Don, I was referring to shares of GDP. In the case of consumption, the savings rate was almost zero in the years from 2004 to 2007. (There are some issues with the data related to the statistical discrepancy. We find evidence that capital gains income was erroneously counted as ordinary income, leading to an overstatement of the savings rate during these years). It had been over 5.0 percent for in 2009 and 2010, although it slipped down to 3.8 percent in the most recent quarter. The gap between a saving rate of 5.0 percent and a saving rate of zero corresponds to $500 billion in lower annual demand.
I did refer to gross non-residential investment. It is more common to use gross rather than net figures both because gross is what determines demand and net is not very well measured. I should have also specified investment in equipment and software. There was huge overbuilding in most categories of non-residential construction in the pre-recession period as there was a bubble in non-residential construction that followed on the heels of the bubble in residential real estate. This measure on investment stood at 7.5 percent of GDP in the most recent quarter. It averaged 7.9 percent of GDP in 2007. The gap corresponds to a shortfall in demand of roughly $60 billion a year.
If we want to take a net measure, net investment in equipment and software was 1.5 percent of GDP in 2007. It was 0.5 percent in 2010, the last period for which we have data. This would imply a gap of 1.0 percentage point of GDP, or roughly $150 billion a year. However, given the growth in gross investment in the last four quarters, it is likely that close to half of this gap would be eliminated by the third quarter, leaving a gap in net investment in equipment and software of around 0.5 percent of GDP, roughly the same as the gap in gross investment.
In short, I don’t see that we have any real shortfall of investment to explain. If anything, given the unusually low rates of capacity utilization, investment in equipment in software is surprisingly high. The downturn is caused by the lack of consumption demand associated with the loss of $8 trillion of housing wealth and the loss of construction demand (both residential and non-residential), which is attributable to the overbuilding of the bubble years.