🔗 Share this article Do Populist Governments Always Crash the Economy? “Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a country accustomed to saving in the US dollar. “The optimal moment to buy is now,” states one arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.” Similar to her, economists across the spectrum anticipate a depreciation of the national currency once the voting is over. The president has imposed a limit on the currency to tame triple-digit price increases and now it is overvalued and reserves are exhausted, causing Argentina’s economy sluggish as buyers opt for cheap imports. Fertile Ground The nation represents a unique situation. Argentina has been repeatedly hit by debt defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, such as the influential Peronist movement, and now Milei’s rightwing version. Milei is a textbook populist: captivating, iconoclastic, vowing forceful measures to wrestle back control of the economy from traditional elites for the benefit of the people. These key characteristics are also seen in his political partner to the north, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated former stockbroker. Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for contributing to control inflation in check. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, regardless of the consequences. But investors began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and a series of corruption scandals. Solely large-scale financial intervention from abroad has averted what looked set to become a full-blown monetary collapse. Inconsistencies The vote for Brexit in 2016 arguably had similar reasoning, and its leader, Boris Johnson, dismissed concerns about economic detail with a bullish determination to enact public demand despite the establishment’s horror. Farage has so far outlined limited plans to paper aside from a call for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric. His fiscal plans seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he lately dropped a pledge for significant tax reductions. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure. Labour aims this position will allow it to portray the populist as intending to bring back austerity – a point Rachel Reeves has emphasized often, comparing it unfavorably to her approach of boosting public investment. An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he explains. “There’s a tension here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.” Maintaining Control Realistically, research suggests neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual promises distinct solutions). Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist leaders than in similar economies with more mainstream regimes. “Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” argue the researchers. Another intriguing finding from the study, however, is that even with their negative impacts, populist figures are often effective at retaining office, remaining in power for a considerable time, versus shorter tenures for mainstream politicians. In other words, it is not clear whether even if their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics. Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.