The big question of the 20th century has not disappeared in the 21st: Who is on the right side of history? Is it liberal democracy, with power growing from the bottom up, hedged in by free markets, the rule of law, accountability and the separation of powers? Or is it despotic centralism in the way of Stalin and Hitler, the most recent, though far less cruel, variant being the Chinese one: state capitalism plus one-party rule?

The demise of communism did not dispatch the big question; it only laid it to rest for a couple of decades. Now the spectacular rise of China and the crises of the democratic economies—bubbles and busts, overspending and astronomical debt—have disinterred what seemed safely buried in a graveyard called "The End of History," when liberal democracy would triumph everywhere. Now the dead have risen from their graves, strutting and crowing. And many in the West are asking: Isn't top-down capitalism, as practiced in the past by the Asian "dragons" (South Korea, Taiwan, Japan) and currently by China, the better road to riches and global muscle than the muddled, self-stultifying ways of liberal democracy?

The rise-of-the-rest school assumes that tomorrow will be a remake of yesterday—that it is up, up, and away for China. Yet history bids us to be wary. Rapid growth characterized every "economic miracle" in the past. It started with Britain, the U.S. and Germany in the 19th century, and it continued with Japan, Taiwan, Korea and West Germany after World War II. But none of them managed to sustain the wondrous pace of the early decades, and all of them eventually slowed down. They all declined to a "normal" rate as youthful exuberance gave way to maturity. What is "normal"? For the U.S., the average of the three decades before the crash of 2008 was well above 3%. Germany came down from 3% to less than 2%. Japan declined from 4.5% to 1.2%.

What rises comes down and levels out as countries progress from agriculture and crafts to manufacturing and thence to a service and knowledge economy. In the process, the countryside empties out and no longer provides a seemingly limitless reservoir of cheap labor. As fixed investment rises, its marginal return declines, and each new unit of capital generates less output than the preceding one. This is one of the oldest laws of economics: the law of diminishing returns.

The leveling-out effect also applies to industrialized economies that emerged from a catch-up phase in the aftermath of war and destruction, as did Japan and West Germany after World War II. In either case, the pattern is the same. Think of a sharply rising plane that overshoots as it climbs skyward, then descends and straightens out into the horizontal of a normal flight pattern. The trend line, it should be stressed, is never smooth. In the shorter run, it is twisted by the ups and downs of the business cycle or by shocks from beyond the economy, such as civil strife or war.