🔗 Share this article Do Populist Governments Inevitably Crash the Economic System? “Cambio, cambio.” Under the scorching heat, scores of money changers are hawking American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a country accustomed to saving in the US dollar. “The best time to buy is currently,” says one arbolito, declining to give her identity. “[The dollar] went down 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 concludes. The president has imposed a cap on the peso to tame soaring inflation and now it remains overvalued and foreign reserves are exhausted, leaving the national economy sluggish as buyers opt for cheap imports. Fertile Ground Argentina represents a unique situation. Argentina has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s rightwing version. The president epitomizes populist leadership: charismatic, iconoclastic, vowing forceful measures to wrestle back control of the economy from traditional elites for the benefit of the people. These defining traits are also seen in his political partner in the United States, as well as the UK politician, who styles 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 budget reductions – had won plaudits from the IMF for contributing to control price rises in check. This plan has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be slain, no matter the cost. But investors started to doubt in Milei’s radical project lately following a poor performance in provincial elections and a series of corruption scandals. Only massive financial intervention from abroad has prevented what seemed destined to be a full-blown monetary collapse. Inconsistencies The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed doubts 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 aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package. His fiscal plans appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a pledge for large tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts. The opposition hopes this stance will enable it to depict the populist as intending to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment. Jo Michell notes there are contradictions within the populist platform, such as it is. “The party is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the complaints of working people and the loss in manufacturing employment,” he says. “There is a conflict there among wealthy supporters who want radical free-market policies, and this story of bringing back UK employment and reindustrialisation.” Holding on to Power Realistically, the evidence indicates neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader claims to offer distinct solutions). A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, gross domestic product per head is often a tenth less in countries run by populist leaders than in comparable countries under conventional leadership. “Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” contend the researchers. Another intriguing finding of the research, however, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, versus shorter tenures for their more moderate equivalents. 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 extends past mundane economics. Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.