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Monday, April 20, 2020

Stimulus checks, Payroll Protection and Expanded Unemployment

You can understand the dilemma - how does a stalemated congress get a $2t stimulus bill through in record time?  The answer seems to be 'with as little nuance and detail as possible'.   Catapult a big spend package into the besieged city and hope for the best.

Which is why, just a few short weeks into it, anyone with a little small business experience can see the shortcomings, moral hazards and unintended consequences.

First, regarding the stimulus -  remind me why all families making under $150k ($75k for individuals) need $2400 (plus $$ for kids)?  Yes, if you've been harmed and impacted.  Yes, if you lost a job.  But what about the 75% of Americans who haven't been impacted at all?  Just send them money too.  While the short answer is 'sure, why not', the longer reply to that is 'because then you have less money for those who actually need it.'  We are touting a 'donate it, don't deposit it' for those who are receiving checks who haven't been harmed.

2nd, the Payroll Protection Program is just silly, as it stands currently.  First, all you have to do is attest  (not prove) your business has been harmed - there is no other criteria.  With that loose definition, really, who hasn't been harmed?  2nd, it's encouraging small business to keep on staff for no other reason than the government is paying for it.  The problem there is having employees costs money.  Worker's Comp, payroll costs, administration costs, and the grand daddy of them all, the hazard of continuing to spend on projects and investments that may not be in the business' best interest at the moment.  Sure, I can keep all my employees on, but what am I going to do with them?  Continue to invest in homes that may or may not have a buyer in the end?  It sort of is the ultimate short-sighted trap- government induced small business spending in order to get a forgivable loan for producing/activities you possibly shouldn't be engaging in.

The PPP, in defining eligible businesses as under 500 employees and a simple test of "I boy scout promise we've been harmed', are not elements a successful program make.  It should have been under 50 employees, no questions asked.  Under 250, more questions asked, 250-500 a lot of questions asked.  It's the under 50, really under 20, employees that don't have many options, and typically don't have many reserves.  Of course the bigger the company the easier it is to receive this money - they have good books, ready access to accountant, strong banking relationships, staff accountants and book-keepers, fast internet and tons of time to apply.  Duh.  It's not their fault the feds did a shitty job with the structure of the program.

The expanded unemployment benefits is another thing to look out for.  For the next 4 months - now that the government has tacked on $600 to any state benefit - anyone making less than $50k a year, or $24 an hour - makes more on unemployment than working.  So if you were working at $10 or $15 an hour, you literally get a gigantic raise by not working.  Not saying it's good or bad, just saying that it's enticing to people who are working to seek unemployment they wouldn't otherwise seek when it is 50% of the typical employment earnings.

I think we are seeing the difference between the 2009 and 2020 responses.  Both with good frameworks of ideas to solve real problems quickly.  In 2009 you had an executive branch that respected the deep recesses of professionalism and advisors in the government, and in 2020 you have an executive branch that has hollowed out the depth of experience that could aid and craft more nuanced legislation.

Here's the dirty little secret.  The federal government doesn't have nearly enough money to bail out the private sector, and every dollar it wastes with misfires is a dollar that was needed someplace else.

Obama's Gun-Control Misfire - WSJ

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