Paycheck Protection Program wasn’t perfect, but still a huge jobs saver
The Paycheck Protection Program was expensive, complicated, unfair and graft-prone. But it worked.
The perception of a boondoggle is hardening. But before we slam Congress and President Trump for trying something new, let’s consider the big picture.
In late March, as Congress prepared the $2.2 trillion CARES Act, it became clear that pandemic-related shutdowns would cost millions of jobs. In April alone, the country shed 19.4 million jobs, more than twice as many jobs lost during the 2008 financial crisis, and 15.2 percent of the total.
To avoid turning a temporary, if long, health emergency into an indefinite Depression, Congress had to act. Lawmakers revived two old tools: unemployment benefits and aid to state governments.
But they also did something different: try to prevent layoffs in the first place.
The novel Paycheck Protection Program paid $523 billion in low-interest loans to 5.2 million small businesses. The businesses used the money to help pay wages for more than 50 million people and cover other expenses, such as rent. The loans are forgivable, provided employers didn’t lay off workers during the period the money covered, either eight or 24 weeks.
So what’s the problem? Last week, The New York Times, parsing newly released data, opined that the program was emblematic of inequality, with “the biggest sums going to a sliver of the companies in need.” To wit: 1 percent of the program’s borrowers took in a quarter of the money.
But small-business size can vary from one worker to 500. So a business with 250 employees would inevitably get a bigger share than a business with two. If the point was to save jobs, saving 100 jobs at one firm is just as good as saving 100 jobs at 50 firms.
Next, Congress let restaurants circumvent small-business limits, allowing them to take loans if they had fewer than 500 employees per location. Big chains, like TGI Friday’s, borrowed money. For some reason, the Times is particularly annoyed that CNN mogul Ted Turner’s steakhouse chain got funds.
Again, so what? Despite mutterings about cronyism, Congress was justified in carving out an exemption for restaurants, which have been disproportionately devastated. Americans couldn’t eat with a mask on.
Third, Trump supposedly benefited indirectly from the program, because commercial tenants of his properties used PPP money to pay rent. This, too, is absurd. The government shouldn’t discriminate against a business based on who the landlord is. Should a person who lives in a Kushner apartment be ineligible for jobless insurance, because she might use it to pay rent?
Then, there are tales of rich companies that got PPP loans — like the law firm of David Boies, Al Gore’s election lawyer. But the legal-services industry did lose 54,000 jobs in April. Law firms employ event planners and investigators who travel the country to conduct in-person discovery — activities curtailed by the pandemic. Congress couldn’t have excluded the industry, so was it just supposed to exclude companies run by semi-famous people?
The most substantive arguments against PPP are that it helped firms that wouldn’t have laid off workers, and that the program only delayed, rather than prevented, layoffs.
Sure, absent PPP, some firms likely would have found a way to retain workers. Likewise, without unemployment insurance, some individual workers would find another job quickly.
Across the total number of firms and people, though, the argument doesn’t hold. Does anyone think Ted Turner was going to pay employees at shuttered restaurants, out of the goodness of his heart?
As for delaying rather than preventing: Sometimes, a delay is good. The United States didn’t need another 12 million layoffs in April, meaning a 25 percent jobless rate.
If PPP only meant that some restaurants laid off workers in August rather than in May, that delay relieved pressure on overwhelmed state unemployment systems.
Longer term, transferring part of the burden of unemployment costs to the federal, rather than state, governments will relieve financial pressure on all small business, which must eventually replenish state unemployment-benefits coffers.
Finally, workers laid off after PPP expired get more weeks of unemployment benefits, as they started later.
PPP was not perfect — it was too complicated, and some businesses did take undue advantage. But it didn’t fail small businesses or the country.
Nicole Gelinas is a contributing editor of City Journal.