Dude, Where's My Bailout?

There seems to be somewhat of a desire to look at the auto bailout as a tool to give the government leverage to force the Big 3 to to "finally do the right thing" with respect to hybrid cars or green technology more broadly. Now, we've got them where we want them!

But, these are private companies, not sub-divisions of the Department of Energy. So, if the legislature wants to see more hybrid car development, the quickest way to foster this outcome would be to dispense with the jaw-boning of the company executives and pass a hefty gas tax.

For example (Cost per Gallon)
$7.13 - Amsterdam
$2.61 - America

This is why cars are so much smaller and fuel-efficient in Europe, because they tax the hell out of gasoline. So, I'll be looking forward to all those "Vote $7 Gas Now!!" bumper stickers in the fall of 2010 campaign.

In the meantime, back on planet Earth, there are very legitimate concerns with having government dictating the behavior of the Big3 in a fine-grained manner, as Yglesias rightly notes:

A lot of this talk has an air of socialistic hubris about it. If this line of thinking were correct and the primary impediment to the production of technological miracles was a lack of government leverage, then state-owned enterprises would have been a smashing success.

In reality, outside of a relatively narrow range of utility-type activities, they’ve been flops. If the negative externalities associated with carbon emissions were correctly priced, I’m quite sure that would lead people in various places to develop lower emissions cars. But is just sort of pointing at GM’s engineers and telling them “make low-emissions cars!” really going to lead to the intended result?

[snip]

Let me further add that the risk here, as I see it, isn’t that we’re going to waste too much money on a Detroit bailout. Rather, the risk is that we’re going to slide into a situation where big swathes of the economy are dominated by zombie firms. If firms with unviable business models are prevented from failing, then other more successful firms can’t arise or expand to fill the niche and the whole sector goes dysfunctional employing tons of labor and resources but not creating real value.

And then you have other sectors that are being productive but that are burdened with taxes that are being used to prop up sectors that aren’t creating value. Then, even if we manage to halt the slide into recession we’ll have created a situation in which it’s difficult to return again to growth.

But, from everything I read, it thankfully doesn't appear that this is what will be happening.

The firms are going to be "rescued" in the near-term, mainly because there is no way in the current credit environment that they could possibly secure additional financing if they went into Chapter 11 re-organization. Thus, they would proceed into full-blown liquidation and in the current economic environment that would be a "catastrophic" outcome, according to Moody's economist, Mark Zandi, in his testimony to Congress. In short, he basically said that the current solution is undesirable, but the alternative is even worse.

On a related note, after 8 years of listening to George Bush sound like a man who is still waiting for his anesthesia to wear off, it is almost disorienting to hear a Republican politician sound as competent and well-informed as Bob Corker does in his direct and insightful questioning of the auto execs before his Senate committee.

NOTE: the audio and video tracks are out of sync, but Corker's performance is genuinely impressive and surprising short on grandstanding.