The Backlash Against PPP Is Why the U.S. Can’t Have
Nice Things
A
government program intended to put money in the hands of workers is now being
faulted for the breadth of its success.
JULY 7, 2020
Staff writer at The Atlantic
The
pandemic is out of control, the economy is in the toilet, and the weather is
unpleasant, but at least the schadenfreude is excellent this week.
Yesterday
the Small Business Administration released a list of loan recipients under the
Paycheck Protection Program, part of the hastily passed CARES Act stimulus. The
list is full of targets ripe for naming and shaming. There are plutocrats (country clubs! private-jet companies!),
kleptocrats (various Trump associates), and Kanye (whose
Yeezy brand received between $2 and $5 million). There are some particularly
humorous examples of groups that decry people taking from the government who
are, well, taking from the government: the Ayn Rand Institute, Americans for Tax Reform.
This is the second round of this process of ridicule. The first also provided
lots of red meat, from the literal (Ruth’s Chris Steak House) to the figurative
(the crimson crowd at Harvard, which accepted CARES Act funding, though not PPP
cash).
Raging at
the wealthy receiving these funds, or simply mocking the hypocrisies, is
understandable, but doing so misses the point. The CARES Act was
quick-and-dirty legislation, full of rules and conditions that allowed these
recipients to claim money, which might have been ironed out in a bill that
moved slowly, or an application process that built in more rigorous review. The
whole point was that the stimulus needed to be passed quickly, and that
allowing a coarser filter was worth it for the economic boost. And while CARES
was not without flaws, every indication is it helped the sagging economy—just
as intended.
The point
of PPP was to get money to businesses so that they didn’t lay off workers—or in
some cases, so that they would bring them back. The money was structured as
long-term, forgivable loans. More workers receiving paychecks meant that
economic demand wouldn’t collapse as swiftly. Even if major companies with
celebrity CEOs were taking in the money, each dollar they passed along to
employees was a dollar injected into the American economy, which was the goal.
In April,
just after PPP was enacted, the NBC and MSNBC journalist Stephanie Ruhle
predicted this backlash and announced her intention to lead it:
Here’s
the thing, though: The loan was intended for them, or at least
they were plainly eligible for it under the law. Hedge funds, boutique law
firms, and the like don’t need me or anyone else defending them, and it’s
unsavory to see Harvard sitting on a $41 billion endowment while also taking
government stimulus money. (The school changed course and returned the funds
after public pressure. So did Ruth’s Chris.) But why should a business or
institution that is legally allowed to seek public stimulus funds forgo them?
Legislation
written with more time might have excluded some of these recipients, but time
was of the essence in late March when Congress and the Trump administration
cobbled together the stimulus package, which has since been expanded. The
longer Congress waited, the worse the damage to the economy would have been. If
the price of supporting a sagging private sector was that a portion of the
money would go to recipients some find undeserving, it was worth paying.
Although
Democrats are stereotypically eager to spend government money, the White House
seemed to grasp this more fully than Democrats in Congress. Treasury
Secretary Steven Mnuchin, who led the administration’s
efforts on the stimulus, emphasized the need for speed.
“We’re
going to have a new program up by next Friday where banks can lend. I mean
that—that would be a historic achievement that is just incredibly
aggressive,” Mnuchin said in March. “This is a brand-new
program, the Treasury working with the SBA. We’re doing everything we can
because Americans need that money now. They can’t wait for government to take
three or four or six months like we normally do.”
The same dynamic prevailed
with another provision of the CARES Act, the tax-credit payments made to
individuals. Senator Mitt Romney even endorsed Andrew Yang–style checks to all
Americans, though other Republicans called for limiting how much aid the
poorest Americans might receive, a bizarre and punitive idea.
Democratic
leaders, however, were much warier than Mnuchin, and during the early stages of
pandemic-relief planning argued for means testing, making sure that only the neediest Americans received money.
This may well have been good politics, because it played defense against
caricatures of tax-and-spend liberalism and appealed to widespread public
beliefs that government budgets are bloated by waste, fraud, and abuse, but it
was dubious policy.
For one
thing, as Eric Schnurer wrote in The Atlantic in
2013, there really isn’t that much waste, fraud, and abuse in the
system. For another, means testing threatens to undermine the point in this
case. It’s wise to be concerned about benefits accruing disproportionately to
the wealthy—but that’s a matter for broader, more deliberate changes in policy,
not for a crisis. “In (very rough) figurative terms, Pelosi was evincing a
preference for allowing some of those drowning to go without life preservers,
if that’s what it took to prevent wasting preservers on those who were
perfectly capable of swimming to shore on their own,” Eric Levitz wrote at New York magazine.
The
question of politically unpalatable but eligible businesses receiving money
under PPP is separate from actual fraud. The Trump administration’s efforts to
stifle oversight of the PPP money and circumvent inspectors general raise
alarms, but legal recipients are legal recipients. Some businesses may have
provided false certifications, or failed to live up to the terms of the
program, but that’s not the focus of the current backlash.
Also,
much is still unknown about the government response to the pandemic, just as
not all of the flaws in the response to the 2008 financial crash were
immediately plain. Some of the problems are already emerging, though. Many
businesses were unable to obtain PPP funding, at least
initially—especially ones owned by people of color.
But the
problem there is less a lack of money than a lack of political will. In other
words, the issue is less that Ruth’s Chris got money that Acme Neighborhood
Restaurant should have gotten, than that Congress should have appropriated, and
still should appropriate, more money in stimulus so that any eligible business
could receive a loan promptly. The government’s ability to spend in this
situation is really only constrained by its own imagination.
Even with
these flaws, the stimulus so far has gone pretty well. Many Americans are
hurting, and not every small business got the money it received—but the
spending gave the economy a shot in the arm. As Tom Gara writes, the first rounds have helped
prop up the economy, but several key programs are due to run out soon.
The
danger of this kind of naming and shaming is that it will imperil the
government’s next round of stimulus. If businesses are afraid of political
backlash, they might not take government funds, and instead make deeper cuts.
(It doesn’t matter whether a given institution “should” find money elsewhere,
but whether they will.) If Congress is afraid of backlash, it may
narrow its future stimulus efforts—which already seem grievously small—wagering
that potential pain in the form of a prolonged recession is easier to pass off
than acute pain in the form of political controversy. The backlash against a
successful government program is why the United States can’t have nice things.