Interview with Paul Sullivan of The New York Times

The Economic Impact of COVID-19 on the U.S. Economy

COVID-19 has created havoc within our society from a healthcare point of view, where today we have over half a million Americans with the virus and over twenty-five thousand fatalities. As we are entrenched now for the long-haul, we thought it would be very interesting to hear from someone that has been monitoring the economic fallout from COVID-19 and how it has been impacting companies of all sizes. Our Guest this week is Paul Sullivan of The New York Times. Paul is the Wealth Matters columnist.


Jeffrey Freedman: Hello and welcome to the RP Healthcast by Rooney Partners. I’m your host, Jeffrey Freedman. The RP Healthcast is a weekly podcast series about the latest news and innovations in medicine and healthcare.

To learn about these stories we hand over the microphone to those who are building and writing about the future. We either speak with leaders of companies behind the latest breakthroughs in medicine and technology, or with journalists to discuss their stories on important issues surrounding the healthcare ecosystem. Everyone and every product has a story to tell. The goal of our podcast is to help tell that story, and to tell our listeners why that story matters at the time of this recording we find ourselves still under attack and held captive by the effects of the coronavirus. This pandemic is created havoc in our society and from a healthcare point of view. Today, we have over half a million Americans with the virus and over 25,000 fatalities, almost half of which are here in New York and it’s certainly a scary time here.

As social distancing is being used to help combat the virus, we’ve been temporarily forced to shut down a large percentage of our economy and there’s no escaping the economic impact this is having on our country. From large scale corporations and retailers to our mom-and-pop neighborhood stores and restaurants. Unemployment is reaching record-breaking levels and employees and business owners are trying to figure out how to pay their bills for the next few months of the shutdown. Society’s fear of the economic impact of this pandemic is rivaling the fear of the disease itself.

As we are now entrenched for the long haul, we thought it would be very interesting to hear from someone that’s been monitoring the economic fallout from COVID-19 and how it’s been impacting companies of all sizes. So, our guest this week is Paul Sullivan of the New York Times. Paul is the wealth matters columnist. He’s also the author of The Thin Green Line, The Money Secrets of the Super Wealthy and Clutch: Why Some People Excel Under Pressure and Others Don’t. Paul also writes for Golf Magazine and previously wrote for the financial times for the Conde Nast Portfolio, Fortune, Money, Barons and Bloomberg. We’re very grateful to have Paul with us here.

Jeffrey: Paul thank you for joining us today.

Paul Sullivan: Thanks for having me.

Jeffrey: Before we start to discuss some of your recent reporting, let’s provide some context for our listeners out there. The importance of small companies to the US economies these times are not really appreciated. And, can you talk about some of the key data points that illustrate the scope of the impact these small businesses have on the US economy?

Paul: Sure. The majority of businesses in the United States are small businesses. 99% of them, as defined by the criteria from the Small Business Association, which is any business with under 500 employees, and that’s something like 30 million businesses and they you know, constitute a 45% share of our country’s GDP. You know another is, 500 to most people is kind of big, about half of all people in US works for small business, but their data out from JP Morgan that says, 88% of companies have less than 20 employees. So 88% of the company in America have less than than 20 employees, and those of course are some of the businesses probably most impacted by what’s been going on economically the past couple of months.

Jeffrey: Yeah. I mean that’s scope is completely under appreciated when we hear about this big box world that we live in. Over the last several weeks, your articles in the New York Times and The Wealth Matter Section. You focused on the impact the economic shutdown has had on business and you’ve written about companies of all sizes and companies that have been in families, for generations in fact. The title from one of the articles that you just wrote is ‘For Small Business Owners, Hard Decisions Become Personal’, and what do you mean by that? What do you mean by personal?

Paul: I mean that, so often, the owner of that business really knows the people that work for him or her, and in some of the businesses that I highlighted there is this furniture company outside of Chicago, it was in the fourth generation of owners, but they had three generations of people working for that. There’s a story that one of the owners told me, the grandma celebrated 50 years of working for the company, her son worked for the company and her grandson work for the company. So, their employees obviously, there’s that employer-employee relationship, but because they’re smaller businesses, everyone’s working together, you really know your employees a lot more intimately and it’s just so different than if you’re a company with 10, 20, 30, 40 thousand employees, sure, on some level people are known but not in the same level that they’re known at a small business.

Jeffrey: Yeah, no, that’s that’s true. Do you find this as a common thread? People are people but are there common threads between these businesses that you interviewed?

Paul: I mean, the threads in terms of how they look at their employees or the threads on how they’re dealing with this current economic moment?

Jeffrey: A little bit of both. I mean, there is tons of empathy I’m sure, but they all have to be in the same boat right now.

Paul: They’re all in the same boat and I agree there is a lot of empathy but what are they trying to do? They don’t talk about layoffs, they talk about furloughs and somebody who gets furloughs that doesn’t come back is of course laid-off, it’s a kind of gentler term, but there is this hope, there is this expectation that whenever we emerge on the other side of this pandemic, a lot of these family owned small businesses want to bring these people back and so they’ve really agonized a lot over the immediate choices that they have to make often, letting people go, of course we’re also cutting back on innovation, cutting back on spending and cutting back on non-essential parts of their business, but the wisest ones are the ones who survives all kinds of ups and downs including one company I talk to for this week’s column that survived the Spanish Flu in 1918. They are trying to think, “Okay, how do I stay a bit in business now? When this is over how am I still a business? How have I still made sure that we know what made this a business still exists in a month, three months, a year, whatever it is.”. And that’s why these decisions are so agonizing because some of these people are highly skilled, if you let them go they’re going to feed their families. They may find a different job either, they have to do that. So you got to be careful as to which people you let go now to keep the business alive because you’re going to need to get a lot of them back hopefully when things get better.

Jeffrey: I assume the name is different between being furloughed and being laid-off right? As an employee, it would kind of feel the same. But what’s the difference, what’s the official definition or meaning there?

Paul: I mean, employees are furloughed. You know, it means they theoretically still have a job spot at that company. This used to happen thirty years ago in the Auto Industry. The workers would be furloughed for X number of weeks and there’s the expectation that orders with pick up for XYZ car and they would be brought back and be back on the assembly line, the issue here is we don’t know. We don’t know how we’re going to emerge in X number of months and we don’t know what the demand is going to be and we don’t know what businesses are still going to be viable concern. So, a furlough give somebody hope, but you’re absolutely right, it feels very much the same as being laid-off right now.

Jeffrey: Yeah, and you talked about companies saying we have to make sure that we’re actually an ongoing sustainable business after this. So, in the same article you wrote about Russo’s, which was a hundred year old fruit and vegetable company. They’re a hundred years old, but now they’re trying to adapt and innovate, right? To avoid laying off and losing what they have. So from a Darwinian point of view, I guess adaptation or survival of the fittest, what types of companies do you think have the best chance of survival or what do companies have to do in order to assure themselves of that next stage, post Corona.

Paul: I mean not to be good, but the companies that have the best chance of survival are going to be the ones that have benevolent landlords and very understanding lenders, because people have to cut back. I mean revenue, in the case of Rousseau’s, that business lost half of its revenue in about three days, and that’s because the state of Massachusetts closed the public schools, all the universities and colleges sent home their students and all the restaurants closed. That was half of their business. The other half is the retail side, but you still have half of your workforce that doesn’t have anything to do. Other examples, I’ve talked to some smaller firms, tech firms. Let’s say they were paying ten thousand dollars a month in rent. They need to make sure they have a cash runway of at least a year, and that’s difficult. So, what are they going to do? Hopefully they’re going to go to their landlord and say, “Look, can we work this out? Can we cut the rent in half? Can you make it five thousand dollars a month and then I’ll make it up to you on the back end, and it’s in the landlord’s best interest to negotiate as well because right now nobody’s going to come in and take their space. You don’t have tenants knocking at the door to say I want to lock myself into a five-year lease at X amount of dollars a square foot. And so it’s really that back and forth and one last point, when I mentioned the lenders, what I found is that and sure we’ll touch on this later, but some of the government programs like the PPP loan, if you don’t know your banker well, if you don’t have that existing relationship with a bank, whether it’s a gigantic bank or a small community bank and have already borrowed from them and they know that you’re good to pay that money back, you do your best to pay that money back, those people who have those relationships are going to pair a lot better than those people who don’t, because this is not a time to suddenly get to know your banker when every other customer he has is also reaching out.

Jeffrey: Yeah absolutely and what you’re talking about before is more for the private sector, meaning negotiate with your landlord, negotiate with different things and that’s going to have a complete trickle-down effect throughout the economy because that landlord also has vendors and people they have to pay for. But if we talk about the public sector, and you started to get into that with the PPP, what other types of federal programs, and we hear a lot about the Paycheck Protection Program, the PPP, but as you’re saying, getting to know your banker, I know a lot of business owners that are having a really tough time applying for these programs and putting in claims. So, what’s going out, why is it so hard and are our banks playing favorites?

Paul: Well, why it’s so hard is because in a traditional year, in any other year, small business loans are about 30 billion dollars, 30 billion dollars for an entire year. What the government was asking is for banks to help them lend out 350 billion dollars in three months. So that’s sort of a 40-fold increase in volume and velocity of lending. What happened was a lot of the big banks and a lot of the community banks weren’t already approved to be small by the SBA, to be Small Business Lenders, not hard to do. It’s time consuming, certain criteria you need to meet but now is not the time to try to meet all those criteria and fill out the applications. And so what happened, it’s only been about a week and a half as we’re talking now since the program came into existence, is people rushed to apply but the bankers were overwhelmed, because even if they had a small business lending division. Let’s say that’s 10 people and another 90 people at the bank who do all kinds of other things, those 10 people cannot handle the volume of requests that they’re getting and even if you bring in 50 of the other 90 people work at the bank, they have no experience in this. They were making home mortgages, they’re dealing with lines of credit for a business. They’re doing all kinds of different things and that’s what’s caused this backlog. Our banks “playing favorites”, that’s kind of a loaded term. What are they doing? They’re working with the clients that they already know. These are the people they know first. These are the people that they have a relationship with. These are the people that have already borrowed from them. And this doesn’t necessarily mean the largest, biggest, most prominent small businesses. I talked to a woman who ran a business in New Hampshire that helps and works with autistic kids and she got approved very quickly. She had 17 employees got approved very quickly by a small community bank in her town. And so, she had that relationship there and obviously, the size of her loan is nothing compared to the size of a 500-person firm, but she had that relationship in place.

And so in that sense, she was able to jump ahead of a lot of other people and get approval for what she needed.

Jeffrey: Yeah from the bank’s point of view. I guess the difference between that 30 billion of lending versus now the mega PPP program, is the banks aren’t guaranteeing this, right? The federal government is guaranteeing this?

Paul: They are but the issue is that you know, the guidelines were created so quickly and they are rushed through so quickly that it’s not entirely clear. I mean an entirely new program was created in the span of a couple of weeks. That doesn’t just how it works. If you’re making a mortgage for somebody. Well, we understand Property Law, we understand the structures around a mortgage and even when you go get a mortgage to buy a house, it still takes 4, 5, 6, 8 weeks to get that mortgage approved, even though a bank lends money to buy homes every single day of the week. And so, just imagine, a whole new blown product if used correctly or as the the guidelines say is correctly, can be forgiven being rolled out because what happens if people don’t use it correctly? What happens if these companies still go bankrupt? Who’s ultimately on the hook for that? Is it the Federal Government’s going to pick it up or is the bank going to be accused of not doing it’s due diligence. Well, the flip side of that, how can you do due diligence when you’re supposed to get all this money going out the door in a matter of hours or days, not a couple months.

Jeffrey: Right, incredibly interesting. Thank you. So, that’s the PPP, right? So, what’s the difference between the PPP and— the SBA also has something called the Economic Injury Disaster Loan Program, what’s the difference between that?

Paul: More commonly known as the ‘Idol Program’ and that’s been around for a long long time and historically, what does that use for? You live in South Florida and you have a business and a hurricane comes in and wipes out your town, that is a disaster. And therefore there’s a Disaster Loan Program. And historically, that program has worked very well. You could apply for an immediate grant of $10,000 you put in your bank information, you tell them who you are, you put in your tax ID so they can look up and see that you’re going concern that’s been making money and paying taxes and historically in 3 days, you get that $10,000 grant. That’s a grant, it doesn’t have to be paid back. And then, that puts you into the queue to get a larger loan up to $200,000, doesn’t have to be secured but the loans go up to 10 million dollars. You want to get a 5 million dollars alone, you got to show why you need to find that 5 million dollar. That’s all established and understood. The problem is, we have a disaster in all 50 states. So it’s no longer localized. It’s just not that Hurricane in South Florida, you’re applying for that loan from every state because every business— or not every business, the majority of businesses are suffering some sort of economic injury, economic disaster and that whole program has ground to a halt and what used to be a no-questions-asked $10,000 grant is now, you get a $1,000 per employee up to $10,000, but that money hasn’t gone out. I haven’t talked to anybody who’s actually received that money and nobody received it in 3 days. So, the whole rush for this was around the end of March and people are still waiting for this emergency grant. They can’t get that. They’re not even quite sure what’s going to happen with the loan portion of it that’s supposed to come after that grant arrives in 3 days.

Jeffrey: Right, so do you think there is a bottleneck issue or a real flaw in the design?

Paul: I think there’s a bottleneck issue. Again, it’s not designed for businesses in all 50 states to apply at once, it’s designed for the regional SBA in South Florida to call up Washington and say, “Okay, this is what happened in a fill-in-the-blank greater Miami area. This is what we think the issue is going to be…”. And then the system works and one of the big problems here is that the $10,000 grant, had it been able to go out in 3 days, was super meaningful to these small businesses with less than 20 employees because there’s other data in one of my columns that talks about most of these micro business—super small businesses, don’t have enough cash on hand to make it 30 days. 25% didn’t have enough cash to make it 30 days and another 25% so to bring us to 50% didn’t have enough cash to make it 90 days. So, a loan or a grant that could arrive in your bank account in 72 hours was a huge beacon of light for these very small businesses. And now, it’s just one more layer of uncertainty as business owners try to make rational choices as to what to do. 

Jeffrey: Yeah. I mean it’s as you were saying this affects companies of all sizes, of all ages. For the last couple minutes that we have together, if we could take a minute and talk about the nonprofit’s, right? These are companies that are probably hurting as bad if not worse than all the other for-profit companies. And you wrote recently that the coronavirus is a test of how philanthropists can use their wealth to fill an enormous gap in revenue for nonprofits. How hard if these nonprofits been impacted and how are these billionaires that you speak to and these philanthropists, how were they helping out?

Paul: It’s a great question. If you think about it, you first have two different sort of ways of giving money. You can give film property dollars philanthropy or you can do charity. Philanthropy is something that is planned out months or years in advance. I care about my Alma Mater, I care about this hospital, I care about this food program. Plant Charity is an immediate response to what is happening in the world. There is a hurricane in Haiti, it’s devastating, I’m going to give money. And so, understanding that, these philanthropist usually have a lot of things planned out and they’re going to give to the organization’s but now the pull is to give immediate to food banks, to give immediately to charities really focused on the impact of the coronavirus. Obviously, that’s incredibly important, but what happens is, any people only have a limited amount of money to give—even billionaires, all the money that was supposed to go to these other nonprofits that were for the arts, for music, school. They are now left wondering, “What’s going to happen? Where’s the money that was here?”. And you know the spring for most of these pretty much every nonprofit, the spring is the time to have benefits and these benefits bring in tremendous amount of money. Sometimes 25, 30, 40 percent of a non-profit budget. Well benefits aren’t happening now. So what we have here is kind of a perfect storm for these non-pandemic related nonprofits to wonder how are we going to survive. So, in this column you reference what some of the philanthropist I spoke to were doing was making sure they still fulfilled all of their pledges to the other nonprofits that they had support in so that those groups wouldn’t have to worry, “Can I keep my 20 employees, my 30 employees? Can I continue to do these after-school programs? Are these enrichment programs for kids?”  because that was a huge question mark and I don’t have the number on top of my head but nonprofits are something around eight or nine percent of GDP and they employ a lot of people as well. So that’s not an insignificant part of the economy and an insignificant part of the economy where you have to worry about people still having jobs. 

Jeffrey: It’s incredible, do you feel that speaking with some of the philanthropists, are they pulling forward some of their multi-year thinking and does that put them into different weird tax situation?

Paul: Well, good two part question because yes, they are pulling forward some of their giving. Many give through foundations, so they’ve already gotten the tax deduction when they’ve contributed to their private foundation. Many foundations have this requirement that you give at least 5% a year private foundation, but it’s not limited to that so they could give 10% 20% 25% whatever they want to do. They’re allowed to do that, but you know one provision in the Car Act [?] said, for brand-new cash donations, there used to be a limit as to how much of that cash donation you could deduct from taxes. It was about more or less about 50% if it was cash. Now a 100% of a cash donation could be deducted. So if you make a million dollars and you donate a million dollars in cash you pay no taxes this year, so that was a government program to help accelerate this giving. Now what are these philanthropist going to look like next year? I don’t know how many of them are even thinking about that because if we don’t get through this portion now, that beloved cultural organization in Seattle, is it going to be here right next year? It’s even, take the money. So, better act now while there’s this huge need than, wait and maintain your 5-year giving plan.

Jeffrey: Incredibly interesting, the impact as I said before the trickle-down, but the full economic impact is this having everywhere on businesses large and small new and old. But Paul, thank you so much for our conversation today and hope to have you back on a future episode and talk further about some of the other articles.

Paul: Thanks for having me. I really enjoyed it.

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