Deficiencies of the Payroll Protection Program
5/8/20
The more I investigate the Payroll Protection Program (PPP), the less I like it.
PPP provides loans to small businesses that potentially turn into grants if the borrowing companies can satisfy certain criteria. The program purportedly serves to help small business owners maintain employment and allow an uninterrupted stream of income for their employees. Furthermore, it’s hoped that the funds will give the recipients greater staying power so they’ll be able to weather the storm and continue operations once we move into the recovery phase of the cycle.
For me, a litmus test for any program involves both an evaluation of it’s effectiveness — i.e., how well does it accomplish its objectives — and also an assessment of the ancillary consequences, beyond the stated objectives.
The most obvious shortcoming of this program is the fact that the recipients of these benefits are largely arbitrary. A finite amount of funds have been allocated, and plenty of qualifying companies are simply out of luck. Those that have gotten these funds have effectively won a lottery. It’s just not fair.
Even for the lucky beneficiaries, given the severity of the stay-at-home regulations, a substantial subset of recipients of PPP funding simply aren’t going to make it. Employees will end up extending their paychecks for a period of about eight weeks, but then it’ll end. For them, PPP will provide only a temporary respite from a problem that outlives the program. It’s a band aid. It’s not a solution.
I believe that an even more pernicious feature of the program is that the real winners aren’t the wage earners. The real winners are the bankers. The federal government is not only guaranteeing the loans, the government is also funding the loans, effectively shoveling assets into originating banks. Banks win whether borrowers are creditworthy or not. This program is an out and out give-away to the banks.
This program has largely been depicted as a boon to small businesses and their employees. In reality, it’s a boon to bankers. We could stand for a little more truth in advertising.
