Is it appropriate to use PPP bailouts and stimulus checks to make the rich, richer?
On May 16th the Wall Street Journal reported that many corporations that received government bailout payments during the COVID-19 pandemic are in fact hoarding the cash or using it to strengthen their bottom line rather than using it to promote growth and generate employment opportunities.
Is this is an appropriate use of the money that was paid out with the intention of helping corporations weather the challenging times by creating jobs and to investing in future growth? Instead of using it for such purposes it seems that many corporations have used the cash to improve their results and profitability, to fund acquisitions and in some cases, to buy back stocks.
Research found that the combined companies within the S&P 500 were holding a record high figure of $2.7 Trillion in cash as at the end of 2020, with just 15 of these 500 corporations holding $1 Trillion - including Silicon Valley tech giants Apple, Google-parent Alphabet and Seattle-based Microsoft.
While not all of this cash will have been handed out by the Federal government, it suggests that many businesses are looking inwardly and are more concerned about using stimulus payments to protect profitability and boost shareholder returns rather than helping the wider economy to recover by spending it as was intended.
Corporate misuse of stimulus payments?
Consider the example of Vancouver, Canada based CRH Medical Corporation. In April 2020 they announced receipt of just under $3 million of government assistance under the Paycheck Protection Program, itself part of the CARES act. It seems that this money has since been used to pay for corporate acquisitions and to fund the buyback of $228,000 of its own shares. Both moves were no doubt effective in bolstering the strength of the company and in increasing returns for its shareholders -whether it can be defended as a means of protecting the paychecks of its workers is debatable.
Money given to corporations under the CARES act and the tax breaks introduced by the Trump administration were both intended to boost the wider economy and to allow all citizens to prosper as a result of the money flowing. Instead it seems that the majority of the money has remained in the hands of the businesses who are choosing to hold onto it or to keep it in their own financial ecosystem.
At the rate of $300 per week for unemployment insurance, would that $3 million given to CRH Medical have been better spent on an additional week of unemployment for 10,000 US Citizens? This might be a more useful course of action given that the recovery of the jobs market is taking a lot longer than was expected according to recent data from Pew Research?
Individual misuse of stimulus checks?
It's not just businesses that have made questionable use of their stimulus payments. While all private citizens were no doubt grateful for the stimulus checks received, some needed it more than others. The latest of the checks went out in March 2021, and it was immediately apparent that many who could afford to, had invested them in stocks, savings funds and even in cryptocurrencies like Bitcoin.
Some will argue that those who could afford to save or invest their stimulus checks didn't actually need the help and have actually just contributed to the enormous debt that future generations of Americans will be paying back for years to come. Others will believe that such investors were being smart - setting aside the money in case of a future need. It comes down to individual perspectives.
Nonetheless, at the time those stimulus checks were mailed it was reported that some $40 billion of stimulus funds were expected to be invested in Bitcoin - an asset that has seen radical drops in price in recent weeks.
Getting the money to where it's needed
Some will argue that when government bailouts are given, it's up to the recipient as to how and where they use it - the USA isn't a nanny state, after all.
There seems to be a question of morality about it all though. If large corporations such as Google and Apple can afford to hoard enormous sums of cash, and companies like CRH Medical Corporation can use stimulus funds to buy back stock, ultimately benefiting their boards and shareholders then it begs the question whether businesses should be playing a more active a role in stimulating economic recovery in a post-COVID world.
After all as this report points out, the $2.7 Trillion in cash held by the S&P 500 companies would be enough to give $8,103 to every man, woman and child in the U.S. Even a fraction of that cash would surely make a significant difference to the nation if redeployed instead of sitting in corporate treasuries?