This story was updated on July 7 at 10:17 p.m.
The pandemic is out of control, the economy is in the toilet, and the weather is unpleasant, but at least the schadenfreude is excellent this week.
Yesterday the Small Business Administration released a list of loan recipients under the Paycheck Protection Program, part of the hastily passed CARES Act stimulus. The list is full of targets ripe for naming and shaming. There are plutocrats (country clubs! private-jet companies!), kleptocrats (various Trump associates), and Kanye (whose Yeezy brand received between $2 and $5 million). There are some particularly humorous examples of groups that decry people taking from the government who are, well, taking from the government: the Ayn Rand Institute, Americans for Tax Reform. This is the second round of this process of ridicule. The first also provided lots of red meat, from the literal (Ruth’s Chris Steak House) to the figurative (the crimson crowd at Harvard, which accepted CARES Act funding, though not PPP cash).
Raging at the wealthy receiving these funds, or simply mocking the hypocrisies, is understandable, but doing so misses the point. The CARES Act was quick-and-dirty legislation, full of rules and conditions that allowed these recipients to claim money, which might have been ironed out in a bill that moved slowly, or an application process that built in more rigorous review. The whole point was that the stimulus needed to be passed quickly, and that allowing a coarser filter was worth it for the economic boost. And while CARES was not without flaws, every indication is it helped the sagging economy—just as intended.
The point of PPP was to get money to businesses so that they didn’t lay off workers—or in some cases, so that they would bring them back. The money was structured as long-term, forgivable loans. More workers receiving paychecks meant that economic demand wouldn’t collapse as swiftly. Even if major companies with celebrity CEOs were taking in the money, each dollar they passed along to employees was a dollar injected into the American economy, which was the goal.
In April, just after PPP was enacted, the NBC and MSNBC journalist Stephanie Ruhle predicted this backlash and announced her intention to lead it:
Dear Hedge Funds, Small PE Firms & creative lawyers for rich people with a whole lot of LLCs,— Stephanie Ruhle (@SRuhle) April 3, 2020
The tax IDs for those receiving #PPP loans are public.
I will search them until my last breath on Earth.
THIS LOAN IS NOT INTENDED FOR YOU.
Your management fees are in tact.
Here’s the thing, though: The loan was intended for them, or at least they were plainly eligible for it under the law. Hedge funds, boutique law firms, and the like don’t need me or anyone else defending them, and it’s unsavory to see Harvard sitting on a $41 billion endowment while also taking government stimulus money. (The school changed course and returned the funds after public pressure. So did Ruth’s Chris.) But why should a business or institution that is legally allowed to seek public stimulus funds forgo them?
Legislation written with more time might have excluded some of these recipients, but time was of the essence in late March when Congress and the Trump administration cobbled together the stimulus package, which has since been expanded. The longer Congress waited, the worse the damage to the economy would have been. If the price of supporting a sagging private sector was that a portion of the money would go to recipients some find undeserving, it was worth paying.
Although Democrats are stereotypically eager to spend government money, the White House seemed to grasp this more fully than Democrats in Congress. Treasury Secretary Steven Mnuchin, who led the administration’s efforts on the stimulus, emphasized the need for speed.
“We’re going to have a new program up by next Friday where banks can lend. I mean that—that would be a historic achievement that is just incredibly aggressive,” Mnuchin said in March. “This is a brand-new program, the Treasury working with the SBA. We’re doing everything we can because Americans need that money now. They can’t wait for government to take three or four or six months like we normally do.”
The same dynamic prevailed with another provision of the CARES Act, the tax-credit payments made to individuals. Senator Mitt Romney even endorsed Andrew Yang–style checks to all Americans, though other Republicans called for limiting how much aid the poorest Americans might receive, a bizarre and punitive idea.
Democratic leaders, however, were much warier than Mnuchin, and during the early stages of pandemic-relief planning argued for means testing, making sure that only the neediest Americans received money. This may well have been good politics, because it played defense against caricatures of tax-and-spend liberalism and appealed to widespread public beliefs that government budgets are bloated by waste, fraud, and abuse, but it was dubious policy.
For one thing, as Eric Schnurer wrote in The Atlantic in 2013, there really isn’t that much waste, fraud, and abuse in the system. For another, means testing threatens to undermine the point in this case. It’s wise to be concerned about benefits accruing disproportionately to the wealthy—but that’s a matter for broader, more deliberate changes in policy, not for a crisis. “In (very rough) figurative terms, Pelosi was evincing a preference for allowing some of those drowning to go without life preservers, if that’s what it took to prevent wasting preservers on those who were perfectly capable of swimming to shore on their own,” Eric Levitz wrote at New York magazine.
The question of politically unpalatable but eligible businesses receiving money under PPP is separate from actual fraud. The Trump administration’s efforts to stifle oversight of the PPP money and circumvent inspectors general raise alarms, but legal recipients are legal recipients. Some businesses may have provided false certifications, or failed to live up to the terms of the program, but that’s not the focus of the current backlash.
Also, much is still unknown about the government response to the pandemic, just as not all of the flaws in the response to the 2008 financial crash were immediately plain. Some of the problems are already emerging, though. Many businesses were unable to obtain PPP funding, at least initially—especially ones owned by people of color.
But the problem there is less a lack of money than a lack of political will. In other words, the issue is less that Ruth’s Chris got money that Acme Neighborhood Restaurant should have gotten, than that Congress should have appropriated, and still should appropriate, more money in stimulus so that any eligible business could receive a loan promptly. The government’s ability to spend in this situation is really only constrained by its own imagination.
Even with these flaws, the stimulus so far has gone pretty well. Many Americans are hurting, and not every small business got the money it received—but the spending gave the economy a shot in the arm. As Tom Gara writes, the first rounds have helped prop up the economy, but several key programs are due to run out soon.
The danger of this kind of naming and shaming is that it will imperil the government’s next round of stimulus. If businesses are afraid of political backlash, they might not take government funds, and instead make deeper cuts. (It doesn’t matter whether a given institution “should” find money elsewhere, but whether they will.) If Congress is afraid of backlash, it may narrow its future stimulus efforts—which already seem grievously small—wagering that potential pain in the form of a prolonged recession is easier to pass off than acute pain in the form of political controversy. The backlash against a successful government program is why the United States can’t have nice things.