Testimony of Joel Griffith, The Heritage Foundation — Senate Small Business Committee, March 17, 2021
- Issuer
- Congressional materials
- Document type
- Testimony of Joel Griffith, The Heritage Foundation — Senate Small Business Committee, March 17, 2021
- Date
- 2021-03-17
- Case
- Testimony of Joel Griffith, The Heritage Foundation — Senate Small Business Committee, March 17, 2021
Summary
Written testimony of Joel Griffith, Research Fellow in Financial Regulations at The Heritage Foundation, before the Committee on Small Business and Entrepreneurship, U.S. Senate, dated March 17, 2021. It reviews the economic effects of COVID-19 shutdowns, citing a 31.4% annualized contraction in the second quarter of 2020, 9.9 million fewer people employed, and federal spending of $6.551 trillion in fiscal 2020. It argues the Paycheck Protection Program has been inefficient, untargeted and ineffective, citing assessments putting its cost between $109,000 and $380,000 per job saved for jobs paying about $45,000. It states more than $800 billion has been approved through the program and that of the additional $284 billion provided in December only 36% had been obligated as of February 7. It also points to Department of Justice fraud cases and concludes reopening is the path to recovery.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
Testimony before the
Committee on Small Business and Entrepreneurship
U.S. Senate
March 17, 2021
Joel Griffith
Research Fellow in Financial Regulations
The Heritage Foundation
Thankyou Chairman Cardin, Ranking Member ignores the fact that small businesses by and
Paul, and other members of the committee for large do not report a drying up of credit. Re-
the opportunity to testify today. My name is opening the economy is the best relief for small
Joel Griffith. I am a Research Fellow in businesses, as evidenced by the divergent
Financial Regulations at The Heritage economic results from state to state.
Foundation. The views I express in this
testimony are my own and should not be The data certainly bear out the economic
construed as representing any official position decline stemmed from government-mandated
of The Heritage Foundation. closures and people responding to what they
heard from some public health officials.
This testimony will provide an overview of the
economic calamity stemming from the For the first time in our nation’s history,
COVID-19 shutdowns, the varied strength of governments intentionally suppressed the
the economic recovery from state to state, small supply of goods and services. Likewise,
business conditions, and the Paycheck restrictions on consumer activity artificially
Protection Program (PPP). This legislation suppressed demand. An historic plunge in the
provides for billions more of federal loans and production of goods, provision of services, and
grants despite the fact that billions of private investment resulted in the second
previously approved aid remains available. quarter of 2020.1
Some of these funds will flow to a program—
the State Small Business Credit Initiative— The robust recovery of the third quarter and the
with a history of problems. This federal aid much slower growth in the fourth quarter
crowds out private sector investment and closed more than two-thirds of the sharp
1
The nation’s economy in the second quarter of 2020 shrank at a qid=19&step=2&isuri=1&1921=survey (accessed February 24,
31.4% annualized rate. Personal consumption dropped at a 33.2% 2021). By the middle of 2020, the economy had contracted by 10.2%
annualized rate. Consumption of personal services dropped 41.8% from its peak. Federal Reserve Bank of St. Louis, Series GDP,
annualized. Table 1.1.1, Bureau of Economic https://fred.stlouisfed.org/series/GDP (accessed February 24, 2021).
Analysis,https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#re
economic contraction. But much damage initial assessments of PPP found that the
remains, with 9.9 million fewer individuals program cost between $109,000 and $380,000
employed 2 and hundreds of thousands of per job saved, job which paid on average
businesses closed forever, including more than $45,000 prior to the restrictions instituted by
100,000 restaurants.3 governors and mayors.6
It’s not for want of government spending that On the other hand, the economic resurgence in
the economy still has not fully recovered. The Q3 of 2020 even as PPP payments declined
federal government borrowed, printed, and underscores how reopening can repair
spent trillions of dollars in an effort to cushion economic damage.
the economic downturn. Total federal spending
of $6.551 trillion in fiscal year 2020 exceeded Unemployment rates and business conditions
the prior year by $2.1 trillion, 4 an enormous vary wildly across the nation dependent largely
increase of more than $24,000 per family of on the restrictions some governors and mayors
four.5 continue to impose on society. State and local
policymakers oversee decisions that affect
businesses’ abilities to operate, and they should
Rather, government-mandated closures and assume the potential costs of new and ongoing
public perception of the crisis continue to deter business, school, and other closures they
investment and suppress economic activity. impose. States with the most restrictive
The skyrocketing federal debt and rapidly economic policies are those that are suffering
expanding central bank balance sheet creates the largest business and employment losses.
the additional risk of a monetary crisis.
Federal taxpayers should not continue to
The Paycheck Protection Program (PPP) subsidize state and local decisions to shutter
has been Inefficient, Untargeted, and businesses and ruin livelihoods. Renewing the
Ineffective. In the weeks immediately PPP program moves the costs of overly
following the onset of the pandemic, some restrictive shutdowns to federal taxpayers and
federal government aid to businesses and allows governors additional latitude to keep
employees potentially impacted by shutdown society shuttered with one-size-fits-all policies.
orders and precautionary measures was Targeted, temporary, and local economic
justifiable. restrictions may be necessary, but those
decisions, and the costs that they incur, should
The small-business loan program has been be weighed by the responsible policymakers.7
ineffective at boosting employment. Three PPP incentivizes state and local policymakers
2
Federal Reserve Bank of St. Louis, Series PAYEMS, National Bureau of Economic Research Working Paper No. 27431,
https://fred.stlouisfed.org/series/PAYEMS (accessed February 24, November 2020,
2021). https://www.nber.org/system/files/working_papers/w27431/w27431.p
3
“Restaurant Industry in Free Fall; 10,000 Close in Three Months,” df (accessed December 3, 2020); João Granja et al., “Did the
National Restaurant Association, December 7, 2020, Paycheck Protection Program Hit the Target?” Becker Friedman
https://restaurant.org/news/pressroom/press-releases/restaurant- Institute for Economics at UChicago, November 2020,
industry-in-free-fall-10000-close-in (accessed February 24, 2021). https://bfi.uchicago.edu/wp-
4
Congressional Budget Office, “Historical Budget Data,” February content/uploads/BFI_WP_202052_Revised.pdf (accessed December
11, 2021, https://www.cbo.gov/system/files/2021-02/51134-2021-02- 3, 2020); David Autor et al., “An Evaluation of the Paycheck
11-historicalbudgetdata.xlsx (accessed February 24, 2021). Protection Program Using Administrative Payroll Microdata,” MIT
5
State and local governments increased spending by 15.4% from Working Paper, July 2020, https://economics.mit.edu/files/20094
2015-2020 and in the depths of the recession in Q2 of 2020 actually (accessed December 3, 2020).
spent 1.2% more than the prior year. Federal Reserve Bank of St. 7
Ditch et al., “Bipartisan Senate COVID-19 Package Should do More
Louis, Series SLEXPND, https://fred.stlouisfed.org/series/SLEXPND to combat COVID-19, Remove Wasteful Spending,” The Heritage
(accessed February 23, 2021). Foundation, December 14, 2020, https://www.heritage.org/budget-
6
Raj Chetty et al., “The Economic Impacts of COVID-19: Evidence and-spending/report/bipartisan-senate-covid-19-package-should-do-
From a New Public Database Built Using Private Sector Data,” more-combat-covid-19-remove (accessed March 15, 2021).
2
to continue destructive shutdowns and allows investigations include a Brooklyn individual
them to shirk responsibility. accused of obtaining a $1.9 million PPP loan
by claiming to employ 50 people—and then
PPP Continues to Flow in Other Troubling using the proceeds to purchase multiple luxury
Ways. PPP was intended to assist businesses vehicles. 12 The Department of Justice is
impacted by the pandemic. Often, it benefits investigating an alleged fraud ring in San
well-funded and well-connected non-profits. Fernando Valley of using $18 million in PPP
proceeds to purchase “gold coins, diamonds,
For instance, PPP funneled federal aid to jewelry, luxury watches, fine imported
Oprah-connected charities. 8 More than $80 furnishings, designer handbags and clothing,
million in PPP funds flowed to dozens of cryptocurrency, and securities.” 13 Six
Planned Parenthood affiliates in 2020.9 In New individuals in Georgia and South Carolina are
York City, millions in government loans— charged with working together to fraudulently
some of which may be forgivable-- flowed to obtaining $1.5 million in PPP loans.14
entities such as the Philharmonic-Symphony of
New York, The Vivian Beaumont Theatre, and Congressionally Approved PPP Remains
School of American Ballet.10 Unused. Congress has already approved more
than $1 trillion in aid intended for smaller
Left unsaid is the fact that quarterly charitable businesses, including more than $800 billion
giving actually rose by 2% in 2020 compared through the Paycheck Protection Program
with the year prior. 11 Private individuals and (PPP).
businesses are generously contributing to the
no-profits aligned with their objectives and Much of this aid is still available. Of the
personal beliefs. Some on are attempting to additional $284 billion provided for PPP in the
waive affiliate limitations for PPP for non- December stimulus package to be disbursed
profits. This really is an attempt to use the crisis through March, only 36% had been obligated
as a mechanism for transferring hundreds of as of February 7. 15 Likewise, the December
millions of dollars to politically favored package provided $12 billion to Community
entities. Development Financial Institutions (CDFIs)
and Minority Depository Institutions (MDIs) to
Extensive PPP Fraud Continues to Stretch lend.
Law Enforcement. A few noteworthy
8
Adam Andrzejewski, “Oprah Connected Charities Took Almost 2020 https://www.justice.gov/usao-edny/pr/brooklyn-man-arrested-
300k in Federal Paycheck Protection Program,” Forbes, March 12, 19-million-paycheck-protection-program-fraud (accessed March 15,
2021, 2021).
13
https://www.forbes.com/sites/adamandrzejewski/2021/03/12/oprah- 3 Additional Members of Alleged Fraud Ring Based in San
connected-charities-took-almost-300k-in-federal-paycheck- Fernando Valley Arrested on Charges of Exploiting COVID-Relief
protection-program-ppp-funding/amp/ (accessed March 15, 2021). Programs, United States Department of Justice, March 12, 2021,
9
Planned Parenthood, “Annual Report 2019–2020,” https://www.justice.gov/usao-cdca/pr/3-additional-members-alleged-
https://www.plannedparenthood.org/uploads/filer_public/67/30/6730 fraud-ring-based-san-fernando-valley-arrested-charges (accessed
5ea1-8da2-4cee-9191-19228c1d6f70/210219-annual-report-2019- March 15, 2021).
14
2020-web-final.pdf (accessed February 19, 2021). Six Charged in Connection with a $3 Million Paycheck Protection
10
Open the Books, SBA Paycheck Protection Program Loans Over Program Fraud Scheme, United States Department of Justice, January
$1M, 28, 2021, https://www.justice.gov/opa/pr/six-charged-connection-3-
https://www.openthebooks.com/maps/?Map=90022&MapType=Pin million-paycheck-protection-program-fraud-scheme (accessed March
(accessed March 15, 2021). 15, 2021).
11
https://institute.blackbaud.com/the-blackbaud-institute- 15
U.S. Small Business Administration, “Paycheck Protection
index/#:~:text=5.3%25- Program (PPP) Report: Approvals through 2/15/2021,”
,In%202020%2C%20overall%20charitable%20giving%20in%20the https://www.sba.gov/sites/default/files/2021-
%20United%20States%20increased,Charitable%20Giving%20Report 02/PPP_Report_Public_210215-508.pdf (accessed February 24,
%20for%20more. 2021).
12
Brooklyn Man Arrested for $1.9 Million Paycheck Protection
Program Fraud, United States Department of Justice, December 21,
3
The American Rescue Plan Act provided $15 More Federal Government Lending to
billion more for the Targeted Economic Injury Businesses Crowds out the Private Sector.
Disaster Loan Program even though as of Our credit markets serve an important function
February 12, none of the $20 billion of efficiently allocating resources across the
appropriated for Economic Injury Disaster economy. Usually, businesses and projects
Loans had been obligated. 16 The Act also must compete with each other to obtain limited
included another $7.25 billion for PPP. amounts of capital in order to secure the
resources needed to function. Interest rates or
Small Businesses are Being Serviced by the return on equity serve as important price
Credit Markets. It’s a misnomer that credit signals---and also determine which businesses
markets are not providing funds to small ultimately will obtain the capital. The flow of
businesses. Most small businesses are saying capital from the federal government to private
they are generally not looking for more credit.17 businesses alters this equation. By delivering
Only three percent of respondents in a recent capital at sub-market interest rates or
National Federation of Independent Business sometimes in the form of outright grants,
(NFIB) survey reported their borrowing needs businesses which otherwise may not secure
were not satisfied. The survey also reported the funding in a competitive environment from an
following; “Twenty-six percent reported all investor find it possible to obtain capital—and
credit needs met (up 1 point) and 60 percent to continue consuming limited resources.
said they were not interested in a loan (up 2
points). A net 3 percent reported their last loan The Small Business Administration (SBA)
was harder to get than in previous attempts (up loan guarantees now secure more than 50% of
1 point).”18 Small business credit conditions in all outstanding loan balances as of Q3 2020—
December—based on the percentage of up from less than 10% at the beginning of
businesses reporting “easier” lending 2020.22
conditions vs. “harder” lending conditions—
were identical to conditions one year prior, Reopening the Economy is Saving Small
months before any COVID-19 impact began.19 Businesses. Full economic recovery does not
stem from stimulus checks or bailouts from
This stands in stark contrast to the Great Washington. Rather, it’s largely a result of
Recession more than a decade ago where credit individuals and businesses safely and legally
conditions according to the same index interacting with others. The historic economic
plunged, taking years to recover to their pre- rebound this summer proves that those properly
recession levels.20 In fact, obtaining financing informed of the actual risks of the virus and the
is the reported top concern of just 1 percent of appropriate mitigation measures are
small business owners. 21 In past economic enthusiastically participating in this reopening.
crises, 37 percent have reported financing and
interest rates as a top concern. Nationally, economic growth in last year’s
third quarter smashed all prior records —
growing at a stunning 33.4% annual
16
U.S. Small Business Administration, “COVID-19 EIDL Loans 19
Ibid.
Report 2021,” February 16, 2021, 20
Ibid.
21
https://www.sba.gov/document/report-covid-19-eidl-loans-report- Ibid.
2021 (accessed February 24, 2021). 22
Federal Reserve Bank of Kansas City, “kcFed Small Business
17
William C. Dunkelberg and Holly Wade, NFIB Small Business Lending Survey,” Chart 2, December 21, 2020,
Economic Trends, NFIB Research Center, December 2020, https://www.kansascityfed.org/~/media/files/publicat/research/indicat
https://assets.nfib.com/nfibcom/SBET-Dec-2020.pdf (accessed orsdata/smallbusiness/2020/small%20business%20lending%20survey
February 23, 2021). %20template%203rd%20quarter%20-%2012212020v2.pdf?la=en
18
Ibid. (accessed February 24, 2021).
4
pace. 23 Record growth occurred even as thousands of businesses out of business,
government transfer payments and Paycheck resulting in 8.4% unemployment.26
Protection Program expenditures dropped by
20% in the quarter.24 Meanwhile, unemployment in numerous
communities in Alabama, Idaho, Iowa,
The pace of the recovery varies widely across Nebraska, South Dakota, and Utah is at 3% or
the nation due to lockdown restrictions— less. The statewide unemployment rate of
ostensibly implemented to contain the spread under 4% in Alabama, Iowa, Kansas,
of the virus. Nebraska, South Dakota, Utah, and Vermont
contrasts sharply with rates at least twice as
The Federal Reserve State Coincident high in California, Colorado, Connecticut,
Indexes—an approximation of state GDP— Hawaii, Illinois, Nevada, New York, and
vividly illustrates how variant the economic Rhode Island.27 Overall, in December, the 10
recovery is based on states. 25 This index states with the fewest restrictions in place 28
suggests economic output at the end of 2020 averaged 4.7 percent unemployment—while
was actually greater than pre-pandemic in the 10 states with the most restrictions
Utah, Missouri, Idaho, Nebraska, Alaska, averaged 7.1 percent unemployment.29
South Dakota, Mississippi, and Georgia—
notably states without crushing, long- Conclusion:
lasting shutdowns. The economies in Hawaii,
Michigan, Rhode Island, Massachusetts all Businesses across parts of the nation face
remain more than 10% smaller. Meanwhile, economic hardship as a result of the myriad of
states like New York, Hawaii, and Illinois COVID-19 restrictions enacted by state and
remain mired in severe recessions. Only this local governments. Resolution requires
month did Gov. Andrew Cuomo (D-NY) and governors and mayors to permit people once
Chicago Mayor Lori Lightfoot (D-IL) admit again to freely create, work, shop, and engage.
that their shutdowns of the service sectors may
need to be relaxed. The economic misery persistent across portions
of the nation should not be used an excuse to
In El Centro, California, 17.7% are further expand government control over the
unemployed, Los Angeles suffers from 9.9% financial system and credit allocation.
unemployment. Across New York City,
draconian restrictions and an army of Any additional federal relief measures should
compliance officers continue to push tens of provide legal protections for businesses to
reopen and tailor aid to meet the health crisis.30
23 27
U.S. Bureau of Economic Analysis, National Economic Accounts, U.S. Bureau of Labor Statistics, Unemployment Rates for
Table 1, January 28, 2021, Metropolitan Areas, preliminary for December 2020,
https://www.bea.gov/sites/default/files/2021-01/gdp4q20_adv.xlsx https://www.bls.gov/web/metro/laummtrk.htm (accessed February 23,
(accessed February 16, 2021). 2021).
24
U.S. Bureau of Economic Analysis, Effects of Selected Federal 28
Adam McCann, “States with the Fewest Coronavirus Restrictions,”
Pandemic Response Programs on Personal Income, WalletHub, January 26, 2021, https://wallethub.com/edu/states-
https://www.bea.gov/sites/default/files/2020-10/effects-of-selected- coronavirus-restrictions/73818 (accessed February 4, 2021).
29
federal-pandemic-response-programs-on-personal-income-2020q3- U.S. Department of Labor, Bureau of Labor Statistics, Local Area
adv.xlsx (accessed February 16, 2021). Unemployment Statistics Data Series, December 2020,
25
Federal Reserve Bank of Philadelphia, State Coincident Indexes, https://www.bls.gov/web/laus/laumstrk.htm (accessed February 4,
https://www.philadelphiafed.org/-/media/frbp/assets/surveys-and- 2021).
data/coincident/coincident-revised.xls (accessed February 16, 2021). 30
The Heritage Foundation’s Coronavirus Commission articulates
26
U.S. Bureau of Labor Statistics, Unemployment Rates for specific measures Congress can take, including the following:
Metropolitan Areas, preliminary for December 2020, partnering with key strategic allies in Western Europe and the Indo-
https://www.bls.gov/web/metro/laummtrk.htm (accessed February 23, Pacific, removing barriers to free trade while simultaneously
2021). protecting intellectual property rights, and transitioning the temporary
waivers and emergency exceptions in numerous sectors into
5
A full recovery requires a reopening rather than
more fiat currency, borrowing, and government
spending programs. Only then will we see both
investment and consumption return in full
force. Businesses don’t need government
largesse. And workers do not need more
government mandates. What our nation needs
is a continued reopening.
permanent regulatory reformSee Saving Lives and Livelihoods; http://thf_media.s3.amazonaws.com/2020/NCRC_FINAL.pdf
Recommendations for Recovery, National Coronavirus Recovery (accessed March 9, 2021).
Commission, a project of The Heritage Foundation, June 10, 2020,
6
** * * * * * * * * * * * * * * * * * *
The Heritage Foundation is a public policy, research, and educational organization recognized as
exempt under section 501(c)(3) of the Internal Revenue Code. It is privately supported and receives
no funds from any government at any level, nor does it perform any government or other contract
work.
The Heritage Foundation is the most broadly supported think tank in the United States. During 2017,
it had hundreds of thousands of individual, foundation, and corporate supporters representing every
state in the U.S. Its 2017 income came from the following sources:
Individuals 71%
Foundations 9%
Corporations 4%
Program revenue and other income 16%
The top five corporate givers provided The Heritage Foundation with 3.0 percent of its 2017 income.
The Heritage Foundation’s books are audited annually by the national accounting firm of RSM US,
LLP.
Members of The Heritage Foundation staff testify as individuals discussing their own independent
research. The views expressed are their own and do not reflect an institutional position of The Heritage
Foundation or its board of trustees.
7
File and source
- File
- Griffith_Testimony.pdf
- Size
- 315,948 bytes
- SHA-256
- ba6fa9e8228cc9071677efaf7c912b72b1ad239b67436256c6b38864483689ee
- Our copy
- Griffith_Testimony.pdf
- Original
- No public link identified.