with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences. However financial markets started to doubt in the government’s agenda lately after a poor performance in provincial elections and a series of graft allegations. Only massive economic support from abroad has prevented what looked set to become a major currency crisis. Contradictions The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, swept away concerns about economic detail with confident resolve to implement public demand despite the establishment’s horror. Farage to date committed few policies in writing except for a call for large-scale removals, that he later seemed to adjust on the hoof. He aims to curb the central bank, perhaps even ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric. His fiscal plans seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately dropped a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts. Labour aims this position will enable it to depict Farage as planning to reintroduce fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending. Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “Reform are bankrolled by very wealthy people calling for lower taxes and deregulation, but also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he explains. “There’s a tension there between rich backers seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.” Maintaining Control In truth, research suggests neither left nor right populists often perform poorly when confronting real-world challenges (though of course each charismatic individual promises something unique). Recent research from a leading journal examined the outcomes of dozens of populist leaders, over more than a century. It found typically, over the long term, GDP per capita is often a tenth less in nations run by populist leaders than in similar economies with more mainstream regimes. “Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” argue the researchers. A further interesting result from the study, though, is despite their economic costs, populist figures tend to be good at retaining office, remaining in power for eight years, versus shorter tenures for mainstream politicians. Put simply, it remains uncertain whether even if their plans crash, populists face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics. Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.