The user cwan nailed the general failures of Japan's economic policy in the 90s, although the root of the problems extends farther back in time than even the Economist article covers.

Back in the 70s, Japan's rise as a world economic power was fueled by government loans to private industry, allowing banks to fund abnormally large investments in industries, specifically manufacturing and technology, which helped support the rise of the global Japanese brands (Honda, Sony, etc).

These same funds also helped inflate the massive real estate bubble the article briefly covers by selling the concept of the limited real estate space in Japan. What investors in Japanese real estate failed to realize is that even though there is a limited space in Japan, there is an unlimited price that a given piece of land may be valued at but a limited price that it can be intrinsically worth compared to the value of all other assets (hence the overinflated valuations of the properties).

For a long time (70s and 80s), Japanese companies made solid progress in commanding global sectors, and their auto companies still do. However, the loans became so large and the earnings generated by the firms eventually declined to levels where the loan payments could not be made. The subsequent bank write-offs on all assets were the cause and/or effect (really a self-perpetuating vicious cycle).

I cover these to give a positive spin on the United States situation. While the government has made a number of mistakes in regulating the banking industry and partially inflating the housing sector, it has not tried to directly inflate the economy to the scale the Japanese government did in the 70s. The United States government is propping up some American industries, but again, not to the extent of the Japanese government in the 90s. If that were the case, they absolutely would not have let Lehman Brothers fail. The government is in a tough position, trying to prevent political and economic chaos while allowing markets to reach their own equilibriums.

For anyone who fears the China may be catching the United States economy, there is a good amount of evidence that China may be suffering the same syndrome Japan had in the 70s (building its economy based on government money). China will likely deal with the problem more efficiently once a bust occurs, but it does mean that China could be less of a threat than many suspect, assuming the United States is able to innovate at a reasonable rate.

Here is a decent article/example of what I am talking about with China: http://www.bloggingstocks.com/2009/09/09/petrochinas-sugar-d...