With the COVID pandemic and the lockdowns in response to the pandemic, economic activity and production took quite the hit in 2020. Many were unemployed and some businesses shut down permanently. To mitigate the economic hardship in the United States, Congress appropriated $787 billion to enact the Paycheck Protection Program (PPP). The PPP provided low-interest loans to small businesses that would be forgiven if they spent about two-thirds of the loan on salaries, wages, and related expenses. While the PPP was trying to accomplish multiple goals, the main purpose was to help recipient firms maintain employment at pre-pandemic levels. How did the PPP end up faring? I took a preliminary look at the effects of the PPP in August 2020, but I want to update what research has unearthed on the efficiency of the PPP.
It makes sense that we should first ask what the effect on employment was since the primary aim was to keep employment levels afloat. A November 2022 statistical analysis from the libertarian Cato Institute found that at the beginning of December 2020, the employment effect was 0 to 3 percent (Autor et al., 2022a). Another estimate from the National Bureau of Economic Research [NBER] puts it at 2 to 3 million job-years of employment over 14 months preserved (Autor et al., 2022b). Another study from the NBER suggested that the medium-term employment effects were small compared to the programs size. This study suggests that the effects were minimal because "many firms used the loans to make non-payroll fixed payments and build up savings buffers" (Granja et al., 2021). A paper from a University of Maryland economics professor shows that 929,000 aggregate jobs were lost four weeks after firms' covered periods expired (Pardue, 2021), thereby suggesting a short-lived effect of the PPP loans.
How much did it cost to maintain each of these jobs preserved? The Cato Institute estimated that it cost $258,000 per full-year job retained. This was about five times the full-time, full-year median salary for 2020 (Autor et al., 2022a). An NBER report authored by an MIT economist found that preserving 2 to 3 million jobs cost $170,000 to $250,000 per job (Autor et al., 2022b). The Federal Reserve Bank of St. Louis similarly found the range to be $169,000 to $258,000 (Emmons and Dahl, 2022).
Who received the PPP loans? The intended purpose of PPP was to help support the workers during a rough time, so it is important to ask this question. One estimation found that only 23 to 34 percent of PPP funds went to the workers (Autor et al., 2022b). Another report from the Federal Reserve Bank of St. Louis found that about three-quarters of the loans did not go to the workers, but rather such high-income earners as business owners, creditors, and suppliers (Emmons and Dahl, 2022). In other words, only about a quarter of PPP funds went to actual paycheck protection.
How much fraud was there in the PPP program? In 2022, the Small Business Administration [SBA] flagged it at 70,000 potentially fraudulent loans at $4.6 billion (SBA, p. 1). An independent financial audit of the PPP found that 2 million loans valued at $189 billion were flagged as potentially improper (KPMG, p. 7). A report from watchdog group Project on Government Oversight (POGO) found that 2.3 million PPP loans worth at least $189 billion were flagged for being fraudulent. Given the 896,000 lender reporting errors (KPMG, p. 8), the number is likely higher than the SBA's estimation. The SBA did not require "any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs." Since rapid deployment of the PPP loans was more important than precision, none of this should be surprising.
Summary Takeaway: While I am sure that there will be more research on the effects of the PPP in upcoming years, we have some findings to hold us over. The PPP seemed to have a positive effect on employment, although disproportionately small compared to the size of the PPP. While the PPP helped keep some jobs afloat, the jobs that the PPP saved were preserved at a very high cost. There was also considerable fraud and millions of taxpayer dollars put at unnecessary risk. Even if most of the PPP funds were somehow not allocated fraudulently, most of the PPP funds went to protecting wealthy business owners, not workers. The lack of scrutiny and the lack of oversight is as breathtaking as it is unacceptable. Politicians never let a good crisis go to waste. The lockdowns provide a similar lesson that we emerges from the debacle with the PPP loans, mainly that we should not let an emergency scare us into faulty public policy or to expand government overreach.
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