This morning, Xerion Investments founder Daniel Arbess explained on Bloomberg Markets that the deceleration of China's economy is a good sign because, one, growing at 9 percent per year is unsustainable, and, two, it means China must make the transition from an economy that mainly makes things to one that mainly consumes. Meaning, it is time for China to become a giant USA.

But here is the thing, the US became a consumer society by increasing the wages of its workers. This is the thinking at the heart of Henry Ford's storied $5 a day wage: Pay workers more so they can buy his cars and other expensive stuff. This is how the US and Europe became high-income societies after the Second World War.

However, wages in China, which is now a middle-income country, are generally very low (a person making iPhones earns $1.85 an hour). And there is a lot of pressure to keep them that way. How under these conditions can that country become a consumer society?

Seeing this as a real problem, the communist government began encouraging ordinary people to generate wealth by investing in the stock market, and this has had frightening consequences. Worldwide Socialist Web Site provides an excellent analysis of that situation:

[T]he regime, which rules in the interests of the oligarchs who dominate the upper echelons of the Chinese Communist Party, sought to boost consumption spending by another route. It set out to create a “wealth effect,” by encouraging privileged sections of the middle class to invest in the stock market. It lured small investors into the market with the implicit guarantee that the Chinese government, its hands firmly in control of the levers of the financial system, would secure their investments.
The result was a flood of money into the stock market...

Another solution? Debt. Make people borrow their pay increases. This would of course be great for Wall Street investors like Arbess. Debt-inflated bubbles are an excellent way to extract money from a future that does not in reality exist. And when that reality hits the fan, who cares. The financial world lives for the day. Tomorrow? To use the words of John Kay: "I will be gone, you will be gone." But not, of course, the mess and the misery.