Michael Pento Explains How Dr. Keynes Killed The Patient
Another brilliant allegory by the man who makes CNBC watchable (even in dodecabox format), Michael Pento, as of recently working at Peter Schiff's Euro Pacific Capital.
Dr. Keynes Killed the Patient, by Michael Pento, first appearing on Real Clear Markets
A morbidly obese gentleman labored into Dr. Hayek's office suffering
from severe chest pain. The patient also complained that he was unable
to consume his usual 10,000 calorie-per-day diet; in fact, he was
feeling so sick that he could barely scarf down 9,000 calories. He
noted that his love for food remained as strong as ever, but his body
just wasn't keeping up with his demands.
After having a thorough look at the patient, the good doctor
could not find anything wrong outside of the patient's extreme
portliness. After a moment of reflection, he delivered to his patient a
troubling diagnosis. He explained that the chest pain stemmed from the
strain the patient's 500lb body was putting on his heart, and that the
lack of appetite was his body's attempt to protect itself from this
imbalance. Dr. Hayek's prescription was simple: the patient had to
dramatically reduce his consumption while undertaking a moderate
exercise program, with the goal of losing 250lbs as quickly and safely
as possible. Dr. Hayek was aware that it would be a physically painful
and emotionally difficult process for the man, but it was the only way
to avert a life of suffering - or even a heart attack.
Unfortunately, our patient rebelled against such an austere program.
He had grown very fond of his high-calorie and high-fat diet and didn't
think that now, when he was already depressed from dealing with all
these ailments, was a good time to deny himself the few pleasures he had
left. In his opinion, the doc's prescription was just too simplistic.
He thought there just had to be a way to have his cake and eat it -
frequently. So, he waddled out of Dr. Hayek's office as fast as he
could, shouting over his shoulder: "I'm getting a second opinion!"
The overweight gentleman sauntered across the street, where he found
the office of Dr. Keynes. He told the new doctor about his acute chest
pain and lack of appetite, and complained about the previous doctor's
"heartless" prescription. After a cursory examination, Dr. Keynes
rendered his diagnosis: the patient's condition did not stem from the
fact that his gigantic frame was causing undo strain on his heart;
instead, the doctor concluded, the patient's chest pain was merely
causing a temporary lack of hunger.
Furthermore, Dr. Keynes argued, the stress of cutting weight at the
present time would certainly prove detrimental to the man's already weak
heart. Therefore, his prescription was for the 500lb man to each as
much as possible, as quickly as possible. Anything less might cause the
man to suffer a heart attack, he noted. Now the doctor did concede that,
at some point in the distant future, it might be a good idea for the
man to shed a few pounds. But for the present, the most import thing to
do would be to consume as much as he could stomach.
The patient left Dr. Keynes' office with a broad smile. After gorging
at an all-you-can-eat buffet, he momentarily forgot about his chest
pain. It looked like he had found his solution; except, a week later, he
The Hubris of Government
The allegory above discusses the dangers of quackery, whether medical
or economic. Right now, economic quackery - in the form of Keynesianism
- has overtaken Washington.
American consumers are trying their best to deleverage. In terms of
the story, the patient is actually trying to lose weight. But the
government is blocking deleveraging and trying to boost consumption.
They are forcing food down the patient's throat. According to the Flow
of Funds Report, households reduced debt at a 2.4% annualized rate ($330
billion) during Q1 of 2010. Meanwhile, the federal government was
piling on debt at an 18.5% annual rate ($1.44 trillion). Since every
dollar of government debt is a promise to tax the private sector in the
future with interest, this public spending spree effectively negated the
Herculean efforts of the private sector to return to a sustainable
That's where the arrogance of Washington is really apparent. Scores
of millions of American consumers have made the decision that reducing
their debt burden is in their best interests right now. But a few
hundred individuals in government believe they know better than the
collective wisdom of the entire free market. By leveraging up the public
sector, they have used their power to confiscate our savings. In short,
they are forbidding us from following the common sense path to fiscal
Unlike their forbears, modern-day Keynesians do not argue just for
mollification in the rate of deleveraging. They seek to significantly
increase debt levels in an effort to boost the aggregate demand in the
economy. Apparently, only once the mythical recovery takes hold due to
government spending, printing, and borrowing does a discussion of
deficits become appropriate.
The US has persisted under this theory for close to a century, though
with a declining quality of life. Unfortunately, the patient has now
gone critical. Curiously, the world has yet to fully recognize our
precarious condition, even as they provide us with life support.
Washington is now entirely dependent on the reserve currency status of
the dollar and the continued hibernation of bond vigilantes. Without
these supports, the United States would face complete economic arrest.
Rather than allowing the American people to get back on our feet,
Washington is stuffing us with even more debt. It's almost as if the
feds are daring our foreign creditors to pull the plug. As a
consequence, I predict that just as Dr. Keynes killed his patient,
Keynesian economics will kill our economy.