It will be interesting — and frustrating — to learn in coming months and years how much of the $5 trillion the federal government threw at stopping a pandemic-fueled economic meltdown was fraudulently obtained.
It would not be shocking if the cheating came in at close to $1 trillion.
Last week, Rep. James Clyburn, chairman of a select committee of the U.S. House, rendered a highly critical evaluation of how the Small Business Administration administered a COVID-19 relief program that proved highly susceptible to fraud. It’s been estimated that as much as 20% of the $400 billion SBA doled out in the Economic Injury Disaster Loan program went to sham companies or those that should not have been eligible. A big part of the problem was that the SBA was under pressure to disburse the money quickly, with the idea that the government would worry later about clawing back excess payments and prosecuting those who received the money through fraud.
One such prosecution in Mississippi surfaced last week. Two Columbus businessmen, one of whom served on a pandemic advisory panel to Gov. Tate Reeves, were indicted on charges that they fraudulently obtained more than $2 million in coronavirus relief money for a company that was no longer in operation. Of the total, $1.8 million came through the disaster loan program, and another $500 million from the likewise fraudulently riddled Paycheck Protection Program.
Clyburn, being a good Democrat, blamed the Trump administration for its lax controls. Republicans have countered by accusing the Biden administration of turning a blind eye to the fraud committed in the enhanced unemployment insurance program, which not only doled out a lot of money but disincentivized people from returning to work.
The truth is, neither administration is clean on this. Both Donald Trump and Joe Biden, and those who worked for them, were more worried about keeping the economy from tanking than they were about fraud and waste. Congress was the same.
They understood, even if they did not acknowledge it publicly, that neither the SBA nor any other federal agency involved in disbursing the business and individual aid had the resources to verify the flood of applications they received in such a short period of time. Waste and fraud were a price of doing things in such haste, but that was a cost officials on both sides of the political aisle were prepared to accept while the nation was in crisis mode.
The cheating was a predictable consequence. What was not anticipated, though, is that the fraud would also contribute to inflationary pressure.
There are a lot of factors causing inflation to be at a 40-year high. One of them is the amount of additional government aid. As the economy reopened, people had more money to spend than they normally would have, thanks to the government’s generosity. Manufacturers and other providers of consumer goods couldn’t ratchet up their operations fast enough to meet demand, however, creating the imbalance that is a textbook formula for inflation.
Fraudulently obtained money spends the same as that which is legally obtained. So if 20% of federal relief was fraudulent, that means the inflationary pressure of these programs was also about 20% worse than it should have been.
As the adage goes, haste makes waste. It also makes, as the pandemic has amply demonstrated, for dishonesty that penalizes everyone.