75% of PPP Wasted

2020’s Paycheck Protection Program (PPP) continues to be an $800 billion example of waste and fraud in government spending that keeps on giving. And giving. However, calling it a “costly mess” or “the biggest fraud in a generation” doesn’t do justice to describe just how bad it is.

It started with good intentions. The PPP program was rushed through the U.S Congress to provide relief for businesses whose operations were shut down by state and local government-mandated lockdowns early in the coronavirus pandemic. The idea was to give them loans to keep paychecks flowing to their idled employees. The loans would be forgiven if the businesses used at least 75% of the funds they received to keep their workers on their payroll.

But the program quickly ran into problems. It seems that neither lawmakers nor government bureaucrats are good at figuring out which businesses really needed to get that relief. Ultimately, they gave up trying and sent out checks to anyone who applied on a first-come, first-serve basis.

PPP Money Didn’t Go Where Intended

The Epoch Times’ Tom Ozimek discusses the findings of a new study by the St. Louis Fed’s economists:

The study, jointly authored by William Emmons, lead economist in the St. Louis Fed’s Supervision Division, and Drew Dahl, an economist at the St. Louis Fed, argues that the PPP program was a “critical but imperfect policy.”

While the PPP did save around 3 million jobs at its peak in the second quarter of 2020, the scheme was badly targeted and rather regressive, with a huge portion of the benefits accruing to unintended recipients.

“It was poorly targeted, as almost three-quarters of its benefits went to unintended recipients, including business owners, creditors and suppliers, rather than to workers,” the pair of economists wrote.

It’s as if the professional legislators who passed the PPP didn’t have any idea how businesses work. Or how the government’s own bureaucracy works.

PPP Waste Was Inevitable

Ozimek also covers the findings of a study of the PPP program by the American Economic Association (AEA), which described its waste as inevitable:

“Given the time constraints and, more profoundly, the lack of existing administrative infrastructure for overseeing targeted federal support to the entire population of US small businesses at the onset of the pandemic, we strongly suspect that Congress could not have better targeted the Paycheck Protection Program without substantially slowing its delivery,” they said in their report (pdf).

Who could have known that government bureaucrats wouldn’t be capable of spending money competently?

To solve that perceived problem, the AEA’s economists call for “investment in administrative systems for monitoring worker hours and topping up paychecks.” As if the only way to fix incompetent government is with a more intrusive government.

It seems to have escaped both sets of economists that government-mandated lockdowns might perhaps be the wrong economic response to a crisis. Although they discovered the PPP was government waste on a colossal scale, they seem to be learning the wrong lessons from it.