April 29, 2020
(I have corrected the numbers in this post in response to a comment by Joe pointing out my mistake.)
Apparently the New York Times thinks we should give this person lots of money or at least that we should hear her argument that we should give her lots of money. Jackie Victor, the owner of a bakery that had employed 135 people is unhappy that the loan she got through the Paycheck Protection Program will only be forgiven for the portion spent on wages, rent, and other limited categories of expenses.
Ms. Victor complains that this money must be spent within 60 days, which apparently is finding difficult to do. The portion not spent on designated expenses over this period is a near zero interest loan that must be paid back over the next 18 months. Ms. Victor thinks this is too short a period of time she wants it to be ten years.
Let’s see how much money Ms. Victor gets under this program. If her workers’ compensation averaged $40,000 a year, then she would be eligible for a loan of $1,225,000 under the program. Let’s say that she is not able to maintain her full staff (she indicates that some do not want to come back to work because of health or family considerations, also demand has fallen sharply).
Suppose she only spends $1 million on salary and the other allowable expenses. This $1 million is then forgiven. It’s a grant. The other $225,000 is a loan on which she will pay 1.0 percent annual interest over the 18 month term of the loan. Let’s say, generously, that she otherwise could have borrowed money at a 4.0 percent interest. This means that we have effectively given her another $6,750 as an interest rate subsidy. That makes the total amount given to Ms. Victor to maintain her business is $1,006,750 or a bit less than 630 food stamp person years.
This may be a reasonable payment in order to keep 135 people employed through this crisis, but if Ms. Victor is not going to keep anywhere near this number of people employed, then perhaps we are paying too much. We have a clear public interest in keeping these bakery workers employed, we have no obvious interest in ensuring that Ms. Victor is able to maintain a profitable business.
The paycheck protection program is appropriately designed to keep workers employed through the crisis. If it doesn’t meet Ms. Victor’s needs for restructuring her business, it is hard to see that as a problem.