The debate over economic reform in Japan, especially the alleged need to force banks to dispose of bad loans, resembles the story about the hospital patient on life support because of a serious blood-circulation problem. One result of that problem is badly swollen feet. But the doctors can only focus on the swollen feet, which they amputate. They also want to terminate life support, claiming it did nothing to cure the feet.

Crazy? Of course. Yet this is how many of Japan's top economists and commentators seem to think. The immediate cause of Japan's current economic sickness should be obvious, namely the drastic fall in asset values, mainly shares and real estate, after the collapse of the bubble economy in the early '90s. The long-term cause is a circulation problem -- the chronic weakness of consumer demand compounded by a lack of investor confidence following the bubble's collapse.

One result of all this is the swollen volume of bad loans held by banks. The government provides life support in the form of expanded public spending. However, the "doctors" who dominate the economic debate here insist that the main problem is simply those bad loans. Amputate them and all other problems will be solved, regardless of the fact that throwing the collateral for those loans on an already depressed market will cause a further fall in asset values, even more chain-reaction bankruptcies and an even greater loss of confidence. The patient will get worse rather than better.