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The Most Predictable Story of This Pandemic

United States Treasury check on a 1040 tax form (Getty Images)

I give you the CARES Act news headline equivalent of “dog bites man” or “water still wet”: “Small Business Loans Helped the Well-Heeled and Connected, Too.”

Seriously, is there anyone who has studied government programs, any government programs, for at least five minutes that is surprised by this news? It reminds me of its cousin headline: “big firms gets small business loans, too.”

And yet, here we are. This morning, the WSJ, Politico, and others all have outraged reports about how large firms and politically connected businesses got large PPP loans after the Treasury disclosed the names of some 660,000 firms who received the biggest payouts from the small business bailout. While it is very annoying, this is not surprising.

As the data make clear, P.F. Chang’s China Bistro Inc., a restaurant operator with more than 200 U.S. locations, and other large restaurant chains got loans. No surprise here as the language in the CARES Act defined each individual hotel and restaurants as its own business, so that each owner with several properties could still qualify as small businesses. And why was it drafted this way? So the drafters of the bill could appease well-connected interest groups.

The data also reveal that over two dozen Washington lobbying, public affairs, and consulting firms got some large PPP loans, in spite of an explicit ban on receiving a loan for firms make more than 50 percent of their revenue from lobbying or political work. No surprise here as it wouldn’t be the first time that SBA’s 7a loans go to large firms, or that SBA makes a mess of the implementation of disaster relief.

Finally, the big scandal seems to be that firms with ties to members of Congress and the administration got some PPP loans. See the WSJ:

Nonprofits receiving funds included the Girl Scouts of the United States of America, the Sidwell Friends School in Washington, D.C., whose alumni include children of former presidents, and the foundation that runs the Guggenheim art museum in New York….

Some members of Congress also got loans. Rep. Kevin Hern (R., Okla.) owns KTAK Corporation, a Tulsa, Okla.-based operator of fast-food franchises that received between $1 million and $2 million. Rep. Mike Kelly (R., Penn.) received a loan for his car dealerships outside of Pittsburgh. Staffers said the loans supported jobs and the congressmen aren’t involved in day-to-day operations.

The husband of House Speaker Nancy Pelosi’s (D., Calif.), Paul Pelosi, is an investor in a Northern California firm that received a loan.

The assumption, it seems, is that the only reason these firms got the loans is that they are connected to the Speaker of the House or to members of congress. I think it is more likely that they got these loans because they are relatively bigger firms and/or they are more savvy at navigating the insane bureaucracy and the nightmare that was the SBA application process than the owners of smaller businesses are. It could also simply be that they are firms with better informed people about what was in the CARES Act than a lone freelancer is.

The bottom line is that none of this should surprise us. This is what happens every time. And yet, people outside and inside of Congress keep insisting that rushing through the distribution of a large amount of money in a super short period of time is the way to go when an emergency strikes. Moreover, you don’t have to wait for an emergency to find that most government programs aimed at corporations end up being mostly beneficial to a few well-connected firms. Think of Boeing with the Ex-Im Bank or other programs like the 1705 loan programs. No lessons seem to ever be learned.

As for me, the headline I long to read is: “Government program meets its target and only gave loans to those eligible small businesses who truly needed them.”

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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