"but the rescue should require tough conditions that neither the Democratic Congress nor the incoming Obama administration yet supports. "

Robert Samuelson comes through with a column that echoes my own thinking:

"In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced unionized labor. But far from booming, the economy is declining at an apparently accelerating rate. By one survey, confidence among small businesses is at a 28-year low; in October, retail sales dropped a stunning 2.8 percent. "

Yes, Creative Destruction and all that.

"No one knows what further havoc a GM bankruptcy might inflict. The Center for Automotive Research (CAR) estimates an initial job loss of 2.5 million. The logic: If any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer parts shortages. American production would virtually stop until new supplier arrangements emerged. "It takes 6,000 to 14,000 parts to make a vehicle," says Sean McAlinden, CAR's chief economist. "If you don't have one, you can't make it."

This may be too pessimistic. In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in "reorganization," GM would require new loans that might be unavailable. "Historically, when companies go bankrupt, there's 'debtor in possession' financing -- investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank.

Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent? Just to satisfy a purist "free market" ideal? It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at automakers. The goal is not to rescue the companies or workers; it's to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen."

Absolutely.

Here's what I recently said:

Okay. Here it is clear that some businesses do survive bankruptcy. So, he seems to be claiming that the government intervention will keep the employees from the onerous terms of bankruptcy. This is a factual question. It isn't a question of principle. I have demands that I would include in any government intervention. Absent them, I would agree, they'll have to declare bankruptcy. But that's an argument about the conditions of the bailout, not whether one would favor a bailout or not. So, Krauthammer could be correct, but it's not obviously so.

Let's continue with Samuelson:

"First, auto companies' existing creditors need to write down their debts. Even with federal aid, companies will shrink. McAlinden estimates that the country has surplus assembly capacity of about 4 million vehicles, much of it owned by the Big Three and destined to be shut. GM will need a $25 billion government loan to get through the recession and cover closing costs, says Lache. But GM already has $48 billion of debt. Unless the old debt is sharply written down, GM would be overburdened, and its rendezvous with bankruptcy would merely be delayed.

Second, labor costs need to be cut. By Lache's estimates, GM's hourly compensation -- wage plus fringe benefits -- totaled $71 in 2007, compared with $47 for Toyota's U.S. plants. Health benefits for retirees (many in their 50s, having retired after 30 years) are expensive. But the United Auto Workers opposes concessions. Government aid, says UAW President Ron Gettelfinger, is needed "so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents." The bailout should be more than union welfare.

Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25 mpg now). But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say, a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences -- to and from SUVs.

In bankruptcy, a judge can modify a firm's labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process -- so far -- disdains that desirable bargain. The conditions that Democrats mention are mostly rhetorical gestures against high executive compensation and in favor of more fuel efficiency. The Bush administration resists additional assistance without saying why."

I would also have to see a management change. But note this:

"We are seeing the fallout of the open-ended $700 billion rescue of financial institutions. Boundaries need to be established. Who deserves support and why? Imposing tough conditions on automakers not only improves the odds of success but also -- by the sacrifices required -- makes the process sufficiently unpleasant to deter a stampede of other industries seeking handouts. In 1979, when the Carter administration rescued Chrysler from bankruptcy, the price was concessions from management, investors and labor. We should do as much."

Thank God someone gets it. He sees the problem in terms of Political Economy. As I said:

So, here's an example of organic logic. Contrary to what has been put forth, that, if we allow this auto bailout, the world will be bailed out like a mechanical process, it might work in exactly the opposite way by being the compromise that allows the opposition to agree with you and settle here, in this place, for now. And the reason that this can happen, is because, unlike a mechanical process, this one involves human agency, which is in no sense mechanical.

So, let's recap:

1) Arbitrary: True, but where on continuum? Cuts both ways.
2) Efficiency: Empirical matter. Must be explained. Not a priori.
3) Moral Considerations
4) Political Considerations

My own opinion:
1) At least as intelligent as TARP
2) Probably true, but not certain
3) In this case, given TARP, this seems a worthwhile bailout
4) More likely to end avalanche than continue it, but, if the avalanche continues, more of the blame lies with TARP and how it has been handled and presented

Doesn't this involve qualifying principles? Yes, that's what makes it politics, as opposed to political theory.

Jeffrey Sachs also with a good point:

"A government-supported restructuring of the auto industry is urgently needed for our economic and energy security. If the Bush administration allows the auto industry to collapse, it will compound the panic that started with the bankruptcy of Lehman Brothers. Washington should seize the opportunity to begin a new era of U.S. technological leadership in the global auto industry, starting with an immediate loan."

Precisely. This problem exists on a continuum. As I said:

There is some truth to the precedent point, but for the fact that this question exists in time, which is a continuum, and there have already been precedents. It's as if by putting his foot down, Brooks can say, " It all begins here!". Sorry, you're not that powerful. The automaker's bailout exists on a continuum of precedents. No analysis can prove fruitful without comprehending that simple fact. I've already made that point. That's the difference between politics and political theory.

Sachs again:

"Second, the sudden closure of an automaker would be catastrophic, possibly pushing our economy from recession to depression. Because of the impact on parts suppliers, the shutdown of one company would imperil domestic production across the board, and the jobs at risk include not only the 1 million in vehicle assembly and parts but millions more that would be caught in the resulting cascade of failures. The industrial Midwest -- especially Michigan, Ohio, Indiana, Illinois and Tennessee -- would be devastated, and the shock waves would reverberate across the world. "

Here I agree. Now, he then veers off into the future, a place where I said Krauthammer and Brooks shouldn't go, because we can't predict it, but, if I have to choose, I see a future a bit more like Krauthammer and Brooks than Sachs. Let's not get carried away. We're doing this, if we do, for some decent reasons, but predicting the car of tomorrow and all that is a possible, and only that, scenario. So lighten up on the industrial planning.