Welcome to the Remix, as we once again take our latest spin around the economy. This Remix column (“Who Benefited from the Paycheck Protection Program?”) looks back at the Paycheck Protection Program, better known as PPP. Recently, discussion of fraudulent claims has been in the news. But the focus here is not on fraud, but on program design, which may be nearly as scandalous.
The way the PPP was structured, individual businesses could apply for forgivable loans equal to the amount of eight weeks’ payroll. Provided at least 80 percent of the proceeds went to payroll, the loans would be forgiven—i.e., converted into grants.
Massachusetts Institute of Technology (MIT) economist David Autor and nine of his colleagues detail about how the funds were spent. Their study, published in the Journal of Economic Perspectives (a publication of the American Economic Association), has some disturbing findings. Here are a few:
- Of the $800 billion spent, no more than $175 billion, and possibly as little as $115 billion, went to preserving people’s paychecks.
- The number of job-years of employment preserved in 2020 was between 1.98 and three million, at a cost of between $169,300 and $258,000 per job.
- The employment effect of the third tranche in 2021 was effectively zero.
Where then did the money go? Well, primarily it went to business owners, corporate stakeholders, creditors, suppliers, and landlords. Overall, an estimated 75 percent of all PPP funds went to the wealthiest 20 percent of households—this during a pandemic in which the wealthiest households did reasonably well economically, even as lower income workers suffered double-digit levels of unemployment for many months.
Why did the PPP fail to keep people on payroll? One reason was that businesses and nonprofits lobbied to reduce employment requirements. In response, Congress in June 2020 changed the 80-percent rule to 60 percent. Then federal staff allowed firms that fell short but engaged in “good faith” efforts to also qualify for forgiveness.
As Autor and colleagues note, a bigger question is why paychecks weren’t directly subsidized, as Canada, Germany, and Great Britain had done. They contend the U.S. government failed to do this because it could not. Despite having everyone’s payroll information from collecting payroll taxes, federal data systems were not connected across agencies.
If true, then building the capacity to avoid a repeat of this failure in future crises would seem imperative. As you read this column, I encourage you to ponder the lessons of the pandemic and what economic preparedness requires. Until the next Remix column, I remain,
Your Remix Man:
Steve Dubb
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