Sen. J.D. Vance (R-OH) should be applauded for fighting for the low-income community  in his state that has been devastated by the toxic impact of the recent railroad disaster. But although East Palestine, Ohio, clearly needs help, a policy like the pandemic-era Paycheck Protection Program would be precisely the wrong response from Washington.  

My organization, the Center on Capital and Social Equity, conducted an  analysis  of COVID-19 stimulus spending. "Not only was the PPP riddled with fraud," we found, but "the free ‘loans’ to prevent businesses from closing and laying off staff were a ‘fire hose’ of untargeted, unaudited spending. Much of it went to businesses and non-profits that already had adequate financing and to high-income people."

With the senator's colleagues in the House expected to hold more hearings to investigate PPP fraud, direct aid to individual residents based on injury and need could help more and cost less.  East Palestine  residents are also gearing up for  court battles , including redress through the tort system.

Congress authorized COVID-19 relief and stimulus in a  series of bills  spanning both the Trump and Biden administrations. The three biggest sources of spending were $800 billion for PPP, $680 billion for enhanced unemployment benefits, and $800 billion in stimulus checks. Each of these  programs  was roughly comparable in size to the entire American Recovery and Reinvestment Act of 2009, enacted in response to the Great Recession. 

With the nation in a panic and a recession looming, Congress's main goal for the first PPP tranche was to get money out the door as fast as possible, said economists, who helped design and evaluate the program, during a recent Harvard Kennedy School of Government  panel discussion . A  study  by MIT labor economist David Autor, Federal Reserve staff, and others found that only 23-34% of PPP dollars went directly to workers who would have otherwise lost jobs. Most ended up as profit for business owners, shareholders, and their creditors and suppliers. Businesses and nonprofit organizations that had relationships with banks, which Congress used to distribute the cash, had greater access to limited funds. Many small firms that were at the greatest risk missed out.

About three-quarters of PPP funds accrued to the top quintile of households. “This compares unfavorably to the other two major pandemic aid programs, enhanced UI benefits and Economic Impact Payments (i.e. stimulus checks),” the study concluded. "PPP’s breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise.” Of the three major COVID-19 programs,  stimulus checks  were the most progressive — that is, weighted most toward those most in need. 

Distributing so many resources to well-off people and healthy businesses was not only inefficient and unfair. It also added to excess savings that, along with money injected by the Fed, created heightened demand that spurred inflation when supply chains were strained. Low-income workers may now be hurt again as the Fed raises interest rates to dampen the economy and  increase unemployment  in order to drive down inflation.

As the  White House  considers possible economic aid for East Palestine residents, the PPP model should be scrapped along with the wrecked Norfolk Southern railway cars. While it might be a boon for bankers administering the so-called loans, a PPP-style approach has proven prone to fraud and poor targeting and would miss altogether many people needing assistance.

Karl Polzer is the founder of the  Center on Capital and Social Equity .