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Opinion: Billions were stolen from the Paycheck Protection Program. It was a huge success anyway.

cigaretteman

HR King
May 29, 2001
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By Megan McArdle
Columnist
Yesterday at 5:42 p.m. EDT


Let me start by acknowledging that defrauding the government is very wrong.
Normally this goes without saying. Obviously fraud is wrong. It diverts hard-earned tax dollars into the pockets of undeserving people, and it forces us to spend even more preventing these thefts. It ties up law enforcement resources and decreases trust in government.
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As a U.S. taxpayer, I take all of that personally.
But while ordinarily we can all take for granted our unstated agreement that fraud equals bad, I need to make the implicit explicit because I am about to assert that Congress was right to push pandemic funds out the door to businesses in 2020 without massively fraud-proofing the Paycheck Protection Program.
Congress was right even though NBC has reported that we might have lost up to 10 percent of $800 billion in allocated funds to fraudsters in just this one program, with further losses in others. Right even though much of that money is unrecoverable, having been blown on frivolities such as ludicrous cars and luxury travel. Right even though many readers are surely mentally screaming: “Let billions walk out the door without trying to stop it? Are you insane?”
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Actually, the truly insane thing would have been to lard up PPP with a lot of anti-fraud checks during an unprecedented crisis. Doing so would have slowed disbursement, resulting in more business failures, more human suffering and more of everything else we were desperately trying to prevent by pumping all that money into businesses.
Recall the spring of 2020, when PPP was passed: Social distancing was eliminating demand for whole categories of goods and services, from work clothes to hotel stays. It was also dramatically raising the costs of keeping other kinds of facilities open.
We could, of course, have just let the businesses fail and supported the displaced workers with unemployment benefits. But when we were ready to reopen, we would have been short millions of jobs.
So we decided — correctly, in my opinion — to establish a forgivable loan program that could keep affected businesses on life support until conditions became more normal. And we decided, also correctly, not to require the mountains of paperwork that might have made fraud close to impossible.
Requiring more documentation would have made it easier to separate the bona fide wheat from the fraudulent chaff. But it also would have considerably slowed the whole process. The more documentation you demand, the longer it takes for businesses to assemble it — and the easier it is for one file to get lost or misplaced after submission. The worst afflicted would be the smaller businesses that we most wanted to help.
Remember, too, that banks were struggling with social distancing just like every other business. My husband and I decided to refinance our mortgage right before the pandemic closures began. We finally closed on our loan the following October, not because we were slow on the paperwork, but because our bank was having trouble managing soaring pandemic demand with a socially distanced workforce. Those sorts of issues would have multiplied any paperwork-induced lags with the PPP.
And the country could not afford any lags. Once those businesses closed, the effects would begin to cascade through the system, deepening an already horrific loss of gross domestic product. It wouldn’t do any good to get business owners money after they had laid off the staff and filed for bankruptcy; they needed it in their hands as soon as possible, so that it could go back out again in the form of paychecks.
There is always some trade-off between efficiency and fraud, which is why the optimal amount of fraud is never zero: The draconian efforts needed to stamp out every single abuse costs vastly more than the fraud you’re preventing. The more important speed is, the more risk of fraud you have to tolerate.
That’s not to say that we should just throw up our hands at $80 billion in losses. In March 2020, speed was paramount, so we were forced to create a system that was relatively easy to abuse. Now, however, we have the leisure to track down the fraudsters, as the government seems to be doing. This is effort well spent, for the sake of justice, and to set an example for others. We should try to catch every last person who robbed Uncle Sam and see that they are punished.
But what we should not do is let the risk of fraud make us afraid to take bold action in the face of an unprecedented emergency. There are worse things than someone defrauding the government. And one of them is an economy in collapse.

 
Acceptance of any level of fraud is unacceptable to me. But almost half the country accepted a fraud as a president in 2016, so comparatively speaking, this might be a small thing.
 
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