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Worker-Focused Pandemic Relief Was a Success

But as Congress and the administration consider next steps, the fear of welfarism is colliding with sound policy and the principle of fairness.
September 10, 2020
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Three months ago, I made the point that we needed a sense of proportion relating to worker-focused relief programs like Pandemic Unemployment Assistance (PUA). Since the amount of money spent on PUA (around $250 billion) was small compared to appropriations for the Paycheck Protection Program and the various monetary stimulus actions taken by the Federal Reserve (around $4 trillion), it made little sense to worry excessively about the cost of PUA or concerns about fraud and potential disincentives to work. Recent data have done little to make me reconsider my views.

The New York Times reported in August on some of the scams surrounding PPP funding. Instances of abuse included people buying Lamborghinis (one in Miami and one in Houston), diamond-encrusted Rolexes, and the diversion of money to pay back child-support payments. Thus far, the documented scams have cost taxpayers around $60 million—which is surely only a piddling amount compared to we’ll learn later about how the business and finance sectors have profited from the Fed printing presses. Per that New York Times report, the Small Business Administration, which oversees PPP, has received more than forty thousand calls about coronavirus-era scams compared to fewer than one thousand last year. Before this is over, we’ll be up to our necks in Lamborghinis paid for by money intended for wage subsidies and prevention of a financial collapse. This will not fare well in comparison to the kinds of stories—about families evicted from their own homes and food banks running out of supplies—that may result from the abrupt ending of PUA.

Despite documented risks and abuses, there have not been calls for widespread audits of PPP (which expired in August) or concerns about the moral hazard created by Fed backstopping. No chairman has even been appointed to lead the congressional commission overseeing the CARES Act spending which includes the Federal Reserve stimulus and liquidity programs. What accounts for this uneven state of affairs?

There’s a broad understanding when programs are deployed in an emergency that waste, fraud, and abuse are unavoidable, and that these losses are part of the price tag for moving quickly to prevent stave off an economic collapse. A broken human nature means that bad actors will find ways of siphoning money they do not deserve and should not have. The alternative is even deeper economic damage caused by delay or overly restrictive rules.

The same tolerance needs to be extended to PUA. Undoubtedly there are many instances of abuse and even coordinated fraudulent schemes to tap these benefits illegally. Federal and state governments should be aggressively investigating and prosecuting these cases. But to focus on PUA when the much larger potential for abuse is elsewhere is very much straining out the gnat while swallowing the camel. It’s almost as if we’re suffering a hangover from the welfare-reform wars of the 1990s that views any abuse of programs serving low-income and working Americans with a gimlet eye while casting a tolerant and beneficent gaze upon programs accessed by business owners and financiers. That’s a fundamental unfairness that will linger in the public mind long after the crisis is over in much the same way the failure to prosecute bad actors on Wall Street following the 2008 crisis lingers today.

Let’s be clear about PUA: It was something of a slapdash, patched-together program but it worked. It achieved its primary goals of keeping people at home and slowing the spread of the disease while preventing a collapse in consumer demand. This demand-side stimulus, in combination with the business supports, arguably halted the slide and prevented a much worse collapse. In short, as emergency measures, PUA, PPP, and the Fed actions all look like a success both on humanitarian grounds and as support to the economy, a remarkable achievement in a federal government where so much of what is tried usually ends in disappointment at best and abject failure at worst. And all three parts of the federal intervention were critical to that success.

As I noted earlier this year, there will be a time for settling accounts and prosecuting those who have abused public programs meant to reduce the impact of COVID-19, and we should do so vigorously. Indeed, progress is already being made on this front. A recent joint investigation by the U.S. attorney’s office in the Western District of Pennsylvania and the Pennsylvania attorney general have announced charges related to illegal receipt of PUA benefits. This is unlikely to be the last case of its kind.

But, the wholesale elimination of the program for struggling workers and families while the Federal Reserve opens the spigot further for business and finance (dollar-printing, coincidentally, that has supported a massive run-up in the equities market and sent house prices booming) begins to look like a “preferential option for the rich” and punitive action against the average Joe and Jane. Combining these moves means we risk sowing increased bitterness about a free-market system that looks less free than advertised and rigged in favor of the wealthy. If the economy fails to rebound quickly later this year, an economic structure that is already assailed from the left and the right will face even more intense scrutiny.

Brent Orrell

Brent Orrell is a resident fellow at the American Enterprise Institute where he works on criminal justice reform and job training.