As the pandemic forced widespread closures in 2020, federal policymakers were staring down a torrent of job losses. Millions of workers were being laid off from businesses large and small, and millions more would lose their jobs with every passing week, causing indelible long-term damage to their financial picture and the whole economy unless the government acted.
So, in addition to direct cash relief, the government correctly set up the Paycheck Protection Program, a system created to provide employers low-interest and easily forgivable loans that could be used to retain workers. It was largely untargeted and had relatively lax standards, as it was crucial to get the money out the door as fast as possible.
As a recent article in the Journal of Economic Perspectives lays out, two things can be true at once: The PPP stopped millions of job losses, with the writers estimating it preserved 2 to 3 million job-years of employment (one job for one year), and it wound up an incredibly regressive giveaway to the rich, with about 75% of the $800 billion total expenditure going to richest fifth of American households. The reasons for this range from business owners and their creditors simply keeping the bulk of the money for themselves to outright fraud.
The government can audit these loans up to six years from the date of forgiveness, and it must make sure to do so in what seem like particularly egregious cases. However, the expansive nature of the criteria means that most of the money can’t be clawed back, even when it did nothing to preserve jobs. The lessons learned, however, can be applied going forward.
A rethought PPP could be targeted at companies that could prove a certain percentage revenue drop year-over-year. The authors also make a compelling argument for incentivizing work-sharing, i.e. encouraging companies to spread hours around instead of laying off a few employees outright. Hopefully, a PPP-like intervention won’t be necessary anytime soon. If it is, this time, apply hard-learned lessons.
