Don’t Shame Businesses for Taking Government Money

(Bloomberg Opinion) -- The Paycheck Protection Program, passed into law last spring and transformed into a government program in matter of days, has been under fire almost since its inception. Critics first charged that it was too slow, too complex and failed to get funds to the small businesses that needed it. More recently, as information about recipients has become available, the criticism has focused on the larger companies, wealthy celebrities and politically connected firms that got federal aid.

All this was a foreseeable consequence of its kludgy design. Nonetheless, many of these critiques are wholly unhelpful. They do nothing to expand aid to struggling businesses that still need it. Worse, they may encourage Congress to add another layer of supervision to an already unwieldy program.

Some targets, admittedly, are irresistible. The Ayn Rand Institute, for example, was mocked relentlessly when records revealed that the rabidly free-market organization had applied for a PPP loan. Yet this is exactly the wrong response. The purpose of the program is to prevent organizations from needlessly laying off employees in the midst of a pandemic. The political philosophy or affiliation of the employer is not, and should not be, an issue.

There is nothing wrong with opposing a policy in principle and yet taking advantage of it in practice. I’ve long argued that the mortgage interest deduction is horrible policy, for example, but I not only claimed it every year I was eligible, I also factored it into my decision to buy a home.

Indeed, that’s precisely why I oppose it — it leads otherwise rational people operating in good faith to overinvest in housing. I may disagree with more purist libertarians on the benefits of crisis programs like the PPP, but I can’t argue that they don’t encourage private citizens to accept more money from the government.

There is a more sophisticated critique of the program. Essentially, it lays the blame not at private citizens for accepting the aid, but at government officials for steering it toward industries to which they are well connected. The impulse here is even more understandable — and almost as misguided.

If these were government contracts rather than economic relief, the concern would be well-placed. With procurement, there is a fundamental tension between the interests of the taxpayer (to get the lowest price) and of the contractor (to get the biggest profit). A government official must navigate between these competing interests.

With a program such as the PPP, the goals of Congress and the recipients are more naturally aligned: Both want to minimize pandemic-induced economic damage to the recipients’ business and avoid otherwise unnecessary job loss. Tension arises only when the question turns to whether the recipients deserve the aid.

That is a judgement call — one that Congress should strive to avoid in the first place. In the face of an unprecedented economic crisis, it’s impossible to know in real time how differently situated businesses and workers will be affected. That’s why aid should be wide-ranging and come with as few strings as possible.

When it comes to pandemic relief, timing is (still) everything. Broad-based rebates, sweeping tax cuts and huge liquidity injections into credit markets sound inefficient on paper, but their ease and speed make them effective in practice.

In the meantime, advocates for good government might better focus their attention on identifying businesses, workers and households that were either overlooked in the initial rounds of aid or are facing unforeseen hardship in the aftermath.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karl W. Smith, a former assistant professor of economics at the University of North Carolina and founder of the blog Modeled Behavior, is vice president for federal policy at the Tax Foundation.

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