Yesterday’s Job Report…

… was bad.  Very, very bad.  Pay no attention to the headline number of 431,000 jobs, which is next to meaningless considering that 411,000 of those jobs are census-takers, positions which will only last a few months.

The important figure is 41,000, the number of jobs created by the private sector in May.  When there are 15 million unemployed people in the country (and millions more involuntarily working part time or discouraged and dropped out of the labor force), the creation of 41,000 jobs is a very small drop in the bucket; 0.27% of the unemployed, to be exact.

US policymakers now find themselves caught in the middle of a tug-of-war.  On one side is the recent news coming out of Europe, suggesting governments must begin taking their burgeoning sovereign debts seriously, and cut back on government spending.  On the other side is the need to get Americans back to work, which means more government spending.

There is a fairly obvious way out, thanks to the time-differential between the two issues.  Unemployment is an immediate problem.  Sovereign debt, on the other hand, is a long-term problem, as the government can still issue inflation-protected 30 year bonds with interest rates below 2 percent.

So the way out is to spend money now to maintain (or, given yesterday’s job numbers, restart) the recovery, while making a credible commitment to cut down government spending in the long run.  Unfortunately, the key word in that sentence is *credible*, and it’s far from clear the government is capable of this.  Particularly when the US Congress votes to spend half a billion dollars on a jet engine program which everyone agrees we don’t need. (If you want to be depressed about the state of American politics, look no further than the defense appropriations process.)

So the question is, in today’s environment, is there anything the government can do to assure markets it will act (at a future date) to cover its looming liabilities?  We can wait and see what President Obama’s Fiscal Commission comes up with, but I imagine that’s little consolation to the 6.8 million Americans who have been out of work for more than six months.


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