PPP naming and shame is the reason we can’t have good things
This story was updated on July 7 at 10:17 p.m.
The pandemic is out of control, the economy is in the bathroom and the weather is nasty, but at least the schadenfreude is great this week.
The Small Business Administration yesterday released a list of paycheck protection loan recipients, as part of the relaunch of the hastily passed CARES law. The list is full of targets ripe for naming and humiliating. There are plutocrats (country clubs! private jet companies!), kleptocrats (various Trump associates), and Kanye (whose Yeezy brand received between $ 2 million and $ 5 million). There are particularly humorous examples of groups denouncing people who take government who, well, take government: the Ayn Rand Institute, Americans for Tax Reform. This is the second round of this ridiculous process. The former also provided a lot of red meat, from the literal (Ruth’s Chris Steak House) to the figurative (the crimson crowd at Harvard, who accepted the CARES Act funding, but not the P3 money).
Raging against the rich who receive these funds, or just making fun of hypocrisies, is understandable, but to do so misses the point. The CARES Act was quick and dirty legislation, full of rules and conditions that allowed these beneficiaries to claim money, which could have been ironed out in a slowly moving bill, or an application process that involved more rigorous scrutiny. The bottom line was that the stimulus needed to be adopted quickly, and allowing a coarser filter was worth it for the economic boost. And while CARES has not been without its flaws, everything indicates that it has helped the declining economy, as expected.
The purpose of the PPP was to bring money to companies so that they do not lay off workers or, in some cases, bring them back. The money was structured in the form of long-term forgiveness loans. More workers receiving paychecks meant economic demand wouldn’t collapse as quickly. Even though big companies with famous CEOs took the money, every dollar they passed on to employees was a dollar pumped into the U.S. economy, which was the goal.
In April, just after the enactment of the PPP, NBC and MSNBC reporter Stephanie Ruhle predicted the backlash and announced her intention to lead it:
Dear hedge funds, small private equity firms and creative lawyers for the rich with a large number of limited liability companies,
Tax identification numbers for those who receive #PPP loans are public.
I will look for them until my last breath on Earth.
THIS LOAN IS NOT FOR YOU.
Your management fees are intact.
– Stephanie Ruhle (@SRuhle) April 3, 2020
Here’s the thing, though: the loan has been intended for them, or at least they were clearly eligible under the law. Hedge funds, specialist law firms, and the like don’t need me or anyone else to defend them, and it is not advisable to see Harvard sitting on a $ 41 billion endowment while taking money from it. government stimulus. (The school changed course and returned the funds after public pressure. Ruth’s Chris too.) But why should a business or institution legally authorized to solicit public stimulus funds forgo it?
Legislation drafted with more time could have excluded some of these recipients, but time was running out in late March when Congress and the Trump administration concocted the stimulus package, which has since been broadened. The longer Congress waited, the more serious the damage to the economy would have been. If the price of supporting a declining private sector was that some of the money would go to beneficiaries some find unworthy, it was worth paying.
While Democrats are stereotypically eager to spend government money, the White House seemed to understand this better than Congressional Democrats. secretary of the treasury Steven mnuchin, who has led the administration’s efforts on stimulus, stressed the need for speed.
“We’re going to have a new program by next Friday where the banks can lend. I mean it would be a historic achievement that is just incredibly aggressive ”, Mnuchin said in March. “This is a whole new program, with Treasury working with the SBA. We are doing all we can because the Americans need this money now. They cannot wait for the government to take three, four or six months like we normally do.
The same dynamic prevailed with another provision of the CARES law, the payments of tax credits to individuals. Senator Mitt Romney same approved Andrew Yang-style checks to all Americans, although other Republicans have called for limiting the amount of aid poorer Americans could receive, a bizarre and punitive idea.
Democratic leaders, however, were much more suspicious than Mnuchin and, at the start of pandemic relief planning, argued for a test of resources, ensure that only Americans most in need receive money. Perhaps this was good policy, as it played a defensive role against caricatures of fiscal and spendthrift liberalism and appealed to the widespread popular belief that government budgets are inflated by waste, fraud and abuse, but it was a questionable policy.
For one thing, as Eric Schnurer wrote in Atlantic in 2013, there really isn’t that much waste, fraud and abuse in the system. On the other hand, resource testing threatens to undermine the point in this matter. It is wise to worry about the benefits disproportionately accruing to the rich, but this is a matter for broader and more deliberate policy changes, not a crisis. “In figurative (very crude) terms, Pelosi was showing a preference for allowing some of those who drown to do without life jackets, if that is what was needed to avoid wasting life jackets on those who were drowning. were perfectly able to swim to shore on their own. ” Eric Levitz wrote to New York magazine.
The issue of politically unacceptable but eligible businesses receiving money through a PPP is separate from actual fraud. The Trump administration’s efforts to stifle surveillance of PPP money and bypass Inspectors General are sounding the alarm bells, but legal recipients are legal recipients. Some companies may have provided false certifications or failed to meet program conditions, but that is not the focus of the current reaction.
Moreover, much is still unknown about the government’s response to the pandemic, just as not all the flaws in the response to the 2008 financial crash were immediately evident. However, some problems are already emerging. Many companies were unable to secure PPP funding, at least initially, especially those belonging to people of color.
But the problem there is less the lack of money and the lack of political will. In other words, the problem is less that Ruth’s Chris got money that Acme Neighborhood restaurant should have got, than that Congress should have made, and still should be, more money for. stimulate so that any eligible business can receive a loan quickly. The government’s ability to spend in this situation is really limited only by its own imagination.
Even with these flaws, the stimulus has gone quite well so far. Many Americans are hurting, and not all small businesses got the money they got, but the spending gave the economy a boost. As Tom Gara writes, the first rounds helped support the economy, but several key programs are expected to run out soon.
The danger of this kind of exposure and humiliation is that it will jeopardize the government’s next round of stimulus. If companies are afraid of a political backlash, they might not take public funds and make bigger cuts. (It does not matter that a given institution “must” find money elsewhere, but that it will be.) If Congress is afraid of a backlash, it can scale back its future stimulus efforts – which already seem woefully weak – by betting that potential pain in the form of a prolonged recession is easier to pass off than it is. acute pain in the form of a political controversy. The backlash against a successful government program is why the United States cannot have good things.