The U.S. government’s Paycheck Protection Program provides forgivable loans to small businesses, mainly to pay their employees during the current sudden stop. News that it has run out of money is more than a big setback to the well-being of the economy. It’s also a serious health obstruction and, unlike many related concerns, one that can and should be addressed quickly.
One of the main risks of the coronavirus-mandated lockdown is forcing a no-win choice on otherwise-viable businesses: Continue paying staff and, if the lockdown lasts too long, run out of cash and go under; or, let employees go and impose more pain and suffering on them, break long-established social compacts, and contribute to the wider sense of insecurity.
To resolve this in a win-win-win manner (for employees, businesses and communities), the White House and Congress approved last month a $349 billion program designed to extend concessional loans (at 1% interest rates) to enterprises with 500 or fewer workers. The loans are forgivable if at least three-quarters of the proceeds go toward payroll costs, with the rest for mortgage interest, rent and utilities.
It quickly and unsurprisingly became apparent that this PPP was meeting an urgent and important need. The vast majority of small businesses have limited access to bank loans and none to the capital markets bolstered by the Federal Reserve’s enormous interventions. In just one week, the Small Business Administration received 500,000 applications. Within three weeks, the entire amount allocated by Congress was exhausted.
While the program may have slowed small business layoffs, the benefit on unemployment was overwhelmed by a tsunami of jobless claims. In just four weeks, that figure hit 22 million, equal to 13% of the labor force and erasing all the jobs created in the prior 10 years. The extent of pain and suffering has become quickly visible in long lines at food banks by people trying to feed their families. Concerns are rising about durable damage to this and the next generations of the labor force.
The exhaustion of the PPP is also a serious blow to public health policy. Increased economic insecurity tends to amplify the mental health risks associated with government-mandated isolation at home. These risks don’t stop at the type of irritability and anger that push people to break social distancing rules, fueling a new spread of the virus and dealing a big blow to progress made in flattening the infection curve. They also include insomnia and toxic stress levels, bringing with them considerable danger of greater domestic violence, sexual abuse and opioid addiction.
All this is to say that there’s an urgent need to replenish the PPP and to improve implementation. It’s a policy priority that should be singled out and fast-tracked instead of being held hostage to renewed partisan politics. Without this, the already high number of disruptions will spread and deepen. What should be a temporary and reversible setback to small businesses and their employees will turn into much longer-term problems of closures, joblessness and human distress.
First published by Bloomberg Opinion (This column does not necessarily reflect the opinion of Bloomberg LP and its owners.)
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