What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Banks prioritized existing customers for PPP loans  

Geography and relationships were important for accessing Paycheck Protection Program (PPP) loans during the pandemic, finds David Glancy of the Federal Reserve Board. Half of the loans went to borrowers within two miles of a bank branch. Comparing the volume of PPP lending to previous small business and commercial and industrial loans, the author estimates that borrowers with pre-existing relationships with banks received funds five to nine days faster than non-relationship borrowers; in other words, banks prioritized existing clients at the expense of new customers. As a result, there may have been a delay in allocating PPP credit to firms with weak banking relationships, or firms that may have needed PPP aid the most.  

Portuguese soda tax reduced sales by roughly 7%  

What was the impact of a 2017 tax on sugar-sweetened beverages in Portugal? Judite Gonçalves and Roxanne Merenda of NOVA University Lisbon and João Pereira dos Santos of the University of Lisbon find that the tax, which ranged from 1 to 20 euro cents per liter, led to a 6.8% decline in sales of domestic sugar-sweetened beverages when compared to bottled water. The tax cut soda firms’ net income and otherwise weakened them financially. Despite these effects, there were no changes in soda firms’ workforce; a result, the authors speculate, of the significant obstacles Portuguese employers face in reducing wages and firing employees. Overall, the foregone corporate tax revenues due to the soda tax’s effect on producers and importers– roughly 200,000 euros over the 2017-2019 period – were negligible compared to the roughly 70 million euros of new revenue generated by the tax.  

Interstate improvements are valuable despite increasing input costs  

The per-mile costs of building and improving highways doubled between 1992 and 2008. Over the same period, Matthew Turner of Brown, Juan Pablo Uribe of Cornerstone Research, and Neil Mehrotra of the Minneapolis Federal Reserve find that the cost of capital declined significantly as interest rates fell and the number of vehicle miles travelled doubled. As a result, the authors estimate that the user cost per vehicle mile travelled fell by about half. The analysis challenges the popular view that building highways has become increasingly expensive, but the authors note that a different macroeconomic environment could produce a different result. The authors conclude that the U.S. interstate system is “the sort of public investment a country should seek out.”  

Chart of the week: US manufacturing activity has been slowing 

Line chart of purchasing managers index, a measure of US manufacturing activity from Feb 2018 to Feb 2023. The vertical axis ranges from 40 to 65. Note: A reading above 50 indicates an expansion; a reading below 50 indicates a contraction.

Source: Institute for Supply Management

Quote of the week:  

“[M]ost of our economic data come out with a delay—the jobs numbers, the inflation numbers, gross domestic product (GDP)—they all come out a week, a month, a quarter after they happen. Sometimes these data bounce around a lot or give contradictory signals. It can be hard to get a clear picture of what is going on. So, it’s important to supplement these traditional data with observations on the ground from the real economy. This is especially true when things are as strange and up in the air as they have been through much of the pandemic times,” says Austan Goolsbee, President of the Federal Reserve Bank of Chicago. 

“The temptation can be to look at what’s easy to find and lean more on that—stock market, bond market, and other financial data that give instant reactions to news about the economy and our policy announcements and tell us which way the markets want the Fed to move. But it is a danger and a mistake for policymakers to rely too heavily on market reactions.” 

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