In 2002, the STAR program (Supplemental Terrorist Activity Relief) authorized the Small Business Administration to guarantee loans to businesses that were "adversely affected" by the attacks of 9/11. At first the loans were not taken up because most businesses didn’t think they were adversely affected but in true bureaucratic fashion the SBA wanted a bigger program so they announced:
…the SBA believes that a very large percentage of small business borrowers located in areas throughout the country may be eligible for the STAR program. In guaranteeing a STAR loan, the SBA will rely on the lender’s determination that a small business was adversely affected by the terrorist actions. When performing compliance or loan purchase reviews, the SBA will be looking only to verify that the lender documented its evaluation of the small business’ eligibility for the STAR program. The SBA has not established any requirements regarding the severity or duration of the adverse impact that the small business suffered. (italics added).
Are you surprised that Office of Inspector General could not find any terrorism connection to the vast majority of the loans? More than 3 billion dollars were guaranteed including millions for Subways. Protecting public transport, right? No, protecting America’s sandwich demand. There was also $22 million for Dunkin Donut franchines in nine different states, and guarantees for a Salt Lake City "dog boutique," a South Dakota radio station, a Virgin
Islands perfume shop and much else besides.
I can see how Subway might be negatively affected. More cops are on duty on overtime (in this hypothesis, I have no idea about fact!), cops on duty feel compelled to eat at donut shops due to peer pressure. These extra calories during OT are a substitute at the margin for meals that might otherwise have been eaten at Subway during off duty hours in civilian clothes. Therefore Subway has arguably been negatively affected by terrorism.
Another hypothesis is that stupid people (or stupid terrorists misinterpreting directions from their superiors) might think that when they hear on the news that subways might be targeted and are more dangerous now, they might start avoiding Subway at the margin.
I’m not sure what lesson we are supposed to learn from this anecdote.
Is it that government bureaucrats want to see their domains get larger? Is this universally bad?
Is it that the audit functions of the government aren’t working properly? If they aren’t why not?
Who asked for the program in the first place? Why? Did the administration support it or oppose it? Why?
If the implication is that government can’t be trusted and is open to corruption or self-dealing this only confirms the idea that humans are imperfect. There is nothing so commendable of about the performance of private firms over the past several decades.
Are we to believe that making a profit automatically makes the principles in the firm act more ethically?
All human organizations are subject to the same potential defects, to try and pin the problems on only a single sector is more ideology than evidence.
Love this post, Alex!
Why this 1950′s era bureaucracy continues to soak up taxpayers’ dollars is beyond me. This incident clearly indicates that old government programs never die or even fade away, they just go on forever.
Robertdfeinman: “whatever competition they engage in is mostly trying to snatch customers away from the other firms by means of marketing and promotion, not offering real product differences.”
What do you mean by this? that Toyota’s hybrid engines were not an innovation for the U.S.? that 60 inch flat screen televisions are just about the same as 27 inch tube sets? that oversized titanium golf clubs perform no better than the tiny persimmon wood clubs of 20 years ago? that GPS features on phones and automobiles are trivial? that Boeings 787 differs so little from previous aircraft that they cannot sell the plane?
I don’t understand your claim that the U.S. auto industry is not competitive. In the first place, there are 8 viable competitors, not 6. Hyundai and Kia are growing at double-digit rates and represent a significant part of the market. The hold of the Big Three automakers has continued to drop. The variety of vehicles being sold today – from Hummers to to Prius’s to mini-Coopers – is greater than ever in my lifetime of 56 years.
What measure do you use to determine an industry is not competitive?
Oh, and let’s not forget the deadweight costs of the taxes used the fund Medicare. That should get included in any comparison.
It’s a typical example of government finding a vacuum to fill when one does not present itself directly.
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