Richard Koo, chief economist at the Nomura Research Institute, summarizes the Japanese experience in the 1990s as not a recession, but a Balance Sheet recession. That is, a recession driven by consumers and businesses going about the process of cleaning their individual balance sheets.
In his NPR interview, Koo notes that when the real estate bubble of the 1980s burst, property values plummeted 87 percent from the peak nationwide. Counting the value of real estate and stocks, Japan lost wealth equivalent to three years' worth of gross domestic product. It was "just about the largest loss of wealth in human history in peacetime," Koo says.
Hiroko Tabuchi's NYTimes article points out that, "As recession-wary Americans adapt to a new frugality, Japan offers a peek at how (consumer) thrift can take lasting hold of a consumer society, to a disastrous effect"
Between 2001 and 2007, per capita consumer spending rose only .2 percent.
Japan eventually pulled itself out of the Lost Decade of the 1990s, thanks in part to a boom in exports to the US and China. But that might not be the only engine of recovery.
As suggested, but unstated, in President Obama's Feb. 24 Address to Congress, it seems that the real engine to pull an economy out of a Balance Sheet Recession is exactly what Japan did -- intense, consistent public spending.
That's not the solution I was hoping for.