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First100-021721
A sale sign posted outside a store in Nashville, TN.
It’s February 17, 2021 and welcome to First 100. You can sign up to have First 100 delivered to your email by clicking here.
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The Chief
Joe Biden did a workmanlike job at a town hall in Milwaukee last night, showing appropriate empathy and reasonableness completely out of character with how the job was performed in the previous four years. On policy there were a couple flash points. Biden will get a lot of heat from the left for rejecting the cancellation of up to $50,000 in student debt (while agreeing to his campaign promise of a token $10,000 in cancellation) and saying “I don’t think I have the authority” to do it by executive order.
By lumping in debt cancellation with “people who have gone to Harvard and Yale,” Biden employed a misdirection tactic that doesn’t reflect the overwhelming majority of student borrowers. According to a Color of Change survey, 56 percent of Black voters carry student debt, with more than half of them well over $10,000 in balances. And this is preventing them from owning a home, moving to a better neighborhood, or even retiring. Rejecting large-scale debt cancellation is actually a racial justice issue.
But I don’t want to dwell on that question today, because another one slipped by without much notice. And it speaks to some bad implementation on the part of the Biden team that they need to get fixed, for the future of the economy and our society, really.
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Biden took two questions in a row from small business owners. The first was concerned about a $15 an hour minimum wage, and Biden parried that pretty well, even pushing back against that CBO report showing more disemployment from the wage increase than other studies. Then the owner of Black Husky Brewing, who has seen his business fall 50 percent, came to the microphone.
“We’ve relied primarily on loans, grants, as well as our own reserves to survive,” the owner, Tim Eichinger, said. “However, the new assistance has been too slow, and recently it's gotten more restrictive on how we can apply it. What will you do so that small mom-and-pop businesses like ours will survive over large corporate entities?”
Biden started talking about how banks didn’t approve Paycheck Protection Program (PPP) forgivable loans for those with whom they had no existing relationship, and how Donald Trump didn’t want any inspectors general poking around the program, and as a result “40 percent of the money” went to “multimillion-dollar corporations,” a lot of it fraudulently. Biden’s PPP loans, he said, would go to “mom and pop businesses that hold communities together.”
This isn’t responsive to the main complaint, that the new assistance, mostly under Biden’s watch, has been too slow. And in large measure that’s because of this obsession with fraud.
The definition of small business in the CARES Act and subsequent bills is businesses with 500 employees or less. For chain restaurants and hotels, it could be 500 employees at each location. That’s how Congress wrote the bill. Because of the emergency needs of shuttered businesses with no cash flow, PPP was designed with minimal underwriting to get money out quickly. That meant there would be a good deal of “fraud,” though the definition of fraud expanded to include “some businesses getting help that I don’t like.”
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Certainly there was actual fraud, like using PPP to buy luxury cars and a mansion. There was also double-dipping, like Ruth’s Chris Steakhouse using two subsidiary companies that each maxed out on a $10 million loan. But the luxury car guy was arrested and Ruth’s Chris returned the money. A bunch of other businesses were hounded by a new cottage industry of fraud hunters and returned the relief, which led to layoffs of their staffs, who were not fraudsters but poor schmoes who happened to work for businesses that got targeted.
The inspector general of the Small Business Administration identified 55,000 “potentially” ineligible loans worth $7 billion, in an initial outlay of over $500 billion. That’s less than a 1.4 percent error rate, and in the exchange, businesses who really needed that money got it rapidly.
We’re now seeing the flip side. Because of the uproar about fraud, the December relief bill added significant anti-fraud measures to the $285 billion resumption of PPP. And this has predictably slowed down the process. The SBA put in a validation system for the loans, which has stopped relief due to error messages or hold codes on 30-50 percent of the applications, according to the Consumer Bankers Association. Some businesses have waited for weeks. Most concerning, owners with histories of bankruptcies or criminal records are getting “false positive” flags, despite their full eligibility for the program. That could correlate with minority-owned businesses, given incarceration statistics in this country.
Trying to target fraud on the front end seems like a bad idea. Right now, the SBA has issued $125.7 billion in PPP loans in 2021, well below half of the money available after several weeks in operation. (In fairness, this has accelerated over the past week.) For some businesses, a second draw of PPP or a first loan they were unable to get earlier equals survival. But anti-fraud mania has kept that relief out of reach, and snarled tens of thousands of businesses. I guarantee that it’s costing the economy more than that $7 billion in potential fraud to deny PPP loans and create closures, along with spending the man-hours churning the loans through the system.
In addition, the $15 billion “Save Our Stages” relief for independent live entertainment venues put into the December bill has yet to pay out a dollar. This is separate from PPP but also managed by the SBA as a grant program, the first true grant in their history. And SBA just doesn’t have it up and running, weeks after Congressional passage. These businesses have no ability to reopen right now and gain revenue, as the bills pile up. But again, preventing “undeserving” venues from accessing relief seems to be a preoccupation. “Even though the money is going to flow at some point, we don’t know when,” said Audrey Fix Schaefer of the National Independent Venues Association, a pop-up coalition of venue owners that was the main driver of Save Our Stages. “If you need oxygen and someone tells you help is on the way, until you get the oxygen you can’t breathe.” NIVA is fundraising to help keep venues alive.
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The SBA released a frequently asked questions paper about what’s officially called the “Shuttered Venue Operators Grants” program last Friday, with a lot of verbiage about eligibility and proper use of funds but nothing on when the application will be ready.
I’ve spent the past couple days railing on libertarian types who are using concerns with crisis-era implementation to push forward their political project of abolishing regulations. But it’s true that not all regulations are well-designed, particularly during a crisis. In this case, SBA is a particularly bad federal agency that desperately needs reform, and the runaway media narrative about fraud is damaging the ability to speed relief.
Biden ran on competency. Most people are preoccupied with the new legislation but implementing the existing law is the job of the president. Getting this right will determine the survival of independent small businesses. They don’t care as much about fraud as they do getting the relief that will enable them to pay the rent and their employees. Biden blew it with that answer, and SBA needs to get it together or the black hole of small business closures will grow.
What Day of Biden’s Presidency Is It?
Day 29. Biden is meeting with some union leaders today about the COVID relief package and a future infrastructure bill.
Today I Learned
- Retail sales jumped 5.3 percent in January, after $600 checks were distributed. (Calculated Risk)
- Winter storms across most of the country leading to “widespread delays” in vaccine shipments and delivery. (Washington Post)
- What exactly is Silicon Valley supposed to do to help vaccine distribution? Google is offering free ads? Seriously? (Politico)
- The weather crisis in Texas offers Biden an opportunity to talk about energy upgrades and debunk the false talking point that this was about frozen wind turbines. So far it’s a missed opportunity. (Politico)
- Dr. Fauci pushed back his estimate of open access to vaccines to May; earlier he had said April. (Axios)
- Max Sawicky on the Biden team ending the age of austerity. (Jacobin)
- A group of scientists want the CDC to update workplace standards to account for the fact that COVID-19 can spread through the air. (New York Times)
- Whether to prosecute Trump is a Justice Department and not a White House decision. (Talking Points Memo)
- Biden plans to bypass MBS in Saudi relations. (HuffPost)
