But this isn’t the full picture: after a post-war baby boom, population growth in Japan decelerated sharply; the number of working-age people has declined fairly rapidly since the mid-’90s. Once you account for that, Japan’s economic performance looks much better. The growth in Japan’s output per working-age person—a measure of productivity for those who have jobs—has actually kept up with most of Europe’s, and has lagged only slightly behind that of the United States. Japan is a rich country with low unemployment. Its private sector is by no means broken.

So why is Japan’s government now one of the most indebted in the world, with a gross debt that’s 235.8 percent of GDP and a net debt (taking some government assets into account) that’s 135.2 percent of GDP? (In the euro zone, only Greece has government debt approaching the Japanese level.)

After World War II, Japan built a financial system modeled on those of Europe and the United States. Financial intermediation is an old and venerable idea—connecting people with savings to other people wanting to make investments. Such a sensible use of savings was taken to a new level in Japan, the U.S., and Europe in the decades following 1945—helping to fuel un­precedented growth for entrepreneurs and a genuine accumulation of wealth for the burgeoning middle class.

But such success brings vulnerability. Modern financial systems also permit governments to borrow large sums from investors, and as finance has evolved, that borrowing has become easier and cheaper. In the most-advanced countries, governments have increasingly taken advantage of expanding markets for short-maturity debt, whose principal is due soon after the loan is made. This has allowed them to borrow far more, and at cheaper rates, than they otherwise would have been able to do. Typically, these governments then take out new loans as the old ones come due, “rolling over” their debts. This year, for example, the Japanese government needs to issue debt amounting to 59.1 percent of GDP; that is, for every $10 that Japan’s economy generates this year, the government will need to borrow $6. It will probably be able to do so at very low interest rates—currently well below 1 percent.

Devastating crises characterized the pre-war global financial system; these would typically raze banks and other institutions to the ground. In the whipsaw economy of those times, the widespread bankruptcy of borrowers would also ruin a generation of creditors. Over and over, these disasters repeated; some featured sharp inflation, others deflation.

Repeated financial ruin limited the buildup of savings, and the rising middle class was wary about borrowing and lending. The idea that government debt was a safe investment was also typically viewed with skepticism—and for many countries, correctly so.