Keynes-Clower-Wu's Income Growth Theory provides a "new" consumption theory result, combining theory and empirical evidence. In an essential field with many famous Nobel Prize winners, '85 Modigliani, '76 Milton Friedman, '95 Robert Lucas, '15 Angus Deaton, and '26 Robert Hall, economists have failed to provide a scientific theory on short and long-term consumption behavior, most importantly overconsumption and dissaving. In addition, their work cannot explain why personal saving in many countries, including the U.S., behave like a yo-yo or why households in a higher saving country can suddenly start saving less and vice versa. This inability to explain (and forecast) saving reflects the need for a better consumption theory.

Hall's Permanent Income Hypothesis assumption and his Random Walk Hypothesis conclusion were reviewed by Wu, who derived a microfoundation optimization under a budget constraint that does not always hold as expected (Clower's Dual-Decision Hypothesis). In this scenario, Wu showed that changes in saving is a function of labor income growth, a result anticipated in Keynes' General Theory (1936) as a simple principle. And, arguably, Hall optimization operated in a system without feedback and Hall/Flavin's conclusion that consumption is independent of income did not hold either in theory or evidence.

In practice, based on Income Growth Theory, there is a way to understand the relationship between the effects of trade and saving, and, from 1960 to 2024, the outcome of the U.S. presidential election, which, in 14 out of 16 (87.5%) times, shows a high correlation between a single economic variable, farm income, and the election result.

The following chart will show some of the issues we will discuss: