Reuters / Nick Oxford
Since this spring, the federal government has released $ 517 billion through the Paycheck Protection Program, the main lifeline that Congress has launched to small and medium-sized businesses to help them survive the coronavirus crisis. It is a considerable amount of money, almost two thirds of what Washington spent on the everything stimulus package approved in 2009 to combat the Great Recession.
Unfortunately, he doesn’t seem to have bought us much.
Crafted in a hurry as the economy began to collapse earlier this year, PPP was designed to keep companies and Americans alive in their jobs as the country closed to try to quell the pandemic. It offers employers with 500 workers or fewer low-interest loans to cover their operating expenses, which the government will forgive if they avoid layoffs. (Somewhat larger companies may qualify if they are in the hospitality industry or meet previously established government standards for small business size.) For most borrowers, it is essentially free money that they can use to pay their bills and staff.
This week, a team of economists led by David Author of the Massachusetts Institute of Technology released the most detailed assessment yet of the program’s results, and its findings were not flattering. The researchers found that PPP only increased overall employment among eligible companies by 2 to 4.5 percent and likely saved approximately 2.31 million jobs, at a cost of $ 224,000 each.
To put those numbers into perspective, consider that there were 31.8 million Americans on the unemployment charts earlier this month, and that 2.4 million people applied for benefits last week alone. It seems that the country spent half a trillion dollars and left a small dent in unemployment. Also, we only pay for a temporary solution. PPP only provided loans equivalent to approximately 10 weeks of payroll expenses; Now that money is running out, some companies seem ready to start laying off workers again.
Here’s another way to think about it: If each of those 2.31 million people who kept their jobs had been unemployed and received a $ 600 check from the federal government each week, it would have cost Washington just $ 9,600 per head. , $ 22 billion in total — more than four months. With the money left over, the feds could have awarded the states an additional $ 10 billion to hire more employees to process UI claims, spend another $ 293 billion doubling the checks that the IRS sent to families, and still Another $ 192 billion remained to help companies like bars, restaurants, movie theaters, lounges, and gyms that were closed for public health reasons continue to pay rent.
The point is: there surely were more efficient ways to have spent this money.
Why didn’t we get more for our $ 500 billion? The answer probably comes down to the fact that PPP was not, and was not intended to be, carefully targeted at companies most affected by the crisis. By the time Congress began piecing together the program in late March, the companies had already fired millions of people, and lawmakers could only guess how severe the economic damage to COVID-19 would be. In the face of imminent potential devastation, his goal was to get money to as many vulnerable companies as possible, as quickly as possible, even if it meant putting up with some waste. For the sake of speed, the program did not require applicants to demonstrate that the crisis had really damaged their business, which would have required more time and paperwork. (At least other countries, such as Australia, did require that type of testing in their own wage subsidy programs.) Instead, he basically asked them to swear they needed the money by self-certifying that “the uncertainty of the current economic conditions makes the loan application necessary to support the borrower’s ongoing operations.” Whatever that means.
Once the program started working, and the news reports that large companies like Shake Shack had received loans began to generate a public reaction, the Treasury Department tried to tighten PPP rules a bit. It issued a FAQ that essentially warned larger companies with easy access to other sources of cash that they shouldn’t apply and that they could face penalties if they couldn’t prove that the loan was essential. But in the end, the show handed out money quite freely.
The advantage of this approach is that the government provided a tremendous amount of support to employers at a time of economic crisis. According to the Census Bureau’s follow-up survey, 72.4 percent of small businesses say they have received help through PPP; In the food, lodging and manufacturing industries, the figure is over 80 percent. According to the Treasury Department, the share of total small business payrolls supported by the program ranged from 72 percent in Virginia to 96 percent in Florida.
The downside to rushing all that money is that some borrowers probably got a gift they didn’t need. That has become increasingly obvious since the government released the list of companies and nonprofits that received loans of more than $ 150,000, which included high-priced law firms, financial asset managers, the Church of Scientology. and Yeezy from Kanye West, among other surprising names. . Many of these teams could probably have avoided layoffs without a loan, in which case PPP ended up subsidizing their owners’ earnings. Treasury Secretary Steve Mnuchin said borrowers who received more than $ 2 million will face an audit, good luck with that, Kanye, and may be forced to return the funds. But many companies are likely to keep the loans and forgive them, even if the cash wasn’t strictly necessary to keep their lights on.
Something has gone wrong when mom and pop stores are dying and the free money that was supposed to help them is going not used.
It has also been clear for months that relatively few PPP dollars went to the industries most affected by the pandemic. Since the crisis began, 27 percent of all job losses in the United States have been grouped in the food service and lodging sectors, as restaurants and bars have been forced to close, and hotels have seen the travelers disappear. However, hotel companies have only received 8 percent of total PPP loans, less than 12 percent claimed by professional, scientific, and technical services, the general category that includes law firms and accountants, as well as technology consultants. and administration, which have been comparatively unscathed by COVID, as their employees can generally do all of their work from home.
Unless you’re a fan of the deficit, there are far worse tragedies than the government wasting some money in an attempt to shore up a struggling economy. The country is not facing a fiscal crisis. The feds can still borrow cheaply. It’s okay if some companies get help they absolutely don’t need, if that also means helping those in danger. The most frustrating thing about PPP is that it wasted money and still couldn’t get to all the family stores that needed help. Its complicated rules, designed to ensure that companies spend most of the loan proceeds paying workers, make it not a good option for some companies, especially those that are completely closed and don’t want to withdraw their staff. According to the Census Bureau, a quarter of small businesses have not even applied for the program, and as of now, $ 130 billion of total PPP funds still remains intact, even when many companies permanently close across the country. . Congress could have spent even more money to build a simpler program that supports all businesses. Or it could have designed something more specific for companies whose revenues plummeted during the crisis. Instead, he built something that gave the companies that needed it the least money while hanging something that needed it most to dry.
Congress cannot be blamed for failing to write a perfect program on the fly amid a global catastrophe. Lawmakers rushed to put a parachute together for the economy while it was already in free fall. But even in March, there were other potentially better models available. Much had already been written about the Danish approach, which only covered the payment of laid-off workers, and covered 100 percent of normal expenses for businesses such as restaurants and hairdressers that were ordered closed. A similar program in the US could have prevented law firm partners from pocketing grant dollars while easing political pressure on states to reopen early from business owners who were concerned about covering their rental.
On Capitol Hill, lawmakers seem to have internalized some of these lessons. Because the pandemic continues and Congress must now approve another rescue project, there is talk of renewing the PPP in the future, but limiting it to smaller companies that can demonstrate that they have lost revenue. Documents circulating among Republicans suggest they are considering developing other programs to support small businesses that may have been poorly served by PPP. At least some senators are pushing for a plan that is better designed to save companies that must be closed entirely or primarily, such as bars and theaters.
Fortunately, the next rescue effort will be better-spent money, and when all this is over, we can all go back to the shops, bars, and restaurants we love.
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