Causal Loop Diagrams and Economic Systems

We are passengers in time
Lost in motion, locked together
Day and night by trick of light
--The Fixx

Causal loop diagrams improve understanding of complex systems where variables work together in non-linear fashion (Senge, 1990). Feedback loops can be included to capture balancing or reinforcing effects. Let's try our hand at applying causal loop diagrams to economic systems.

Central to all economic activity is production and consumption. Alleviating axiomatic scarcity in resources required for existence and prosperity necessitates production. Production is the combination of labor with tools and materials that generates resources that can be consumed.

Consumption equates to standard of living. When consumption increases, standard of living goes up.

Here is a simple causal loop diagram that reflects the relationship between production and consumption:

The (+) means that production and consumption move in the same direction. The higher (lower) the production, the higher (lower) the consumption (and standard of living). Consumption feeds back to production. Consumption provides metabolic energy to enable future production. When consumption drops off, capacity for production does as well.

Because people have insatiable needs, then production and consumption are likely to reinforce each other over time in an "upward spiral of mankind" sense. But we know this loop as drawn is overly simplistic--other factors can influence this basic relationship in positive and negative ways.

Let's expand the system to account for more variables. While people can produce more by working longer, they can also produce more by being more productive--i.e., when they generate more output per unit of hour of labor.

Higher productivity requires investment in tools and equipment that enables labor to be more productive. Capital investment is only possible if some fraction of previous production is saved rather than consumed. As more is saved, interest rates (the price of borrowed savings) goes down, making it more attractive for tool-making entrepreneurs to borrow. The toolmakers convert some of the savings into capital equipment, and consume the rest (toolmakers must eat, after all). The expanded picture looks like this:

We begin with our original production-conumption loop in the upper left portion of the diagram. Now, however, there is another arrow coming out of the loop from consumption. Saving requires less consumption, thus the (-) betwen consumption and saving. Saving in turn has a negative relationship with interest rates. The greater the supply of savings, the lower the rate of interest on borrowed money (because there is more savings available to borrow).

Lower interest rates mean more borrowing, and vice versa. Borrowing can precipitate either a) capital investment (e.g., investing in tools) or b) more consumption (e.g., using loan to go on vacation).

When borrowing is used for solely for consumption, note that this reduces savings. Also note that saving's siphoning effect on consumption which reduces the 'virtual cycle' effect between production and consumption implied by our initial diagram above. With borrowing siphoning consumption, the production-consumption loop assumes a more balanced posture. We might call the production-consumption loop the 'Existence Loop' as it signifies the basic human process of working to live.

The loop created by borrowing to consume might be called the Debt Loop. When we borrow to consume, we take on debt. Savings are depleted and interest rates increase, which retards more borrowing. The Debt Loop is therefore a balancing loop.

When borrowing is used for capital investment, production goes higher. This is the Investment Loop. The increased productivity realized via the Investment Loop can take the entire economic system higher in reinforcing, virtuous cycle fashion, but only if saved resources are channeled in that direction.

In fact, perhaps the key take-away from this exercise is the critical role of savings in expanding productivity over time. It is readily apparent that if all production is consumed and nothing is saved, then capital investment is not possible.

The above diagram is not perfect, but it provides a sense of the dynamics that define economic systems in their natural, unhampered state.

In a future post, we'll add a final loop to the above diagram to further enhance its realism, and consider the destructive effects of policy intervention in the economic system.

Reference

Senge, P. 1990. The fifth discipline. New York: Doubleday.

Hyper Extension

"Son, your ego's writing checks your body can't cash."
--Commander Tom 'Stinger' Jordan (Top Gun)

Standard of living relates to how much of income is consumed as opposed to saved. Generally speaking, standard of living rises with consumption.

Standard of living can be elevated beyond income by borrowing, which permits, in the near term, greater consumption of resources than is possible by income. But such a situation is temporary. Over time, standard of living is likely to fall as individuals allocate greater portions of future income to pay off debt.

Standard of living can also be increased by consuming resources that have been saved in the past. This also is a temporary situation. Once savings have been consumed, then standard of living recedes to lower levels. Plus, no savings remain to buffer against future uncertainty or to invest in productivity enhancing projects.

Folks are recently enthused that Q4 GDP printed at about 5%. The worst must be over, so goes the thinking.

But economic laws are not swayed by hope or ignorance. Over the past year, we have borrowed even more resources to maintain an elevated standard of living that would undoubtedly be much lower otherwise. Standard of living is also being elevated by consumption of isolated pockets of remaining savings via taxes and inflation.

Sustainable increases in future standard of living comes from capital formation--from saving. They do not come from capital consumption--from consuming the saved capital we have left.

GDP increases generated by capital consumption are bad, not good. Given our current situation, lower GDP is necessary to pay down debt and improve capital stock.

Current actions being taken in the name of generating positive GDP growth cut the distance between us and squalor.

No Savings, No Investing

"It's easy to get in. It's hard to get out."
--Gordon Gekko (Money Never Sleeps)

Following up on yesterday's post, how does one know that today's government programs constitute spending rather than investing?

An income of economic resources, earned from productive activity, can be used in one of two general ways. It can be consumed, thereby facilitating today's standard of living. Or it can be saved, thereby facilitating tomorrow's standard of living.

From those resources that are saved, some fraction may be put at risk toward improving productivity in the future. That fraction put at risk is called investing.

More consumption facilitates higher standard of living today. To elevate standard of living beyond the level obtained by consuming 100% of income (let's call this ultra high consumption), economic resources must be borrowed from someone else.

Borrowing resources for consumption today burdens future standard of living. To pay back the lender and still maintain today's living standards, future productivity must increase to a level that enables ultra high consumption plus repaying debt. This is very difficult to do, and this difficulty increases in direct relationship to the quantity of economic resources borrowed.

When debt is high, it is likely that future consumption will have to be curtailed while income is diverted toward paying back lenders. Moreover, it is likely that there will be little residual income left over for savings--and by extension investment.

For years, the United States has been indulging in ultra high consumption. We have borrowed huge amounts of economic resources to treat ourselves to a living standard far beyond what is possible from consuming our income alone. Stated differently, we have been consuming our income, plus some of the incomes of others.

Now, our savings rate is essentially negative as we divert ever higher portions of our income toward debt service. Our problem, however, is that we don't want to give up ultra high consumption. So we keep borrowing from those creditors willing to lend.

This cycle can only persist until creditors refuse to lend.

While we do not know when this state of affairs will end, we do know two things. It will end. And until it ends, our capacity for investment is tiny, since we have no real savings to invest with.

On its best day, government's capacity for allocating savings toward prudent investment alternatives is miniscule. Government is more apt to deploy savings toward programs that consume those resources rather than invest them. This is called capital consumption.

Our current field position suggests that most capital has long been consumed.

Positive Thinking and Economic Recovery

It's time for the good times
Forget about the bad times
--Madonna

Many pundits have proposed that what we need to break out of this economic funk is optimism. If more people would just view our situation favorably, then we would get the economic activity necessary to lift things.

A positive view is certainly a good thing. But optimism must go hand-in-hand with capability. An athlete who 'thinks positive' but does not develop winning habits and skills is unlikely to succeed.

Durable economic growth comes from improved productivity. Improved productivity comes from investment. Investment comes from capital formation. Capital formation comes from savings. Savings comes from putting aside a portion of income rather than consuming it.

We suffer from a death of savings. In fact, we are consuming more than our current incomes permit (read: we are borrowing resources from others to increase our standard of living today). Because our consumption exceeds income, then we have no savings in the aggregate at the country level.

Isolated pockets of real savings that do exist (mostly in the hands of wealthy individuals) are being forcefully sought by others to accomodate current standard of living in the face of declining capacity to borrow.

Thus, instead of capital formation, our current situation is one of capital consumption. Capital consumption is a death knell to economic recovery. Durable recovery is unlikely until debt is paid down and savings are increased.

No amount of 'positive thinking' will change that economic reality.

Grossing It Up

But don't be fooled by the radio
The TV or the magazines
They show you photographs of how your life should be
But they're just someone else's fantasy
--Styx

Many fixate on the value of Gross Domestic Product (GDP) as the primary measure of economic health. Austrian economists long ago dismissed this focus as not only a waste of time but downright dangerous. Frank Shostak summarizes the primary arguments.

One problem with GDP is accurately measuring output. As with most econometric series managed by the government, when you look under the hood you'd be surprised at the sloppy mechanisms used to collect and analyze the data. Assumptions, estimates, fudge factors. It is easy to conclude that these processes are readily subject to political influence and manipulation.

A bigger problem relates to what GDP actually tells us. As currently structured, GDP is a measure of consumption. To boost it, consumption must increase. If citizens don't want to spend, then government has to pick up the slack and do the spending.

This is precisely the course of action being taken by our current administration.

But does a measure that focuses on consumption provide an accurate picture of economic health and well being? Suppose for example that individuals decide not to work anymore. They dip into their savings in order to continue current consumption patterns and maintain their standard of living. All the while they are contributing to a healthy GDP number as measured.

It should be easy to see, however, that such actions will likely compromise standard of living down the road. Savings are lost, which in turn reduces investment in capital goods necessary to improve future productivity. And it is improved productivity (getting more output per unit of scarce economic resource) which increases future standard of living.

Efforts to boost GDP, like those we're currently employing, commonly result in capital consumption. And by consuming vital investment capital in order to 'make the number', we'll be worse off in the long run.

Savings and Economic Growth

Maybe someday
Saved by zero
I'll be more together
Stretched by fewer
--The Fixx

Nice primer on why it is saving, not consumption, that drives economic growth. The logic is grounded in basic axioms. The natural state of the world is one of scarcity. Alleviating scarcity requires production--i.e., the combination of labor with other factors of production.

If all production is consumed, then standard of living is maximized in the here and now. However, consuming all production leaves nothing for growth in the future. The only way production can increase in the future is to set aside some of today's production in the form of savings, and then apply those savings toward projects that offer promise for improving future productivity (defined as the amount of output obtained per scarce unit of input).

Think of it this way. Suppose you wish to cure cancer. Curing cancer requires research. Research requires researchers. People engaged in research must eat, cloth themselves, have a place to live, etc. Where do the resources come from to support those researchers working hard to cure cancer?

The answer is that they can only come from production that others have set aside. If all production is consumed, then nothing is left over to support cancer research.

The same holds true for any productivity improvement project. Production set aside becomes savings. Savings becomes capital. Capital drives productivity improvement.

The basic proposition is this: the higher the savings rates, the greater the future economic growth.

Policymakers currently believe that consumption drives economic growth. They are pulling out all stops to encourage borrowing (i.e., consuming more than one's income by borrowing from others) and spending (consumption).

Meanwhile, policies that suppress returns on savings below the natural rate of interest discourage people from setting income aside.

What we are engaging in is capital consumption. When capital is consumed to boost standard of living in the here and now, we kill the goose that lays golden eggs for future prosperity.

Investment and Savings

"You're a part of something here, Bud. The money you make for people creates science and research jobs. Don't sell that out."
--Lou Mannheim to Bud Fox (Wall Street)

In a previous post we examined the relationship between income, consumption, and savings. Savings is the difference between income and consumption. Lower savings increases risk of a lower standard of living in the future. Dissavings, or borrowing so that consumption exceeds income, magnifies risk of lower future standard of living.

To improve future income prospects, individuals can allocate savings towards investment. Investment involves the utilization of resources as capital for generating income. Investments typically take the form of equity (full or partial ownership of a business to obtain a share of future profits) or debt (lending money to others to obtain a future interest payment).

Because it requires speculation about future returns, deploying resources as investment capital is by definition risky. Businesses may fail. Borrowers may default.

Many folks tend to equate investment with savings. It is true that investment capital comes from a pool of unconsumed resources. But investment capital may be lost as a result of poor investment decisions. True savings, on the other hand, carries little potential for loss.

The original mathematical expression of the relationship between income (N), consumption (C), and savings (S):

N = C + S

may be better written as:

N = C + (I + s)

where S becomes a blend of resources allocated towards investment (I) and true savings (s).

Individuals who consume much and save little might mitigate risk of lower future living standards by investing. If the investment decisions are good ones, then higher future incomes may be realized that compensate for the lack of savings.

However, investment itself carries risk. If investment choices are bad ones, not only are future incomes not improved, but capital is lost. In such cases, savings are reduced, and probability of lower future living standards increases rather than decreases.

Let's connect these concepts to a couple of practical applications. First, it is often proposed that individuals should 'save' 10-15% of their annual gross incomes in retirement accounts. To the extent that those funds are allocated towards stocks, mutual funds, corporate bonds, and other risky assets, these allocations constitute investment (I) rather than savings (s).

As many folks are realizing after opening recent quarterly 401(k) statements, these investments can result in losses. Lower future incomes, and lower future standards of living, have become more likely for those who have made poor investment decisions with their retirement 'savings.'

The second application streams from the following scenario. Suppose individuals consume more than their present income by borrowing resources from others. To mitigate risk of a lower future standard of living, the individuals borrow additional resources from others and invest in a manner that they hope will increase future income. Unfortunately, the investments are poor and most of the borrowed capital is lost. Prospects of a lower future standard of living have been magnified by borrowing money from others and by poor investment choices.

Now, government officials propose the following. Let's borrow even more resources and collectively invest in the same 'distressed' assets (mortgage backed securities, equity in companies such as American International Group (AIG, etc.) that individuals lost money on. If these assets become 'less stressed' in the future, then perhaps they can someday be sold at a profit.

Borrowing in an attempt to recover losses realized from poor investment of past borrowed money.

Such dysfunctional behavior is what made Kahneman & Tversky's (1979) prospect theory a Nobel winner.

no positionshneman, D. & Tversky, A. 1979. An analysis of decision under risk. Econometrica, 47: 263-292.

Interest Rates and Savings in Hampered Markets

And you thought it was only in movies
As you wish all your dreams would come true
It ain't the first time believe me, baby
I'm standing here feeling blue
--Led Zeppelin

In the Q&A session following her first "Humphrey-Hawkins" testimony before Congress, new Fed chair Janet Yellen apparently said (I can't find a Q&A transcript) that interest rates on bank instruments like savings accounts and CDs were low because there is excess savings in the economy relative to demand.

In unhampered markets, this is likely to be true. High supply of savings relative to demand would reduce the price of credit and encourage more borrowing.

In the current market environment, however, interest rates are not moving freely based on savings supply and demand. Interest rates are instead being suppressed by Fed interventions. Central planners are trying to fool markets. By forcing interest rates below market, they are sending a false signal to market participants that savings are more abundant than they really are in attempt to elevate consumption in the here and now.

This is a foolish thing to do in an economic environment that already lacks savings. High interest rates that would naturally occur in this environment would be encouraging people to save more. The resources that people set aside would provide capital formation for future investment.

Artificially suppressed interest rates discourage savings at precisely the time that people should be building savings. By consuming ever more of today's production and saving ever less, we engage in capital consumption. Capital consumption hamstrings future productivity growth which, in turn, restricts future standard of living.

Yellen's remarks reflect a lack of economic understanding that is unfortunately all too common among the Federal Reserve bureaucracy.

Why Saving Matters More than Consumption

These changing years
They add to your confusion
And you need to hear
The time that told the truth
--Level 42

Nice little video explaining why it is saving, not consumption, that creates a vibrant economy over time. Yes, standard of living is higher when consumption increases. But consumption cannot occur unless goods are first produced. And production cannot significantly increase unless investments are made to improve productivity (more output per hour of labor).

Investment can only come from some fraction of production is set aside and is not consumed. The example shown in the video is that people who are making productivity-enhancing tools cannot simultaneously produce food to eat. Thus food must be set aside to feed the workers who are making the tools.

If such resources are not set aside (saved), then productivity and standard of living cannot be improved.

When savings decline, capital is consumed. Capital consumption is akin to killing the goose that lays the golden eggs.

Capital Consumption

"Don't worry. As long as you hit that wire with the connecting hook at precisely 88 miles per hour the instant the lightning strikes the tower, everything will be fine."
--Dr Emmett Brown (Back to the Future)

Better standard of living comes from improved productivity (productivity = output obtained per unit of input). Improved productivity comes from investment in tools and techniques that increase output produced per unit of input. Investment comes from capital. Capital comes from savings.

When government confiscates savings via taxes, debt, or money printing, capital is lost for investment purposes. Extending unemployment benefits without a commensurate decrease in spending elsewhere is not an investment in the future. It is an attempt to maintain or improve current standard of living at the expense of the future. This is because capital that could be invested intelligently in productive problems at some point in the future is being consumed today.

The analogy is taking money out of your IRA or savings acct and spending it on a vaction, or on new car, or on groceries that you will consume in the next few wks. You live larger in the present at the expense of the future.

Capital consumption mortgages the future.

The Folly of GDP Measurement

I think it's time to stop
Hey, what's that sound
Everybody look what's going down
--Buffalo Springfield

Most of us have come to accept the validity of GDP as a given. This article questions the usefulness of national output measures.

Arguments against GDP are not new. As the author notes, Mises was on the case years ago. GDP is hardly a measure of 'economic health' as many believe. One need only look at the components of GDP to understand why:

GDP = C + I + G + (X - M)

C = private consumption
I = gross private investment
G = government spending
X = exports
M = imports

As measured, GDP is largely a measure of consumption. In the spirit of 'what gets measured gets managed,' policymakers will likely intervene in markets in order to goose the numbers in their favor.

Interestingly enough, as noted by the author, GDP measurement didn't come about until the 1930s, when New Deal bureaucrats sought a measurement on which they could focus the public's attention on the need for planning to maintain national economic health.

A better argument can be made that long term economic health depends on savings and capital accumulation. Focus on a consumption oriented measure of national output like the one above is more likely to result in capital consumption in order to 'make the number.'

Secular declines in savings and secular increases in debt suggest that this is precisely what is going on.

Saving, Education, and Prosperity

Maybe someday
Saved by zero
I'll be more together
--The Fixx

Among the many salient points Mises makes here is the superior position of saving on the road to prosperity.

It is commonly held that formal education is the most important factor in advancing standard of living. But formal education itself requires resources to be set aside (i.e., saved) to feed the teachers and build the school buildings. Moreover, knowledge and skills can often be conveyed in less capital intensive ways such as observational and experiential learning channels.

Mises observes that the binding constraint holding back underdeveloped countries is not education. "Know how" can be transferred. What holds these countries back is insufficient capital. Capital cannot be transferred if nothing has been saved.

The United States was once an underdeveloped nation. What made America the most prosperous country in the world were relatively unhampered market conditions that encouraged voluntary production and trade. People set aside part of their production and invested some of those savings in productivity improvement projects. It was the process of capital formation that made this country wealthy.

As we have discussed many times on these pages, US market conditions no longer favor capital formation. Instead, they encourage capital consumption. Savings rates are negative. People are even borrowing money to go to school. College student loan debt recently crossed $1 trillion and now exceeds credit card debt.

Saving, not education, is the goose that lays the golden eggs. We are eating the goose.

Cooking the Goose

It happened one summer
It happened one time
It happened forever
For a short time
--The Motels

Insightful piece by Frank Shostak. He observes that economists, politicians, et al. who are elevating 'job creation' as the number one priority in getting the economy moving misidentify the key driver of economic growth. The main driver of economic growth is not reducing the number of unemployed. Economies grow in sustainable fashion through an expanding pool of real savings.

Savings is income that is set aside rather than consumed. When projects to create or improve new products and processes appear to offer an attractive risk/reward profile, then people will invest some of their saved economic resources toward these projects. This fraction of savings is called capital. Capital expands and enhances the infrastructure used to produce the goods and services linked to standard of living.

The chain goes like this: real savings --> capital for investment --> enhanced productive infrastructure --> better goods and services --> higher standard of living.

Please note that stimulus programs, tax increases, money printing, et al are not part of this chain.

Jobs that enhance individual purchasing power come from the expanded industrial infrastructure. The better the infrastructure, the more output an individual can generate. Higher productivity commands higher wages in terms of purchasing power.

It is saving, therefore, that creates jobs.

Our problem, of course, is that savings in the US have been in secular decline. There is a dearth of real savings to deploy in capital investment projects.

Yet, Washington bureaucrats and their economic advisors continue to enact monetary and fiscal policies that discourage rather than promote savings. A glaring example of this is the Fed's zero interest rate policy (ZIRP). ZIRP's expression at the retail level is yields on savings vehicles near zero percent. Prospective savers are motivated to do something else with their income--namely spend (consume) it or take risk with it even if the risk/reward profile appears unattractive.

Loose monetary and fiscal policies divert real savings away from wealth generating activities. Money-printing, taxation, and government spending programs confiscate remaining pockets of real savings from their owners. This wealth is transferred into the hands of bureaucrats and their interests, where it is spent under the guise of 'economic stimulus.'

What these programs constitute is capital consumption. When savings is spent, economic recovery (and job creation) is pushed farther out into the future.

As kids we learn the story of the goose that lays the golden eggs. If you cook the goose because you are hungry today, then there is no wealth tomorrow.

Savings is the goose, and it is being cooked.

Capital Day

"I work hard all day, too, and what do I get? A lot of yak from you. You at least get out everyday, see things, talk to people. I never get out of this cave."
--Wilma Flintstone (The Flintstones)

Nice reminder that labor alone is not sufficient to advance prosperity. People working with their hands alone are destined to live their lives in Bedrock.

Rather, it is capital, i.e., production that has not been consumed or 'savings,' that creates the tools that advance productivity toward Orbit City.

As the author notes, a 'Capital Day' might go a long way to stir awareness in what seems like an ignored axiom.

Unfortunately, this ignorance foster the opposite of capital creation: capital consumption. Plus its direct consequence: declining productivity.

Institutions of Economic Squalor

Maybe someday
Saved by zero
I'll be more together
--The Fixx

Jacob Hornberger taps the root cause of economic stagnation and decline: lack of savings. Savings represent the fraction of production that is put aside for future consumption. Savings provide for capital accumulation. Capital accumulation fosters investment that increases productivity.

Without savings, productivity cannot improve and standard of living cannot rise.

Lack of savings explains why third world countries remain that way. It also explains long term economic decline in the US.

JH highlights two institutions that are robbing the US of savings. Income taxes take approximately one third of all economic income from producers for redistribution to non-producers. A good portion of these resources would have been saved.

Savings are also dimished via currency debasement (a.k.a. inflation). Because currency represents a claim on production, printing more of it gives government and its special interests claims on other people's production. When economic resources produced by others are claimed by those holding newly minted cash, the amount of economic resources set aside and saved declines.

Instead of facilitating capital accumulation and prosperity, institutions of income taxes and inflation  reduce savings and foster capital consumption and squalor.

Declining Savings

Hans Gruber: Who are you, then?
John McClane: Just a fly in the ointment, Hans. The monkey in the wrench. The pain in the ass.
--Die Hard

The monkey in the wrench of any current secular economic growth story continues to be declining savings. Present policies encourage consumption over savings. This is the worst thing we could do given our chronically low and shrinking savings position.

Savings are the lifeblood of economic improvement. Without savings there is no capital for productivity improvement. We are currently engaging in capital consumption rather than capital formation.

Poor countries are not poor because they lack formal education. Know how can be transferred informally. In fact, formal education requires savings and capital.

What poor countries lack is savings that can be applied toward productivity improvement (increased wealth generation).

We are becoming a poor country.

Economic Consequences of Income Taxes

Should five percent appear to small
Be thankful I don't take it all
--The Beatles

Debates on the morality of income taxes, particularly those taken on a progressive scale, are rarely definitive. As Mises observed, the decision of whether to implement socialistic mechanisms like a progressive income tax system is ultimately a political one. If that political decision is based on democratic process, then voters will be tempted to revise their morals in a manner that helps them get what they want.

Less debatable are the economic consequences of a progressive income tax system. They are less debatable because they are grounded in natural laws that do not drift with the wind.

In this compilation, Hazlitt reminds us of two economic consequences of progressive income taxation. One is that appropriation of income on a progressive scale increases the chances that income destined for savings will be taken from private hands. When savings are reduced, there is less capital. When there is less capital, there will be less investment. Absent investment, productivity does not improve. Without productivity improvement, standard of living stagnates or declines.

Stated differently, progressive income tax systems invite capital consumption. When capital is consumed, there is less chance of productive investment that drives durable wage and job growth.

A second economic consequence of income taxation is that it reduces incentive to produce. ECON 101 tells us that taxing a behavior results in less of that behavior. Higher incomes are taxed at marginally higher rates in progressive tax systems. As such, progressive income taxes penalize high levels of production. Producers are therefore discouraged from being highly productive.

Once again, the result is less wealth produced. Less wealth means lower general standard of living.

Entitlement Spending and Business Investment

The light of deep regret
Let me see what I don't get
--Hipsway

Nice graph showing negative relationship between entitlement spending and business investment. Over the last 50 yrs, mandatory entitlement spending as a % of GDP has nearly tripled, while net fixed business investment has dropped by more than 50%.

More recently, note the near 50% increase in entitlement spending under the current administration while business investment has hit record lows below 1% of GDP.  Given the recent trends, those forward estimates do not appear realistic either...

The negative relationship is characteristic of socialistic policy. Resources for leveling programs such as entitlements come from personal incomes.  Income that goes toward entitlements means less income for savings. Less savings means less capital that can be allocated toward investment.

Stated differently, entitlement spending crowds out capital formation. The result is capital consumption. Without capital, projects to improve productivity do not get done. Without improvements in productivity, standard of living falls.

Capital and Income

"Live long and prosper."
--Spock (Star Trek)

Nice graph showing the relationship between capital/worker and income/worker.

Any country wishing to improve its standard of living should be doing all it can to free markets and encourage capital formation (i.e., saving). It should avoid policies that deter capital formation--such as lowering interest rates to boost spending and consumption as well as taxing capital and gains from capital.

Unfortunately, this is precisely what the US and other 'developed' nations are doing.

Decline in Job Quality

Hey, I'm not complaining
'Cause I really need the work
Hitting up my buddy's 
Got me feeling like a jerk
--Huey Lewis & The News

Article indicates that, while unemployment is near record lows, quality of work has been declining. The Job Quality Index, a product of Cornell Law School, factors in hourly wage growth, hours worked (higher deemed better), labor force participation rate, and rates of core economic growth to reflect to find a ratio of 'high quality' to 'low quality' jobs. A number less than 100 indicates more low quality jobs.

Notice that the index has been trending down since its inception in 1991. Why might this be? The best jobs come from capital investment. But real capital investment has been dwindling as savings have declined. We are now engaging in capital consumption. High quality jobs are unlikely when there is little real capital to create them.

Until we borrow less and save more, job quality should continue to deteriorate.