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The pay rule joins free growth theory and the Y rule as the three major surprises promised in my title. Recovery of human depreciation in pay changes a lot of equations. It does not impact public policy and tax laws as radically as free growth theory, but I will argue that it impacts them enough. Even if it didn’t, itis probably the most startling assertion in this book from an economist’s viewpoint. And although I now know better than to claim originality for any idea in economics, this one just might pass the test. If someone out there knows a precedent closer than Becker’s, as | eventually found ones for what I had thought were my own free growth and next generation theories, all the more fun in finding those unsuspected precursors. (Next generation theory will be outlined soon.) And the two proofs leave no doubt. I will add a few more as we go. It is never overkill to drive another stake through the heart of entrenched misperception. Meanwhile we can already be as sure of that expected recovery, not actual recovery, as of anything we know. The arguments from the maximand rule (Turgot’s insight) and the deadweight loss rule are unanswerable. An analogy from something else we all know leads to the rest of my argument. Pay over working careers is something like payments over the period of a declining- balance mortgage. Mortgage payments are partly amortization and partly interest. Amortization is like depreciation, although without the same sense of physical wear and tear behind it, and interest is like the worker’s output marketed to employers. The declining balance is like human capital. Mortgage payments are almost all interest at the start of the loan, when the declining balance is almost the whole loan amount, and then gradually less interest and more amortization as the balance shrinks. As the balance approaches zero at the end, the payment approaches all amortization while the interest share approaches zero. My depreciation theory, which we'll come to soon, argues that depreciation follows the same logic and the same math. I will argue, in the face of what has seemed to be contrary evidence, that depreciation of both factors begins at zero and grows Chapter 2: Fast Forward 1/06/16 16 HOUSE_OVERSIGHT_010956