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Tom Tomorrow on Saving Detroit:

When it comes to bailing out the auto industry, count me in the “let them starve” camp. The auto industry has been outsourcing American jobs for 25 years now with little regard for the devastated communities they’ve left in their wake (seriously, re-watch Roger & Me sometime). The big three have also used their lobbying might to oppose every environmental regulation in their sights. And on top of all of that, their cars suck. Bailing out the auto companies whose single-minded devotion to SUV’s made them blind to the hybrid revolution is like bailing out a record company that hasn’t had a hit since “The Macarena”. Screw them.
Wait, he has a solution too

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I think that the notion of "debtor-in-possession" loans is interesting and worthwhile, but there's another lesson available from the bank bailout: using the "Swedish" approach of having the government buy up shares in the companies involved and become owners.

With this approach the US federal government could be in a position to influence or even to direct the course of the auto business, and thus to cause the "Big Three" (or even the Big Two) to focus their efforts on higher fuel efficiencies. The government would not have oversight of day to day operations, and the management of the companies involved would still be required to work to make a profit, but the boundary conditions of that effort could be set such that externalities were minimized rather than maximized.

That is, where profit of the private enterprise could be increased at the expense of the public at large, the public at large would be in a position to forbid the taking of profit for the few at the expense of all. Catering to whichever preferences of the general public are immediately profitable to achieve, e.g. big cars now with no concern for gas mileage later, would no longer be the way to run those companies.

I think that changes along those lines, accounting for externalities in business decisions, are required to make the US economy more balanced and more sustainable. It's when the externality chickens come home to roost that the economy falters and fails most.

Re: another approach

As this post by Matthew Yglesias notes, just because a policy could have good effects if implemented exactly the way you think it should be implemented doesn't mean it WILL have good effects.

I have come to the conclusion that unrestricted capitalism allows too much capital to accumulate in too few places. From one side, it allows stifling competition and from another side, when things go bad, a significant population is devastated. This is somewhat related to a lot of the anti-trust laws, but goes much further. Companies need to be allowed to fail without taking most of a State down with them.

Heartless brute! But I have to agree.

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