This article draws lessons from the business support policies pursued in the COVID-19 pandemic to guide policy design for the next disaster. We contrast the performance of the Paycheck Protection Program to the Main Street Lending Program to illustrate how design principles—targeting, repayment terms, and deployment through the banks versus government agencies—affect policy outcomes. We develop a framework for understanding why a novel business support policy could usefully complement traditional support programs. One surprising insight that emerges from this analysis is that many of the market failures used to justify support during the pandemic also arise in “garden-variety” recessions. Given our framework, the policy case for small business support during the recovery is considerably weaker than during the disaster, though credit policies that promote firm entry could aid the reallocation process.
This paper was prepared for the Economic Strategy Group at the Aspen Institute.