August 10, 2022

Federal Reserve Economists Have Harsh Assessment of the Government’s Small Business Relief Program

A new study published by the Federal Reserve Bank of St. Louis had few kinds words for the government’s Paycheck Protection Program.

The federal government has received withering criticism from various quarters for its pandemic response. Now hits are coming from the government’s own economists.

A new study published by the Federal Reserve Bank of St. Louis analyzed the government’s Paycheck Protection Program (PPP), a $800 billion program that distributed forgivable loans to small businesses.

The authors of the study—William R. Emmons and Drew Dahl, economists at the Federal Reserve Bank of St. Louis—concluded that though PPP was timely, it was poorly targeted, expensive, and regressive.

Nearly 75 percent of the beneficiaries were unintended recipients, the economists wrote, and funds primarily benefited wealthy households.

“Due to differences in the typical incomes of those varied constituencies,” Emmons and Dahl write, the program “ended up being quite regressive compared with other major COVID-19 relief programs, as it benefited high-income households much more.”

While the program managed to save three million jobs, the authors point to an MIT study—led by economist David Autor and written with nine co-authors—that showed the job savings came at extreme expense.

“The study found that, depending on the assumptions, the cost per job saved for one year was $169,000 to $258,000, which was much higher than the average amount—$58,200—paid in wages and benefits to small-business employees in 2020,” Emmons and Dahl write. “The authors concluded that the PPP cost taxpayers roughly $4 for every $1 of wages and benefits received by workers in “saved” jobs. The ‘leakage’—$3 out of every $4 distributed through the program—went to small-business owners.”

MIT’s study also found PPP was “highly regressive,” with roughly 75 percent of benefits gobbled up by earners in the top quintile—or the top 20 percent.

‘The Largest Wealth Transfer in History’

A year ago, I noted that the top 1 percent of income earners hold a record amount of wealth in the US.

It’s no mystery how this happened. Federal Reserve data show US households added $13.5 trillion in wealth in 2020, largely from government “stimulus” spending that flooded the system with money.

This new wealth was not evenly distributed, however. Nearly $10 trillion of it went to households in the top quintile. This is no coincidence.

Carol Roth, a financial expert and the author of The War on Small Business, noted that CARES Act spending clearly favored those closest to power.

“The ‘relief’ efforts related to Covid by the government and the Federal Reserve at every turn favored the already wealthy and well-connected,” Roth told me. “They enabled the largest, most historic transfer of wealth the world has ever seen—trillions of dollars going to Wall Street at the expense of Main Street.”

The average American may have benefited relatively little from this flood of spending—maybe a few stimulus checks—but he continues to pay for it, quite literally, as a result of the policies, which triggered historic inflation.

With the US economy likely already in recession and consumers struggling with 40-year high inflation, the partisans and politicians will seek to find convenient scapegoats to explain the pain.

Just remember it was not “capitalism” that brought lockdowns or printed trillions of dollars out of there air. It was central planners and central banks.

This article, Federal Reserve Economists Have Harsh Assessment of the Government’s Small Business Relief Program, was originally published by the Foundation for Economic Education and appears here with permission.  Please support their mission.