The Paycheck Protection Program (PPP) put in place under Donald Trump and extended by Joe Biden is a prime example of government wastefulness. A recent working paper by the National Bureau of Economic Research (NBER), “The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?” investigated the effectiveness of the PPP.
In the paper, the authors call for a buildup of US administrative capacity to allow for better implementation of government responses in the future. The authors mistakenly believe that more government involvement and a larger bureaucratic apparatus would have allowed the PPP to be more effective. Ludwig von Mises had the best response to this line of thinking in Bureaucracy: “How fine the world would be if the ‘State’ were free to cure all ills! It is one step only from such a mentality to the perfect totalitarianism of Stalin and Hitler.”
The goal of the PPP was to provide uncollateralized, low-interest loans to businesses with fewer than five hundred employees affected by the covid shutdown. Given that about half of US workers are employed by small businesses, President Trump authorized the program to bridge the expected wage losses from the shutdown. However, since the inception of the PPP, questions about the effectiveness of the program have been raised. Very early, the Office of the Inspector General (OIG) issued several reports documenting the chaos with the Small Business Administration (SBA) charged with administering the program and the subsequent abuse and misuse of the funds.
The NBER paper aims to investigate who ultimately benefited from the $800 billion in PPP loans that the US government handed out in 2020 and 2021. The authors write:
PPP had measurable impacts. It meaningfully blunted pandemic job losses, preserving somewhere between 1.98 and 3.0 million job-years of employment during and after the pandemic at a substantial cost of $69K to $258K per job-year saved. PPP also reduced the rate of temporary closures among small firms, though it is less clear whether it reduced permanent closures. The majority of PPP loan dollars issued in 2020 … did not go to paychecks, however, but instead accrued to business owners and shareholders. And because business ownership and share-holding are concentrated among high-income households, the incidence of the program across the household income distribution was highly regressive. We estimate that about three-quarters of PPP benefits accrued to the top quintile of household income.
What is striking is their conclusion that
the program was essentially untargeted, … Evidence strongly suggests that the program did not ultimately differentiate among firms or geographic areas according to need.
While all of these findings speak to the problems with the PPP, the authors assert in the introduction to the paper:
A key takeaway from the PPP experience is that building U.S. administrative capacity prior to the next pandemic or other large-scale economic emergency would enable greatly improved targeting of either employment subsidies or business liquidity when the need arises again.
The call for more government action to prevent a future repeat of the PPP debacle signifies a reoccurring theme in politics: taking advantage of emergencies to expand government reach in the mistaken belief that a more active involvement in the economy by government would allow for a more effective response. The authors look at other high-income countries and their administrative systems for monitoring workers’ hours, which in their opinion allow a more targeted response to an emergency. Every public policy decision comes with tradeoffs and the authors acknowledge the tradeoff between speed of help and targeting the PPP’s design.
The authors of this study play right into the hands of government officials, suggesting the creation of yet another government agency to overlook and monitor citizens with the good-sounding intention of protecting the American public from another pandemic. Anyone familiar with Robert Higgs’s book Against Leviathan: Government Power and a Free Society knows that government bureaucrats like to take advantage of emergencies to consolidate and grab power.
Intellectuals are misusing the covid pandemic to promote a more actively involved government in society. The willingness of social scientists to agree with the idea that government should take more control of the economy and society is troubling. One just needs to look at the tremendous authority that an unelected bureaucrat like Anthony Fauci was able to command over the US.
The numerous guidelines by the Center for Disease Control and Prevention and other government agencies enforcing rules and regulations on ordinary citizens is just the tip of the iceberg. For example, Herfried Münkler, one of the most renowned contemporary political scientists in the German-speaking world, sees the covid crisis as a tipping point for the fundamental assumptions of society. In an interview for the Austrian newspaper Kleine Zeitung, he correctly identifies the limits of being able to predict and plan for the future. However, he concludes that those limits will translate into a more active role for government in society.
Politicians, bureaucrats, and intellectuals make a fundamental mistake in believing that government is the one institution that will be able to preserve our freedoms, as the role of government will become more prevalent and the role of business will decrease. Asked whether the return of a stronger and more active government in society threatens freedom and democracy, Münkler negated and concluded that a more active and more involved government is generally a guarantor of freedom and democracy. He sees the increasing importance of government as a result of the pandemic as a chance for democracy.
In Bureaucracy, Ludwig von Mises warned readers of the willingness of society to accept bureaucrats as the solution to problems and the increasing subordination of citizens to government officials. Mises writes:
Every day the bureaucrats assume more power; pretty soon they will run the whole country. There is no sphere of human activity that they would not be prepared to subordinate to regimentation by the authorities. In their eyes, state control is the panacea of all ills. Because of these “progressive” policies, new offices and government agencies thrive like mushrooms.
In chapter 5, Mises continues: “The good is embodied in the great god State.” “The state is … justice, civilization, and superior wisdom.”
Bureaucrats tend not to admit failure but put the blame on the public for not creating the appropriate government apparatus, using their failures to ask for more power and more oversight in the mistaken belief that the next time will be different. More government and more oversight would have avoided the costly mistakes, they claim.
The authors of the NBER paper play right into this storyline by concluding that the failure of the PPP was due to the failure to create a better government apparatus that would allow for a more targeted approach in distributing the PPP loans. Nothing is more dangerous for society than allowing bureaucrats to amass more power after a crisis. Mises said it perfectly: “How fine the world would be if the “State” were free to cure all ills! It is one step only from such a mentality to the perfect totalitarianism of Stalin and Hitler.”