The Most Wasteful Pandemic Relief Program Was the One the Rich Loved

There’s one pandemic program that’s been strikingly immune to attacks over not being targeted or means-tested. Surprise, surprise: it’s the Paycheck Protection Program, which delivered three-quarters of its funds to the upper-quintile income bracket.

President Joe Biden speaks while meeting with the White House Competition Council in the East Room of the White House in Washington, DC, on January 24, 2022. (Michael Reynolds / EPA / Bloomberg via Getty Images)

The panoply of economic support measures prompted by the pandemic have been the subject of controversy from the moment they were enacted, almost all of it to do with whether the government was being too generous to working families. There was one program that largely escaped this hand-wringing and criticism, though: the Paycheck Protection Program (PPP), meant to prop businesses up through the restrictions and disruptions of the pandemic via forgivable federal loans.

It’s interesting that it has, because a recent analysis by the National Bureau of Economic Research (NBER) has found the program was everything Washington lawmakers and officials have cited to justify dragging their feet on measures like canceling student debt or stimulus checks: it was un-targeted, inefficient, and regressive, distributing money overwhelmingly to upper-income earners.

While ostensibly meant to subsidize workers’ incomes, the majority of the PPP money didn’t go to paychecks, with between 66 and 77 percent flowing to business owners and stakeholders like creditors and suppliers, according to the report, produced by ten economists from the Federal Reserve, MIT, and other entities. The result is that a little less than three-quarters of the $510 billion given out via the program in 2020, or $365.9 billion, went to the top income quintile of households, with the bottom quintile receiving only $13.2 billion.

Unlike similar programs in other countries, which paid wage subsidies out on a sliding scale proportional to the declines in businesses’ revenues or as a fraction of their wage bill, the US government took an un-targeted “fire hose approach,” the report states, so that “virtually the entire small business sector was doused with money.” Because business ownership and shareholding tends to be concentrated among upper-income earners, the federal dollars consequently flowed to those at the top.

There were inequalities within this distribution, too. Because the government opted to administer the program through the Small Business Administration and private banks, larger firms with established banking relationships were on average able to secure PPP loans quicker than smaller ones.

The authors are careful to note this isn’t an argument against the program’s existence, which preserved 2 to 3 million job years (years worth of employment at a job for a worker) over fourteen months. Because of the urgency of the moment and the federal government’s lack of administrative capacity, the report states, another outcome was likely impossible without slowing the payout of the funds. Still, the authors conclude, the program’s “economic impacts were less than hoped,” and it “preserved only a moderate number of jobs at a high cost per job-year retained, and transferred resources overwhelmingly to the highest quintile of households.”

The report’s chief recommendation is for the United States to set up a centralized administrative system for monitoring and paying out worker income in advance of the next crisis, something that already exists in other wealthy countries. But there are several other takeaways one can draw from the report.

There’s the privileged position that business continues to hold in the US political economy, for instance, true even amid an emergency government response that was more weighted to workers than probably any in modern memory. While the PPP’s “fire hose” approach ended up showering 94 percent of eligible firms with the next-to-no restrictions it placed — limited as it was to only firms with less than five hundred workers, a rule that was later dropped for some industries anyway — American workers have been put through maddening, unfair processes to get their hands on unevenly distributed, sometimes means-tested aid, whether unemployment insurance or rental assistance, throughout the pandemic.

Similarly, while business owners took forms and supporting documents to a local lender the government matched them to, workers have had to navigate overburdened and antiquated government systems to get their help, much of it due to the decision to delegate payouts to state governments. Millions of Americans had stimulus checks sent to the wrong bank accounts or simply never sent at all, and by early January 2021, only 68 percent of the second round of checks had actually been sent out. Three months into the pandemic, one-third of the unemployment payouts owed to workers weren’t paid, and as of a little over a year later, at least 9 million eligible Americans had been left without the benefits.

Finally, it’s notable that PPP’s received little scrutiny from politicians and talking heads for any of the flaws highlighted in the NBER report, even as they use those same flaws to argue against government programs for workers. Whether it’s stimulus checks, unemployment insurance, student loan forgiveness, or a host of safety net expansions, there’s been no shortage of voices pushing to narrow or even outright block such programs, all casting their opposition as motivated by concern about giving gratuitous help to the wealthy and griping about “handouts.”

As much as the pandemic and the resulting government response weakened a variety of political and economic shibboleths, some habits die hard. The US political system and discourse continues to hold workers to standards that simply do not apply to business owners and the wealthy.