🔗 Share this article Can Populist Governments Inevitably Wreck the Economy? “Exchange, exchange.” Under the scorching heat, dozens of currency traders are offering American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a nation accustomed to saving in the US dollar. “The best time for purchasing is currently,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.” Similar to her, economists from all backgrounds anticipate a devaluation of the national currency once the voting is over. President Javier Milei has placed a cap on the peso to tame soaring price increases and currently it is overvalued and reserves are exhausted, causing the national economy stagnant as buyers turn to low-cost foreign goods. Fertile Ground Argentina is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive over the years to left-leaning populist movements, such as the influential Peronism, and currently Milei’s conservative populism. Milei epitomizes populist leadership: captivating, unconventional, vowing forceful policies to wrestle back control of the economy from the establishment for the benefit of the people. These key characteristics are also seen in his ally to the north, and by the UK politician, who styles himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional. Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation under control. The programme shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed rising prices as a monster to be slain, regardless of the consequences. But financial markets started to doubt in Milei’s radical project lately after a poor performance in provincial elections and multiple graft allegations. Only massive economic support by the US has averted what seemed destined to be a full-blown monetary collapse. Inconsistencies The 2016 referendum in 2016 likely contained some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to implement the “will of the people” despite the establishment’s horror. The Reform leader has so far outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of populist rhetoric. His tax and spending policies appear to be unsettled: wary of being accused of planning a Liz Truss-style splurge, he lately dropped a promise for large tax cuts. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure. The opposition aims this stance will allow it to portray the populist as planning to bring back austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending. Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people demanding tax cuts and reduced rules, yet also talking a lot about the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict here between rich backers who want radical free-market policies, and this story of restoring UK employment and industrial revival.” Maintaining Control Realistically, the evidence indicates neither left nor right populists tend to fare well when faced with practical difficulties (although every populist leader promises 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 a tenth less in countries governed by populist rulers compared to similar economies under conventional leadership. “Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together with populist rule,” argue the researchers. A further interesting result of the research, though, is despite their economic costs, these leaders are often effective at retaining office, remaining in power for eight years, versus four for mainstream politicians. In other words, it is not clear whether even if their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters. But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing significant costs.