A new report shows that only about one-third of the money distributed to businesses during the COVID-19 pandemic through the Paycheck Protection Program (PPP), co-authored by Republican Sen. Susan Collins, actually went to workers who would have otherwise lost jobs.
The study by the National Bureau of Economic Research found that instead most of the PPP money went to business owners, shareholders, creditors or suppliers.
Keeping in line with previously released data that demonstrated that PPP loans overwhelmingly went to big businesses, the new study found that the loans were inefficient in their stated purpose: Keeping workers on the payrolls of small businesses impacted by the pandemic.
“Another paper (consistent with others) showing that Susan Collins’s Paycheck Protection Program was flawed and inefficient,” tweeted James Myall, a policy analyst with the Maine Center for Economic Policy.
PPP was co-sponsored by Collins and Florida Sen. Marco Rubio and passed by Congress as part of the CARES Act in March 2020.
The emergency program, which Collins described as a “resounding success,” secured $800 billion for the Small Business Administration (SBA) to grant forgivable loans to businesses to keep their workforce employed during the COVID-19 crisis.
However, the program produced substantial inequalities. The report’s authors, a research team of 10 economists from the Massachusetts Institute of Technology and the Federal Reserve Board of Governors, found that only between 23% and 34% of PPP money went to workers who would have been out of a job without government aid.
Additionally, they found that of the $510 billion in PPP loans granted in 2020, nearly three-quarters went to people in the top-fifth of households, or those with an annual average household income of about $255,000.
PPP has been criticized for relying on banks to distribute the loans. The SBA issued the loan guarantees, while the loans were processed and delivered through the nation’s banking system.
This meant the program did not primarily benefit those businesses most in need, but rather the “well-banked” and “well-lawyered” businesses with which large national banks had existing lending relationships.
This created waste. The researchers found that PPP spent between $69,000 and $258,000 per job-year saved. A job-year is defined as one person working for one year.
“The program was deeply flawed, but in a way, that was by design,” said MIT economics professor David Autor, one of the report’s authors. “The people designing it understood the flaws and didn’t see a way around them because of the woeful state of the U.S. government infrastructure.”
ProPublica reporter Lydia DePillis, who has reported extensively on waste and abuse in the PPP rollout, said the study underscored the poor state of America’s administrative infrastructure, compared to European countries that were more efficient in understanding which businesses were the most at risk.
“America made up for its lack of sophistication with a firehose of money, which other countries might not have been able to afford. That saved some businesses, but also probably exacerbated inequality,” DePillis tweeted.
Maine People’s Resource Center, which is a Beacon supporter, received a PPP loan in 2020.
Photo: Sen. Susan Collins | Getty Images
Author: Dan Neumann studied journalism at Colorado State University before beginning his career as a community newspaper reporter in Denver. He reported on the Global North’s interventions in Africa, including documentaries on climate change, international asylum policy and U.S. militarization on the continent before returning to his home state of Illinois to teach community journalism on Chicago’s West Side. He now lives in Portland. Dan can be reached at dan(at)mainebeacon.com.
Source: Maine Beacon, January 26, 2022, https://mainebeacon.com/report-only-a-third-of-ppp-money-went-to-the-workers-it-was-intended-for/