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., behaves 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.

In theory, Wu reviewed Hall's Permanent Income Hypothesis assumption and his Random Walk Hypothesis conclusion, and found out that, in a microfoundation optimization under a budget constraint that does not always hold as expected (Clower's Dual-Decision Hypothesis), changes in saving should be a function of labor income growth, a theoretical result long anticipated in Keynes' General Theory (1936) as a simple principle. In contrast, the Permanent Income Hypothesis assumption implies Hall's budget constraint operated a system without feedback and Hall/Flavin's conclusion that consumption is independent of income is based upon an imprecision and cannot hold either in theory or evidence.

In practice, only with Income Growth Theory, it is possible to understand the relationship between the effects of trade and saving, and the outcome of the U.S. presidential election (1960-2024), 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: