Total annualized US domestic savings have fallen from their peak of $2.2 trillion dollars in the third quarter of 2006 to just $1.4 trillion on the latest Fed data. That represents a  drop from 16.2% of GDP to 10.2% in 3 years, and is the lowest level since 1934. I've discussed the ongoing crisis in US infrastructure investment previously, but including all investment, private and public, the current level at 14.7 percent of GDP barely covers depreciation (the calculated rate of capital consumption is 12.9 percent of GDP). Economics 101 teaches spotty faced teenagers that economic growth is a function of the growth in human and physical capital and the productivity of both as enhanced by technical innovation. A growing labor force, in the absence of rising per-capita capital formation and of innovation with a broad multiplier effect on productivity, results in the 17.5% broad unemployment that the US is now suffering. The contribution of private investment to GDP growth in this decade has been the lowest since the 1930s; on any measure, the US is barely maintaining its capital base.

There is a tendency among investors and financial analysts to apply a microscope to markets rather than zooming out with the telescope that gives crucial perspective. The stagnation of median real US incomes and steadily falling labor force participation rates have been evident thropughout this decade, and their economic  impact on final demand and growth were disguised only by an historic accumulation of debt at all levels of the US economy.  But even doping an economy with ever larger doses of leverage suffers diminishing returns, and indeed the ratio of debt applied to growth generated has risen from just over 2x 30 years ago to over 5x in the recent credit boom. In fact, if we consider that the share of residential construction in US GDP doubled from 3 to 6% during the housing boom (a classic example of the distorting effect of inflation on asset allocation), then the underlying investment picture is even worse. It's hard to argue that colonies of sprawling McMansions added productive capacity to the US economy. A key issue in recent years has been the exponential growth in healthcare costs, now eating up 18% of GDP, or over twice the levels in seen other advanced economies with similar health outcomes, from Canada to France. 

This has had two adverse economic effects; firstly, it has raised the costs of employing US workers (up 17% in real terms this decade, almost all the growth being in benefits), while suppressing their take-home wages. Secondly, it has (like the outsized financial sector) diverted human and capital resources from more productive uses in the wider economy.  The chart below is instructive, because it indicates that the consumption surge in recent years was driven less by a spendthrift rush to the malls than the soaring cost of health insurance for the average American family.

I find it astonishing how many intelligent Americans simply can't grasp the concept of opportunity cost as it applies to the healthcare debate, but allow emotional judgements (cleverly manipulated by the powerful healthcare lobby) to cloud their objectivity. In economic terms, healthcare is not a 'normal' good that responds to price signals, and cannot be treated as such in a purely free-market model of supply. If the US is spending 8-9% more of its income than necessary for a similar outcome in terms of objective health metrics like mortality rates, then that is about $1.2trn that is not available for investment or consumption.

The entire system is grossly inefficient and ridden with perverse 'fee-for-service' incentives, and sadly nothing in the current reform plans comes close to cutting the bloated cost structure. At best, on the current Senate plan, we may see a marginal slowing of the growth rate in share of GDP, but the US healthcare sector still looks set to absorb over 20% of national income withing the next few years. The rent-seeking healthcare and financial lobbies are now throttling the broader US economy with their dominance of the political agenda and national resources. Until such time as both are cut down to size (which may sadly require a deeper economic crisis), the chronic underinvestment apparent in basic technology research and infrastructure will continue to undermine medium-term US growth prospects.