Funding Crises: An Empirical Study of the Paycheck Protection Program

In the early weeks of the COVID-19 pandemic, the United States Congress funded the Paycheck Protection Program (PPP) to address the devastating consequences of business closures and millions of employees losing both their jobs and healthcare coverage during a public health emergency. That program immediately pumped more than a half-trillion dollars of forgivable loans out to five million businesses. But criticism was swift and widespread, if sometimes spurious, with detractors attacking the award of loans to wealthy celebrities such as Kanye West, politically connected donors such as the Kushner family, and large corporations such as Shake Shack and Ruth’s Chris Steak House. In this Article, we conduct an empirical study of the central component of the largest financial bailout in US history. We examine early quantitative data released by the Small Business Administration to answer various competing claims about the effects of the PPP. Critics accused the program of being administered as a partisan political tool for President Trump’s attempted reelection, as a corrupt slush fund for cronies of the Trump administration, and as an incompetent waste of money on undeserving recipients. We test these hypotheses to evaluate the distribution of funds and whether the disbursement materially suffered from politics, corruption, or waste. We find that the lending process not only suffered from high-profile failures, but it also failed to target the neediest areas, particularly early on. Other studies present mixed findings on whether the PPP successfully protected paychecks. The PPP’s greatest weakness was its failure to reach businesses unable to survive long enough to apply for or to receive loans. Accordingly, we call for a start to the process of theorizing a model for future programs to fund economic crises, one that would avoid the worst mistakes of the PPP. In 2008 and 2020–2021, the US government engaged in massive transfers of money from the federal fisc to corporations and, on both occasions, the task was cobbled together during an emergency, with predictable failures and shortcomings. We consider successful economic responses and how they might guide more effective, fair, and efficient models for providing emergency economic funding in the future. Indeed, we may continue to need to address the financial devastation from COVID-19 itself for years to come