Should billionaires, rich corporations receive PPP loans?
Kanye west probably didn’t need the money.
Chances are, modernist Jeff Koons, who sold his sculpture “Rabbit” for $ 91 million last year, could have done very well.
It can be seen as hypocritical for anti-tax and anti-government think tanks to take the loot, and at best questionable for a a crowd of billionaires, Wall Street investment firms and big law firms to cash in.
As details emerge on precisely who has benefited from the federal paycheck protection program – and to what extent – it is only natural for everyday viewers to look at self-interest with indignant mouths.
Certainly, a program to ensure that small businesses survive the COVID-19 pandemic could have been created in a way that prevented what in some cases can only be described as greed and greed. greed, right?
It’s a good question to ask, and the anger and frustration it evokes is justifiable, according to Mark Duggan, professor of economics at Stanford, who heads the university’s Institute for Economic Policy Research.
There is no doubt that “P3s could have been better designed,” acknowledges the former senior economist for health care policy at the White House Council of Economic Advisers.
However, PPP’s flaws might not be as big as economy-wide results, suggests Duggan. Even though some have used, abused and profited from the hastily designed PPP, the catastrophic economic shock of the coronavirus pandemic – and the need to respond quickly – likely overshadowed the risk, he says.
Limiting unemployment has always been the most important goal – even if that meant giving forgivable loans to businesses that might have weathered the storm – and the decision on how best to do it, Duggan says, required “analysis. cost-benefit “rapid. . ”
The reasoning boils down to timeliness and “good return on investment,” he says.
“I think it’s very reasonable to be angry, frustrated with where some of the money has gone, and I think it’s inevitable that with any large-scale program you have case the money didn’t go exactly where it should have been, ”Duggan says. “But I think (PPP) had a very important goal.
“We could have designed the program better, but this delay would also have been costly. ”
“Disguised unemployment program”
According to James A. Wilcox, professor of economics at the Berkeley Haas School of Business at the University of California, the speed at which the Federal Small Business Administration began to administer P3 loans was “astounding.”
At the same time, this speed invited trouble.
“It was a program that hardened in a few weeks. This means, of course, that there will be mistakes and things that in retrospect you wish you had done differently, ”Wilcox said.
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 “intact” as possible during the pandemic.
This, Wilcox says, “would be good for the economy as a whole.”
Success, he said, would mean keeping employees at work who would otherwise have been laid off. The companies would also not be required to “hire a whole new workforce” upon reopening.
Wilcox compares the COVID-19 pandemic to an economic natural disaster. Much like when a tornado destroys a small Midwestern town, the financial implications for businesses and individuals can be devastating and take years, if not decades, to recover.
“It was an attempt to quickly build a dike to keep these businesses and their employees from being completely overrun and starting to lose their jobs, miss their car loan payments, don’t buy clothes for the kids,” to lose health care and everything. “Wilcox said.” We want to try to avoid that sort of thing, if we can. ”
According to Duggan, who specializes in health economics, the personal impact of massive unemployment figures goes beyond the financial aspect, affecting the health and general well-being of communities across the country.
High unemployment has a host of negative impacts, and “the cost to individuals is more than short-term,” says Duggan.
Duggan says the impact can be seen everywhere, from mental health outcomes and suicide rates to the potential for future earnings, which are other reasons P3 was likely necessary even though it was flawed.
“This recession is unlike anything we’ve seen in modern times. … To go from the lowest unemployment rate in 60 years to our highest unemployment rate in 80 years is just amazing, ”says Duggan. “The magnitude of this economic shock is truly unprecedented, and we had 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 decrease and they have consistently lower wages,” Duggan said, citing the Pittsburgh steel mill shutdown as an example.
“On average, the incomes of these workers were more than 20% lower (after their return to the labor market) and their health was much worse,” he continues.
Duggan says he fears a potential “healing effect” on American workers.
“We’re seeing the start of this right now, and I’m very concerned about the long-term toll on people,” Duggan said.
” Personal interest “
Wilcox and Duggan both say it’s far too early to judge the success of the paycheck protection program.
While Federal Small Business Administration credited PPP with helping support over 50 million jobsIt remains to be seen how many people the program ultimately prevents unemployment, as does the cost.
“We don’t yet know how much this will cost taxpayers. It’s going to cost a lot of money, hundreds of billions of dollars. That was the intention, actually, ”Wilcox says. “Whether the taxpayer gets his money’s worth or not, in terms of saving jobs, saving businesses… we don’t yet know.
“There is a sense in which we will never know precisely this sort of thing.”
Duggan agrees, noting that important questions remain.
While the PPP may have helped some companies get by in the short term, Duggan points out that the program was designed for a shorter outbreak. With cases and deaths continuing to rise across the country, it now seems overly optimistic.
As the pandemic spreads, there is now a growing risk that even the hundreds of billions of dollars the federal government has allocated to P3 loans so far will not be enough to prevent possible job losses, says- he.
Duggan is also concerned that some PPP loans may actually slow down an inevitable economic transition with COVID-19. Some industries, like hospitality or airlines, could take years to recover, while others are likely on the way to becoming obsolete.
Keeping people employed in these jobs might have served a purpose as policymakers hoped the pandemic would be short-lived, Duggan says, but it makes much less economic sense if these workers eventually have to quit their jobs anyway.
If COVID-19 cases were to decline, Duggan says he would be much less worried, but sadly the opposite is true.
It is increasingly likely that additional federal efforts will be needed to help businesses survive COVID-19, he says.
The “benefit of time and knowing how COVID spreads” should allow policymakers to be better informed in the future, ”said Duggan, which potentially includes the adoption of stricter restrictions on who receives the drug. ‘silver.
“On some level, it’s easy in any large program like this, with many recipients, to pick out examples that are really objectionable. I love Kanye West’s music, but he probably doesn’t need to have PPP. We can go through different examples… and I think it’s reasonable for people to be frustrated with that, ”Duggan said.
From a strict economics standpoint, however, Wilcox argues that it might not matter much, at least if we take what we know about the current state of capitalism in the United States for granted.
Could some billionaires and companies receiving PPP loans survive without laying off hordes of workers?
Of course, “but they wouldn’t,” Wilcox coldly assures us.
“The fact that the guy is rich in some ways is almost irrelevant, because the question is, what would he do? Wilcox said. “Listen, I’m an economist. I don’t count on altruism.
“I rely on money and people know their own best interests.”