The theoretical model Diamond used to illustrate this point is highly abstract. He purposely made it this way in order to illustrate the basic point in the clearest manner possible. Unfortunately, the abstract nature of Diamond's model makes it difficult to apply. For example, according to Diamond dynamic inefficiency is indicated by an investment return that is less than the economy's growth rate. The problem is that Diamond ignored uncertainty, and in the real world, investment returns reflect uncertainty.
Savers require a higher rate of return on riskier investments.
Abel, et al. If this is the case, then the financial sector is making more resources available for future consumption than it is using. Conversely, if investment consistently exceeds capital income then the financial sector is draining resources from the economy. This is inefficient, since the whole point of investing is to augment future consumption possibilities. As a caveat, however, one should realize that historical observations on investment and capital income can never definitively establish dynamic inefficiency, since it is always possible that future capital income becomes much higher.