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I don't read Thomas Friedman that often. I always found his "flat-world" theory to be lacking an appreciation for the asymmetries in the international political economy. I think a world of "peaks and valleys" is a more appropriate image. But who am I? Friedman's sold a billion books, won multiple Pulitzers, and is rumored to garner circa $50,000 per speaking engagement. Obviously, he's doing something right.

But I do read Dave Hart (regularly in fact), whose great piece on the Big-3 got me traversing the internets for opinion on the prospects of an automotive bailout. This led me to Friedman, whose recent media crusade against the US auto industry I find spot on. His 11/11/08 NYT column, "How to Fix a Flat", sums up his criticism of the US Big-3 automakers:

for years, executives, lobbyists, and Congress (in particular the Michigan delegation) have sheltered these companies from the need to innovate or die. The have been allowed to resist higher environmental and fuel-efficiency standards, and implement bone-headed strategies that prioritized the SUV over hybrid or smaller, fuel-efficient vehicles. And now, as their business model, balance sheets, and beloved SUVs are forcing them into bankruptcy, these companies feel entitled to a taxpayer-funded bail-out?

I share Friedman's (admittedly, everyone's) outrage. I recognize the risks to the real-economy of their bankruptcy. Millions of workers (if you include suppliers) would lose their jobs in a period of rapidly rising unemployment and deflation. I also believe that the sensible arguments against Chapter 11 are important: in the current credit environment, Chapter 11 restructuring might be impossible, giving way to Chapter 7 and the worst-case scenario. But what is the chance that these companies will be compelled into any of the necessary restructuring in exchange for further financial assistance? Remember, the US government has been bailing these bozos out for decades, and what have we received in return? Sasquatch.

As Clusterstock pointed out, a short/medium-term cost benefit analysis might fall in favor of a bail-out. But what then? The shield that would be erected around these three posterchilds of protectionism would take decades to dismantle. The union contracts would remain largely in tact (not a chance Dems are jeopardizing the Rust Belt in 2010)*. CAFE standards are already (predictably) being vilified by the auto companies.

The US economy can't afford an industry collapse. But taxpayers can't afford another waisted bailout. If they agree to the thorough concessions and restructuring Friedman and Ingrassia call for, then bail em out. If they don't, let creative destruction work, and follow Friedman's advice. Allow Chapter 11, compel independent administration, and set these companies toward a restructuring process long overdue. One company might go into bankruptcy, but like the investment banks after Lehman, the others will quickly fall in line and accept strict conditions to assistance.

We must also renegotiate the contracts of remaining workers (on fair terms- whatever those are), increase unemployment benefits, and retrain those who are laid off in green jobs or re-employ them in a massive infrastructure-based stimulus project. And how about universal health care reform as well?

We need the political will (finally) to confront the auto industry and dictate the terms of assistance. This means confronting their stubborness head on. It may be risky, but its a risk worth taking.