As the pandemic forced widespread shutdowns in 2020, federal policymakers watched a torrent of job losses. Millions of workers were being laid off from companies large and small, and millions more would lose their jobs with each passing week, causing indelible long-term damage to their financial situation and to the entire economy, to unless the government takes action.
So, in addition to direct cash assistance, the government properly implemented the Paycheck Protection Program, a system created to provide employers with low-interest, easily repayable loans that could be used to retain workers. It was largely untargeted and had relatively lax standards, as getting the money out as quickly as possible was crucial.
As a recent article in the Journal of Economic Perspectives indicates, two things can be true at once: the PPP halted millions of job losses, with the authors estimating that it saved 2-3 million jobs- years of employment (one job for one year), and this has resulted in an incredibly regressive giveaway for the wealthy, with about 75% of total $800 billion spending going to the fifth of the wealthiest US households. The reasons for this range from business owners and their creditors simply keeping most of the money for themselves to outright fraud.
The government can audit these loans for up to six years from the date of forgiveness, and it must make sure to do so in what appear to be particularly egregious cases. However, the expansive nature of the criteria means that most of the money cannot be recovered, even when it has done nothing to save jobs. The lessons learned can, however, be applied in the future.
A revamped PPP could target companies that could prove a certain percentage drop in revenue year over year. The authors also make a compelling case for encouraging work-sharing, that is, encouraging companies to distribute hours instead of simply laying off a few employees. Hopefully, a PPP-like intervention won’t be needed any time soon. If so, this time apply the hard-learned lessons.