🔗 Share this article Can Populist Governments Always Wreck the Economy? “Exchange, exchange.” Under the blazing sun, scores of currency traders are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation long used to saving in the US dollar. “The best time to buy is currently,” says a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.” Like her, economists across the spectrum anticipate a depreciation of the national currency once the voting concludes. The president has imposed a limit on the peso to control triple-digit price increases and currently it remains artificially high and reserves are exhausted, leaving the national economy stagnant as buyers opt for cheap imports. Fertile Ground Argentina is a very special case. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronism, and currently the president’s rightwing version. The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim control of economic management from traditional elites on behalf of ordinary citizens. These defining traits are shared by his political partner to the north, and by the UK politician, who styles himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker. Up until lately, Milei’s approach – including widespread sell-offs and deep budget reductions – had won plaudits from international lenders for contributing to control price rises in check. The programme has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences. But investors began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and a series of graft allegations. Solely massive financial intervention by the US has prevented what looked set to become a full-blown monetary collapse. Contradictions The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand despite elite opposition. Farage to date outlined limited plans in writing except for proposals for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric. His tax and spending policies appear to be in flux: concerned about facing criticism for proposing reckless spending, he recently abandoned a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts. Labour aims this position will allow it to depict the populist as planning to bring back austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of increasing government spending. Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “Reform is funded by affluent backers demanding tax cuts and reduced rules, yet also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension here among rich backers who want Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.” Maintaining Control Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer distinct solutions). A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, over the long term, gross domestic product per head tends to be a tenth less in nations run by populist rulers than in similar economies with more mainstream regimes. “Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together with populist rule,” argue the researchers. Another intriguing finding from the study, however, is despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, versus four for mainstream politicians. Put simply, it remains uncertain that even when their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters. Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, the Argentine people have already paid significant costs.