Harvard University, one of the most prestigious universities the world has ever known, dared to apply for a loan through the CARES Act and received funds. Harvard, like so many universities, has a substantial endowment above $40 billion. When news of Harvard’s receipt of funds from the CARES Act became news yesterday, it caused me to think about why it should be the public policy of the US to keep a small business afloat during this pandemic. It is because the real drivers of economic activity in the US are small businesses. The driver of the US economy is small business.
It is only because of the individual scale of a large corporation that makes it influential. Combined, small businesses generate more substantial revenues and employ more people.
Shake Shack was right to return its borrowed funds to the Small Business Administration. They have access to capital that many small businesses do not. This was precisely the reason why they returned the funds – access to other sources of capital. Harvard was also right to return its borrowed funds, but I wonder why it even qualified. Harvard is not a business. It is a tax-exempt educational institution. While it has 16,000 staff members and other non-staff employees, I think it is safe to assume it has access to capital equal to, if not greater, than Shake Shack.
The funds Congress authorized in the CARES Act and the second round of funding for the paycheck payroll protection program are intended for businesses to weather this massive storm. The funds are not designed as easy access to capital to shore up a balance sheet. Congress did not have this intention, and the US Taxpayer, saddled with annual budget deficits of $1T and a public debt of over $23T, did not intend for large businesses and prestigious private universities with access to capital to receive these funds. Instead, the funds were designed for the local restaurant or retailer that is trying to weather this storm that, through no fault of their own, are watching their businesses collapse due to the pandemic and governments call for social distancing and shelter in place.
I am very concerned about our federal government always running annual budget deficits and the massive public debt. Despite this constant concern, I feel more strongly that it is the job of our limited federal government to use its unique economic strength and support the economy. If the government is going to increase our budget deficit and public debt, it is worthy of doing so for small businesses, the actual driver of the US economy.