A recent New York Times article is critical of the Paycheck Protection Program, one of the key components of the government’s response to the onset of the Covid-19 pandemic and associated lockdowns. The article assumes — perhaps due in part to the name Congress gave the program — that PPP was intended exclusively to support paychecks.
But of course PPP’s goals were broader than that. Economist Glenn Hubbard and I discuss the wide range of goals for the program in a recent paper published in the Brookings Papers on Economic Activity:
The [PPP] program had important short-run goals, to be sure. These include supporting employment and replacing worker wages, maintaining worker-firm attachments, boosting consumer spending, and ensuring small business continuity during the shutdown. But the program had important medium-run goals, as well, including preventing a wave of bankruptcies once the economy partially reopened; increasing productivity by preserving firm-specific human capital, worker-firm matches, and networks; and helping the economy recover faster by keeping workers off the unemployment rolls.
We continue:
PPP is a novel program, and many standard intuitions about fiscal policy do not apply to it. It was not a stimulus program in the sense that its purpose was not to stimulate the economy; that is, it is not a program calling for a measure of the multiplier. Instead, its purpose was to preserve the productive capacity of the small business sector and to shorten the transition to a new, post-pandemic equilibrium by supporting labor demand over the medium term, allowing for a more rapid economic recovery. It was not a jobs program in the sense that its goal was not exclusively to preserve employment. Instead, its goals were to maintain worker-firm attachments, particularly during the shutdown, and to ensure small business continuity. It intentionally did not attempt to exclude inframarginal recipients because the unique circumstances under which it was enacted made this impractical. In the early days of the shutdown, how could the government have known which firms were inframarginal? And given the numerous goals of the program, it’s not clear how marginal would be defined in this context.
These design features suggest that a standard, intuitive, cost-per-job-saved measure is not appropriate for assessing PPP.
We do not find cost per job supported to be a sufficient statistic to assess PPP’s success. PPP is not exclusively a jobs program, and any evaluation of its effectiveness per dollar of program expense — even a short-run estimate — must include the benefit of preserving small businesses and employment relationships holistically, including social benefits in excess of private benefits and the benefits from hastening the economic recovery by supporting labor demand over the medium term.
Is the New York Times right that a share of PPP funding went to businesses instead of workers? Yes. But supporting business continuity during an unprecedented period in which governments put binding restrictions on business activity was a major goal of PPP.
And because those businesses survived, they were subsequently able to hire workers.