First, the reporter draws conclusions on the aggregate economy through anecdotal accounts of Japanese businesses and households. Here's one example:
But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo — for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.
As highlighted by Dean Baker, the Japanese standard of living, measured by real per-capita income listed in the IMF World Economic Outlook database, has grown markedly over the last two decades. Spanning the years 1990 to 2010 (f), Japanese real average income grew 17%, while that in the US grew 33%. The growth differential across the two countries is admittedly large, but Japan's standard of living has not crumbled, rather grown.
The article is overly pessimistic about the effects of Japanese deflation on the standard of living. Spanning the years 1999 to 2010 (f), the period for which the Japanese economy experienced persistent annual deflation, real per-capita income in Japan grew neck and neck with that of the US: 9.7% in Japan, versus 10.4% in the US.
Even worse, the article barely touches (misses actually) on the fundamental economic problem in Japan: the shrinking labor force. Spanning 1999 - 2010 (f), real GDP in Japan grew at less than 1/2 the pace of that in the US, 10% in Japan versus 23% in the US. Deflation? I think not; it's a secular decline in employment.
The chart illustrates (click to enlarge) a measure of productivity, as real GDP normalized by the level of employment (also from the IMF World Economic Outlook database). During the period 1999 - 2010 (f), productivity growth in Japan's been roughly in line with that of the US, 14% and 17%, respectively.
Finally, in my view this is the most egregious NY Times error:
But the bubbles popped in the late 1980s and early 1990s, and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money has reversed.
It wasn't that government deficits were not able to slow the decline - fiscal policy mistakes caused some of the decline.
Richard Koo, author of Balance Sheet Recession: Japan's Struggle with Uncharted Economics and its Global Implications and Chief Economist of Nomura Research Institute, who was interviewed for the NY Times article, must be quite irked by the NY Times account of Japanese fiscal policy. Here's a presentation that Koo gave in 2008 (pdf), where the title of slide 9 says it all: "Exhibit 9. Premature Fiscal Reforms in 1997 and 2001 Weakened Economy, Reduced Tax Revenue and Increased Deficit".
The government raised taxes in 1997 to see growth deline from 1.6% that year to -2% a year later.
Click to enlarge
Be careful what you read.