[size=1.3em]DANI RODRIK is right, at least for the next few decades. Every growth miracle in the past century, and there have been many, was investment-driven. In every case it ended in an unsustainable debt burden. Why? Probably because towards the end of the growth period, thanks to distortions in pricing signals and skewed incentives for the policymaking elite, both of which were a necessary part of the original mechanism for rapid investment growth, the investment became excessive and led to debt rising faster than debt-servicing capacity. The seeming success of the growth model made it difficult to eliminate these distortions, especially since the policymaking elite tended to benefit disproportionately from the growth.

[size=1.3em]In some cases domestic investment was funded externally, but as concern about over-investment grew, sudden stops in external financing led to debt crises and a near-permanent collapse in the investment-driven growth model. The classic case is the Brazilian growth miracle of the 1960s and 1970s.

[size=1.3em]In other cases, the ones which were subsequently seen as the most successful cases, domestic investment was funded by policies that constrained domestic consumption and so forced up domestic savings. In these cases the growth model tended to generate more growth for longer periods of time, but there was nonetheless the same problem of debt rising faster than debt-servicing capacity. When it didn't end in debt crisis, it ended rather in a "lost decade" of rising debt and slow growth. The classic case here is Japan in the 1970s and 1980s.

[size=1.3em]But for the latter cases to work, at least for large economies, the low consumption and excess savings required to fuel domestic investment binges require that the rest of the world contribute with low savings and high consumption. For many years rich countries, most importantly the United States, but also in Europe and elsewhere, were able to contribute to excess consumption and declining savings fueled by rising consumer debt and soaring asset markets. This consumption imbalance is at the heart of the trade imbalances of the past three decades.

[size=1.3em]But with the recent crisis, the collapse (and more to come) in rich-country asset prices, the urgent need to deleverage and, most importantly, the fact that households in all the major economies—Europe, the US, China, Japan, the UK and many more—are going to be directly or indirectly taxed for many years in order to clean up their banking messes (the old banking mess, in Japan's case), it is hard to imagine a significant revival of excess consumption and low savings in the rich world.

[size=1.3em]The secret to success in the past has been to force up domestic savings rates to fund domestic investment booms, and to rely on excess consumption abroad to balance accounts. If the over-consuming countries of the rich world are no longer willing or able to over-consume, how can the balance work? Without consumption rising relative to production abroad, consumption growth at home will be the upper limit in the medium term to domestic growth in production because permanently higher investment rates will no longer be sustainable.