Anger over PPP greed is justified. It also might not matter as much as the results
Kanye West probably didn’t need the money.
Chances are, modernist Jeff Koons, who sold his “Rabbit” sculpture for $91 million last year, could have gotten by just fine.
It can be seen as hypocritical for anti-tax, anti-government think tanks to take the loot, and questionable at best for a host of billionaires, Wall Street investment firms and major law firms to cash in.
As details emerge about precisely who has benefited from the federal Paycheck Protection Program — and to what extent — it’s only natural for everyday onlookers to stare at the self interest with mouths indignantly agape.
Surely, a program intended to make sure small businesses survive the COVID-19 pandemic could have been created in a way that prevented what — in some instances—can only be described as grift and greed, right?
It’s a fair question to ask, and the anger and frustration at the heart of it are justifiable, according to Stanford economics professor Mark Duggan, who directs the university’s Institute for Economic Policy Research.
There’s little doubt that “PPP could have been better designed,” the former senior economist for health care policy at the White House Council of Economic Advisers acknowledges.
However, the PPP’s flaws might not be as important as the economy-wide results, Duggan suggests. Even if some have used, abused and taken advantage of the hastily devised PPP, the catastrophic economic shock of the coronavirus pandemic — and the need to react quickly — likely dwarfed the risk, he says.
Limiting unemployment was always the most important goal — even if it meant handing out forgivable loans to businesses that might have been able to weather the storm — and the decision about how best to do that, Duggan says, required a rapid “cost-benefit analysis.”
The reasoning comes down to expediency and “bang for the buck,” he says.
“I think it is very reasonable to be angry-slash-frustrated at where some of the money went, and I think it’s inevitable that with any large-scale program you’re going to have some cases where the money didn’t go exactly where it should have,” Duggan says. “But I think (PPP) had a very important purpose.
“We could have designed the program better, but that delay would have been costly, too.”
‘Disguised unemployment program’
According to James A. WIlcox, an economics professor at the University of California Berkeley Haas School of Business, the speed with which the federal Small Business Administration started administering PPP loans was “astounding.”
At the same time, that speed invited trouble.
“This was a program that was pulled tougher in a couple of weeks. That means, of course, there are going to be mistakes and things that, in retrospect, you wish would have been done differently,” Wilcox says.
Still, like Duggan, Wilcox focused on the bigger picture.
Describing the PPP as a “disguised unemployment program,” Wilcox says the program is intended to keep as many businesses as possible “intact” during the pandemic.
This, Wilcox says, “would be good for the economy as a whole.”
Success, he says, would mean keeping employees working who would have otherwise been laid. Businesses also wouldn’t be forced to “hire a whole new workforce” upon reopening.
Wilcox likens the COVID-19 pandemic to an economic natural disaster. Just like when a tornado wipes out a small town in the Midwest, the financial implications on business and people can be devastating, taking years and even decades to recover from.
“This was an attempt to basically quickly erect a dike to prevent these businesses and their employees from just being completely overrun and have them start losing their jobs, missing their car loan payments, not buying clothes for the kids, losing health care and everything else,” Wilcox says. “We want to try to avoid this sort of thing, if we can.”
According to Duggan, who specializes in health economics, the personal impact of massive unemployment numbers go beyond financial, affecting the health and general well-being of communities across the country.
High unemployment brings with it a host of negative impacts, and “the cost to individuals are more than short term,” Duggan says.
Duggan says the impact can be seen everywhere from mental health outcomes and suicide rates to future earning potential, which are more reasons why the PPP was likely necessary even if flawed.
“This rescession is unlike anything we have seen in the modern era. … To go from the lowest unemployment rate in 60 years to our highest unemployment rate in 80 years is just unbelievable,” Duggan says. “The magnitude of this economic shock is really unprecedented, and we needed to do something unprecedented in response.”
“A lot of research has shown that if people are unemployed for a few months, or six months, their skills decline and they have consistently lower wages,” Duggan says, citing the closing of Pittsburgh steel mills as an example.
“On average, those workers’ earnings were lower by more than 20 percent (after reentering the workforce), and their health was a lot worse,” he continues.
Duggan says he fears a potential “scarring effect” on American workers.
“We’re right now seeing the front end of this, and I worry a lot about the long-term toll on people,” Duggan says.
‘Self interest’
Wilcox and Duggan both say it’s far too early to judge the success of the Paycheck Protection Program.
While the federal Small Business Administration has credited PPP with helping to support more than 50 million jobs, just how many people the program ultimately keeps off unemployment remains to be seen, as does the cost.
“We don’t know yet how much it’s going to cost taxpayers. It’s going to cost a lot — hundreds of billions of dollars. That was the intention, in fact,” Wilcox says. “Whether the taxpayer got their money’s worth or not, in terms of saving jobs, saving businesses … we just don’t’ know yet.
“There’s a sense in which we’re never going to know very precisely about that sort of thing.”
Duggan agrees, noting that significant questions remain.
While the PPP might have helped some businesses get by in the short term, Duggan points out that the program was designed with a shorter outbreak in mind. With cases and deaths continuing to rise in places across the country, that now looks overly optimistic.
As the pandemic stretches on, there’s now an increasing risk that even the hundreds of billions of dollars the federal government allocated for PPP loans so far might not be enough to prevent eventual job losses, he says.
Duggan also worries that some PPP loans might actually be slowing an economic transition that’s unavoidable with COVID-19. Some industries, like hospitality or airlines, might take years to recover, while other industries are likely on their way to becoming obsolete.
Keeping people employed in these jobs might have served a purpose when policymakers hoped the pandemic would be short-lived, Duggan says, but it makes far less sense, from an economic standpoint, if these workers ultimately have to leave their jobs anyway.
If COVID-19 cases were decreasing, Duggan says he would be far less worried, but unfortunately the opposite is true.
There’s increasing likelihood additional federal efforts will be needed to help businesses survive COVID-19, he says.
The “benefit of time and of knowing how COVID is spreading” should allow policy makers to be more informed in the future,” Duggan says, which includes potentially enacting tighter restrictions on who gets the money.
“On some level, it’s easy in any big program like this, with a lot of recipients, to cherry pick examples that are really objectionable. I like Kanye West’s music, but he probably doesn’t need to be getting the PPP. We can go through different examples ... and I think it’s reasonable for people to get frustrated by it,” Duggan says.
From a hard economic standpoint, however, Wilcox argues that it might not matter all that much, at least if we take what we know about the current state of capitalism in the United States as a given.
Could some billionaires and corporations on the receiving end of PPP loans survive without laying off hordes of workers?
Sure, “but they wouldn’t,” Wilcox coldly assures.
“The fact that the guy is rich in some ways is almost besides the point, because the question is: What would he do?” Wilcox says. “Look, I’m an economist. I’m not counting on altruism.
“I’m counting on money, and people knowing their own self interest.”
