I don't think you realize just how perilous the economic situation was in mid-late march. Money had to reach Businesses very quickly, regardless if some of the money would end up wasted. Only banks have the manpower, infrastructure and knowledge already in place to reach even small businesses across the entire country. There was absolutely no way for any governmental agency to be able to manage such a huge program in such a small timeframe.
Again, I can't stress how important time was. I study and work in financial engineering, and from what I've seen and directly experienced in the depth of the crisis, we were days from total seizure in the financial system. The only part that was still doing ok was banking (due to what happened after 2008). Adding to that, since it's much harder to just give millions of dollars of loans to anyone who demands than it is to give 2000$ per person through the IRS, you had to have a system to vet, check and analyse claims. That's exactly what banks were able to do almost immediately with minimal adjustments.
I agree that it is far from ideal for the private sector to such a big influence on a public program. But perfect is the enemy of good, especially considering the incredible human misery that failing could've led to.
Great response. I wish all of the people criticizing these efforts would actually try to design a better program. Even the thought exercise would show how difficult it would be. Easier to crap on the work of others than actually do it yourself.
I also wish they would think about the consequences of no action. They probably don’t realize that cascade bank failures and supply chain disruptions happen fast and become permanent. In March there was a realistic possibility of systematic seizure of finance and the supply chain grinding to a total halt due to lack of financing. How do you stock groceries when they can’t buy inventory?
I remain unconvinced that so many companies were on "thin ice" that a do nothing approach would have caused a collapse. Any evidence of this?
I would've been okay-ish with the arrangement if there was some narrow qualification criteria like being in the grocery business or medical supply chain, etc.
Fine dining restaurants: not essential
Summer camps: not essential
Non-profits: not essential
Law firms: not essential either!
And yet we paid them millions... _why?_
I picked a random company from the 150k list. A pizza place, around the corner. Been in business since 2007. They received $150,000-350,000. So a place deemed essential by the governor and that's permitted to operate curbside and takeout delivery after being open for 13 years is eligible for 150k? What kind of drugs are we on?
Yes, but the vast majority of the money is going to salaries. I'd even argue that there is absolutely no problem in funding even most of the "non essential" businesses. And to say that businesses were on thin ice by april is an understatement by the way: revenue disappeared overnight, lending froze almost overnight, liquidity became almost impossible to access. Even by early april half small businesses could not afford to pay rent, much less salaries. The financial system has never seen anything like what happened to march, I can't stress enough that almost every single "pipe" that make up systems we all depend on was collapsing. Programs like these took aways tons of uncertainty and deep fears of a recovery that would take a very, very long time. Things got much better when government support boosted confidence and guaranteed that people will still have money to spend.
Now I've heard people argue that compensation for lost salaries should've been paid directly to the employees if they lost their jobs. But to put it mildly, recovery and return back to normal would have been extraordinarily harder if most of the non essential parts of the economy don't exist anymore.
The price of letting everything go bankrupt only to reopen from scratch later is enormous and would amount to incredible waste not only of money but also years of work. The 150k may have been way too much for a local pizzeria, but it's better to overshoot than to aim for much better money allocation and risk losing precious time. You have to keep in mind that not only do businesses have to pay back the loans (if the money didn't go to salaries) but also that we will have ample time to take a closer look at each individual claim and punish fraud retroactively. The process is already starting as we can see with the linked website.
At the end of the day, we just couldn't afford to have a better PPP program because no matter how much money we lose on fraud and waste, the alternative would have always been more expensive.
Do you know any restaurant owners or managers? Ask them about the drop in revenue and how long it can be sustained. Ask them how many employees they had and how many they need for curbside take out. Ask if they would have fired people absent PPP. Ask if they kept people employed because of PPP.
Do you have a better suggestion? I doubt it. There are to many edge cases in business to create a program that will be perfect. So your alternative is to take the risk of mass bankruptcies. If PPP designers and law makers are wrong billions are wasted. If your approach tested and is wrong, the economy is wrecked. Decision is easy when framed that way.
When unemployment shoots to 25% it’s a sign of a lot of sever stress for businesses. Left uncheck the drop in demand will create further contraction. What more evidence do you want that urgent action system wide is needed? By the time the bankruptcy filings start its too late.
Again, I can't stress how important time was. I study and work in financial engineering, and from what I've seen and directly experienced in the depth of the crisis, we were days from total seizure in the financial system. The only part that was still doing ok was banking (due to what happened after 2008). Adding to that, since it's much harder to just give millions of dollars of loans to anyone who demands than it is to give 2000$ per person through the IRS, you had to have a system to vet, check and analyse claims. That's exactly what banks were able to do almost immediately with minimal adjustments.
I agree that it is far from ideal for the private sector to such a big influence on a public program. But perfect is the enemy of good, especially considering the incredible human misery that failing could've led to.