JAPAN’S fastest trains run above the tracks, not along them, suspended in the air by magnetic forces. One of these miraculous trains will eventually connect Tokyo and Osaka, cutting over 70 minutes off the journey time. In its ability to speed things up, this “maglev” technology is matched by the magic of macroeconomics. This week the government approved a fiscal-stimulus plan to revive Japan’s economy that will, among other things, cut eight years off the completion time for the Tokyo-Osaka line.

The government’s low-interest loan to high-speed rail was one of many goodies in a plan advertised at over ¥28 trillion (almost $280 billion). Only a fraction of that figure represents new government spending. And only a fraction of that fraction will be spent this fiscal year (which ends in March 2017). Nonetheless, ¥4.6 trillion will be included in the government’s “supplementary” budget this year, a non-negligible sum equal to about 0.9% of GDP. This easing is also a striking contrast with the fiscal tightening that was previously planned. A much-feared increase in the consumption tax was postponed on June 1st.

In theory,…Continue reading