Most of the $800 billion paycheck protection program went to business owners, not job preservation, according to a new study.
In September 2020, as the pandemic entered its sixth month, Republicans on the Congressional Select Subcommittee on the Coronavirus Crisis released a report on the implementation of the Paycheck Protection Program (PPP).
The program was among the most expensive pandemic relief measures passed in 2020, eventually growing to around $800 billion, making it one of the most expensive government programs of 2020, almost as big as the American Recovery and Relief (ARRA). the stimulus package passed by President Barack Obama in 2009. Aside from the rest of the pandemic relief spending, it was a massive economic rescue in itself.
The GOP report described the PPP as "a forgivable loan program designed to provide small businesses with a direct incentive to keep their workers on the payroll." In other words, he intended to save the jobs of ordinary workers, and the report, essentially an extended brag sheet, insisted that he had done just that, praising then-President Donald Trump for his accomplishments. "The program's focus on getting workers paid quickly has saved millions of jobs and prevented the economy from collapsing," the report concluded. One section is titled "President Trump's Swift Action Brought Relief."
Democrats on the subcommittee argued that the program, which had been passed with bipartisan support, needed more oversight, but credited it with "helping millions of small businesses and nonprofits stay afloat during the coronavirus crisis." Then-Treasury Secretary Steve Mnuchin repeatedly defended the program to the media and Congress. The title of the GOP report presents the PPP as "a resounding success."
A more accurate description would have been "costly failure".
A recent study of the program's impact by the National Bureau of Economic Research (NBER) finds that most of the funds disbursed by the program went to business owners and shareholders, rather than of the workers themselves. Ultimately, "only 23 to 34 percent of program funds went directly to workers who would have otherwise lost their jobs." The jobs that were preserved were obtained at a very high cost, between $170,000 and $257,000 per year, well above the typical earnings of affected workers, which are closer to $58,000 per year.
While the PPP did save some jobs, albeit at great cost, the overall result of the program was the opposite of what was intended. The purpose of the program was to preserve the jobs of contract workers, not funnel money to business owners. As David Autor, an economist at the Massachusetts Institute of Technology and lead researcher behind the article, recently told the New York Times: "It turns out [the money] didn't go primarily to workers who lost their jobs. It went to business owners and its shareholders and its creditors. The program, he added, is "highly regressive."
The authors suggest several reasons for the undesirable results of the program. It was hastily drafted early in the pandemic, when many, including lawmakers and policymakers, believed it would be a relatively short affair and the economy would fully recover by the summer. Originally, the PPP promised loan repayments to businesses that kept workers on their payroll for eight weeks, essentially turning those loans into grants. But as the pandemic dragged on and additional funds were added to the program, the requirements disappeared and the PPP eventually became more of a kind of federally funded general-purpose fund for small business owners.
The PPP was poorly designed and consequently produced poor results. While it's useful to analyze and learn from the mistakes of a program like this, I'm not sure the right answer is to try to design better programs in the future.
There were a multitude of reasons for the program's poor design, but in the end it all boils down to a single, unsolvable problem: No one, especially lawmakers in Congress, really understood how the pandemic was evolving and developing in real time.