Productive capacity is how much the economy could produce if all available labor and capital were employed. I measure productive capacity with the following equation...
Productive capacity = real GDP/(capacity utilization*(1-unemployment rate))
The equation says that the composite percentage of utilizing labor and capital determines real GDP. Here is a graph for productive capacity since 1971...
Productive capacity has increased with population, technology, increases in productivity and increased capital. I mark periods where the growth plateaus. You can see that since the crisis, it has stayed very steady... more steady than in times past.
The standard deviation during these past 4 years is just $93 billion.
The plot rises some. Productive capacity growth has been trending at just $9 billion per quarter, which is 1.66% annual growth of total productive capacity. This is slow growth.
New Investment is Weak
According to Keynes in his General Theory book, new investment is a driver of the economy. Even inflation is driven by banks injecting new loans into the economy as new investment.
"If the propensity to consume and the rate of new investment result in a deficient effective demand, the actual level of employment will fall short of the supply of labour potentially available at the existing real wage..." (Keynes, chapter 3)
Growth of productive capacity (as well as employment and wages) is weak partly because new investment is weak.
Here is my simulation based on Keynes' view of new investment over savings per quarter. The last data point at the right is what I am projecting from 3rdQ14 to 4thQ14.