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Politics & Policy

Measuring the Impact of the Paycheck Protection Program


A central goal of the Paycheck Protection Program (PPP) was the prevention of mass layoffs and firm bankruptcies though the injection of liquidity to companies affected. One would think that the way to get the most benefit out of the program is for it to distribute more of the funds to places hit to hardest. But this new paper uses data on the distribution of PPP loans and high-frequency micro-level employment data to look at the distribution of PPP loans and finds that the funds didn’t flow to where the economic shock was greatest:

We find no evidence that funds flowed to areas that were more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns. If anything, we find some suggestive evidence that funds flowed to areas less hard hit.


PPP loans were disproportionately allocated to areas least affected by the crisis: fifteen percent of establishments in the regions most affected by declines in hours worked and business shutdowns received PPP funding; in contrast, thirty percent of all establishments received PPP funding in the least affected regions.

I assume that this has to do with the way the program was designed and the fact that every firm tried to apply, whether they needed it at the time or not, out of fear that the funds would run out when they actually needed it. Bigger and better organized firms probably had a leg up, since many banks would only lend at first to firms they were already doing business with.

But the data highlight the role played by the banks in the less than desirable distribution of funds:

Lender heterogeneity in PPP participation appears to be one reason why we find a weak correlation between economic declines and PPP lending. We find significant heterogeneity across banks in terms of disbursing PPP funds, which does not only reflect differences in underlying loan demand. For example, because of an asset cap restriction in place since 2018, Wells Fargo disbursed a significantly smaller portion of PPP loans relative to their market share of small business loans. . . .

We construct a new measure of geographic exposure of regions to banks that over or underperformed in terms of PPP allocation relative to their share of small business lending. States with higher exposure to banks that performed well in terms of bank PPP exposure also saw higher levels of PPP lending.

Apparently, the second round of PPP funds already is going out really fast. The sad truth is that the program was and is never going to cut it. Money going to large firms, small firms not having any luck getting through banks to apply, long waiting periods once having applied, and now new data showing the fund aren’t even going to the most affected areas mean it is time to try something else.

It is the perfect time to plug Arnold Kling’s idea, which we wrote up in this paper. It is simple: Extend a line for credit to everyone with a checking account in the US. It is repayable, which allows the program to be entirely flexible about how and what the money is used for. It allows companies and people to defer using the line of credit as long as they don’t need it, instead of companies applying for a loan dependently of one’s needs just out of fear that the program’s fund will run out.

Finally, people shouldn’t judge this idea by the fact that it is repayable and contrast it with PPP, which in theory allows for forgiveness. The truth is that, because of the generosity of unemployment benefits, many firms will have a hard time retaining their employees and will end up having to repay their PPP loans. No solution can help businesses if the economy stays on ice for many months longer. But this is a good start and less chaotic solution.


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