The following is based on what I’ve seen and heard and not based on media reporting. To the extent that I’ve seen criticism in media sources, it’s been about the fact that Big Business have gotten PPP (or other) stimulus money, but my issue is with small businesses that I’m more connected to. And the issue is that the government is just shoving vast amounts of money at them with little or no connection to any covid-related losses - or any losses at all.
It’s like one of these historic land grabs, when they open up some territory to anyone who can get there first and stake a claim. Apparently all you had to do is file paperwork and the money comes rolling in.
I believe a lot of big businesses may have gotten in first because they have people on their payroll whose job it is to stay on top of government regulations which impact the business, who advised their employers that there’s gold in them hills and money to be made. But with all that money at stake, it spread pretty quickly. A lot of small business have accounting firms and the like who advise them on things of this sort, and these guys learned the ropes pretty quickly and told their clients.
I’ve been aware of this for some time, but what triggered this is that my wife’s friend told her that her husband had just made a killing. He’s in some sort of construction supply field. She said he didn’t know anything about these matters but his accountant pretty much gave him some papers and said “sign this” and he did and forgot about it, until today she (the wife) told her husband to check his bank balance for a pleasant surprise.
And similar for a lot of other stories I’ve heard (though mostly third-hand). But it’s not just anecdotal. There are sources online where you can check how much various local businesses have made in stimulus funds, so I can see who is getting what. And I can see numerous local businesses who have been paid 6 or 7 figure sums, and who I know for a fact have been doing a brisk business throughout the shutdowns.
Of course, all this is going to have to be paid one day. And chances are pretty good that it’s not going to be paid by these business people. Or by people in the lower tax brackets either. It’s going to be paid by middle class workers who are foolishly looking at their stimulus checks and thinking they got a windfall “from the government” and not realizing that the government effectively added tens of thousands of dollars to their debt with the money going to rich people, in exchange for a few thousand dollars in cash up front for the middle class.
[That’s not even talking about the unemployment stimulus which makes those lucky enough to be impacted by covid get more money for sitting at home than the saps who still need to work get for working. But that’s another story.]
Well consider the case of two people I know (both members of my immediate family, so the details are ironclad).
One was informed by her office (she works in a RE Title agency) that they were cutting salaries by 15%. She said OK, she’s going on unemployment and filing for unemployment. She was impacted by the salary cut, but beyond that she was impacted by her kids’ school and day care closing so she qualified. The office wasn’t happy about that and she wanted to make sure she still had a job when the unemployment bonanza ended, so they negotiated, and agreed that she would work for 2 hours a day and file partial unemployment. She’s making more than when she worked full time.
Meanwhile another relative works as an ABA therapist. She would love to get laid off and make more than her current salary, but unfortunately for her the agency came up with a way to get the therapy done via zoom and wouldn’t do it. What really sticks in her craw is that the people who own the place had a conference call in which they presented the idea of keeping the business open via remote therapy as something they had come up with at great sacrifice to themselves, because they cared about making sure the employees had their jobs. Meanwhile, the exact opposite is true. The employees would have been much better off had they shut the agency down, but the people who own the place needed to keep it open in order to keep making their full revenue plus having all salaries paid by Uncle Sam, aka the taxpayers.
That neglects the fact that the business needs to meet certain payroll requirements or they have to pay the loan back. Now there are undoubtedly some businesses that did not see much drop off in business due to both being essential and high demand for their services. There are likely many more that were placed under serious financial crunches. To keep the money those businesses still need to keep paying the majority of their people. Otherwise they have to pay the money back.
Now we could let those businesses fail and instead support people through unemployment and other social safety net programs. Many of their employers would close along the way, though. That means longer term unemployment and slower economic recovery as we wait on new businesses to start to fill the old, and recovered, demand.
As a simple method to act quickly and allow the economy to recover more quickly this makes a lot of sense. Sure some businesses got it, didn’t need it, and will have effectively just gotten free money. It still seems like a better option than devastating many normally healthy businesses and locking in high rates of extended unemployment.
I would have preferred that the CARES Act consist largely of a huge stimulus check to most Americans - something like $7,000 apiece - and then let a “pruning” process take place among all businesses and companies. Let the American citizenry decide which businesses are worthy of their stimulus dollars, and those businesses that don’t get enough money, rightfully then go out of business. I would have liked to see about 1/3 of all shopping malls, restaurants, etc. go out of business. We were over-business’d to begin with.
The exception would be some businesses, such as contracting, etc., that need more governmental assistance or don’t directly benefit from stimulus dollars.
You may be unaware of this, but there’s a pandemic going on. This pandemic has altered people’s interaction with businesses - which ones they interact with, and how. Pushing for the free market to reset businesses to match people’s current consumption would result in a market unsuitable for when people’s behavior reverts to normal, after all the olds have died and corona is once again no longer a pressing concern.
Perhaps if the OP thought of the money as disaster relief and not stimulus, the impression would change. Disaster relief is always messy and haphazard because it is designed to get out the door fast.
If businesses had an ounce of sense and didn’t open too early, if people had an ounce of sense and wore masks and distanced themselves, if states didn’t think more about businesses than lives, the results would seem far more fair and equitable. As long as people think about businesses first, no outcome could possibly live up to expectations.
Requisite disclaimer: of course I care greatly about people losing their livelihoods, both employers and employees. It’s just that I care enough about them to want the best outcome - not this insanity of sticking fingers in ears and ignoring warnings.
[quote=“DinoR, post:4, topic:915436”]
That neglects the fact that the business needs to meet certain payroll requirements or they have to pay the loan back. Now there are undoubtedly some businesses that did not see much drop off in business due to both being essential and high demand for their services. There are likely many more that were placed under serious financial crunches. To keep the money those businesses still need to keep paying the majority of their people. Otherwise they have to pay the money back.
[/quote]All these businesses are going to keep paying all their people and get the “loan” forgiven. They’re essentially having salaries paid by the government (aka taxpayers) while keeping all the revenues for themselves.
Even if their businesses dropped off to some degree, it’s still a huge huge windfall.
Disaster relief is often messy and haphazard, but has never been done on anything close to the scale of the current bills, which amount to about $9,000 for every man woman and child in this country (with potentially more to come). That’s a transformative amount of spending, and if that’s done “messy and haphazard” as was done here then it itself is more disaster than relief.
What would be the best way to make sure that ONLY the individuals and businesses affected received assistance, and only to the extent that they were affected, without creating a monstrous bureaucracy, a massive rules-writing process, and a timeline measured in months or years (by which time the ones needing help are already beyond help)?
The CARES Act PPP loans cover: 2 months of salary for a business’ employees (up to $8333 per month, the equivalent of $100,000 per year salary cap), 2 months rent and utilities, 2 months health/dental insurance, and 2 months state and local taxes. All based on previous years’ tax records and financials. In order for the loan to be forgiven, you have to prove these moneys are paid out according to plan.
The purpose is to keep people employed, insured, and able to spend money, and to keep the businesses running. Evidently it’s cheaper for the economy in the long run for the businesses not to fold.
Because the idea was to get the money out quickly, they decided to not worry too much about who really needed it and who didn’t, just get the ball rolling fast.
The sad part is that many businesses that didn’t need the money got it, and more businesses that did need the money didn’t get it. There was an article that showed that the banks were favoring larger businesses when it came time to allocate the loans.
Early on that was true, but I don’t believe it’s true in general. It makes sense that if you’re a bank that’s making loans, you’re going to be able to make loans more quickly to larger businesses who already have a business relationship with you and have more employees who are adept at filling out loan-related paperwork.
But there’s still PPP money available. If there are businesses who still haven’t gotten money, it’s not because the banks aren’t favoring them.
I listened to an interview with an economist who was involved in the bailouts around the 2008 Great Recession, and one of the things he said is that the biggest mistake they made was worrying about unworthy people getting money.
In that case, there was at least a plausible moral hazard argument for not bailing out businesses who took excessive risks. Not really relevant here. Let the money firehose spray.
Two huge differences between the 2008 bailouts and the current:
In 2008, the money that was spent for companies was either loaned or purchases of “troubled assets”, which involved repayment and/or recoupment. In actual fact, I believe the government more-or-less broke even on TARP, so it’s not like the taxpayers had to pay it back.
In 2008, the big issue was - as you note - a moral one, with evil bankers being blamed for causing the problems, and in that context “unworthy” meant “bad guy”. In this case, the issue is that people who didn’t suffer much if any harm are getting massive windfalls, to be ultimately paid for by innocent people who additionally have a lot less money than the recipients of these funds. It’s a completely different situation.
As above, I think what makes people complacent about it is the vague notion that “the government” is the source of the money, and no one is being harmed by giving it out. But there’s no such thing as a free lunch, and the government is “robbing Peter to pay Paul”. By the time Paul pays it back it will be years down the road, but he will pay it. (Or if he doesn’t, it will be because the US government defaults on its debts, in which case it would make the economic consequences surpass anything covid-related.)
It was true with the first round of PPP loans. The banks denied favoring large corps, but the numbers showed they had by a sizeable margin. The money ran out quickly. With the 2nd round of PPP loans, hopefully that’s no longer an issue.
Sure, but another way to see that is that society as a whole should, via paying taxes, absorb the economic impact of a rare and catastrophic pandemic.
It’s not clear to me that the costs should be unequally borne by the retail, restaurant, travel, and hospitality industries, assuming that we want to continue having retail, restaurants, travel and hospitality businesses in the near future.
Basically, this sort of hinges on whether the sorts of changes in behavior we’re all seeing are temporary or the new normal. If a year or two from now we’re basically back to normal, then this is probably a good move. We avoided a lot of economic pain from having a lot of otherwise fine and functional businesses go bankrupt and a lot of people go out of work, and when it’s safe to go to bars and on vacation again, those businesses are ready to pick up the pieces. If this is just the new normal, then we have wasted a bunch of money on bars and restaurants and airlines that are going to go out of business anyway when we should have been letting the pieces fall where they may and letting the economy restructure itself into whatever it’s going to look like when we mostly don’t leave our homes.
There are reasonable arguments on both sides of that, but knowing the for-sure best choice requires a crystal ball.
But the whole point of this thread is that vast amounts of money - possibly the vast majority, for all I know - is not going to “retail, restaurant, travel, and hospitality industries” who would otherwise bear the cost of the pandemic, but rather to people who are just getting a windfall. So your presenting this as the trade-off misses the point.
The claim is that the delay due to worrying about who is deserving of the money (and inevitably missing some people who probably are deserving) will cause greater economic harm than the deadweight loss of taxation to provide money to everyone, including the windfall to people who don’t really need it.
Mr. Hoover, I thought you had passed away.
If the government did this kind of thing in 1930, maybe the Depression wouldn’t have lasted so long.
Except for the checks to almost every American, the payments are going to those affected by this disaster. The impact is that despite the fact that we have double digit unemployment, the poverty rate has not gone up and may have gone down as more are getting a living stipend.
Sure we can make sure that only the worthy get the money, but then we’d have to find them in a Trumpville after they’ve been evicted from their housing. Is that what you want?
This is as perfect an example of the best being the enemy of the good as I’ve ever seen.