By Madison Powers

A chorus of politicians from Michigan and elsewhere are warning that another economic catastrophe looms if something is not done, this time for the “Big Three” Detroit automakers. In the last eight years the Big Three have lost 90 percent of market capitalization, a third of its employees and much of its market share.

Pending in the lame-duck session of Congress are proposals to divert some of the $700 billion bailout fund from the financial sector to help the automakers through the middle of 2009 when they are projected to run out of operating cash.

This current bailout proposal is on top of the $25 billion in “bridge loans” authorized in the midst of the October financial bailout. That money was appropriated with the sole purpose of helping Detroit produce fuel-efficient cars mandated by higher fuel efficiency standards.

The situation would be dire even if the financial meltdown had not occurred. General Motors’ bonds fell to junk bond status as far back as 2005. The pending crisis is no sudden surprise to members of the Michigan congressional delegation who desperately wanted presidential primaries to go forward in their state so that they could provide a window for the nation to see what’s on the horizon.

The Michigan delegation’s argument is reminiscent of a famous remark by GM’s President Charles Wilson, President Eisenhower’s nominee for secretary of Defense, when he was asked in his confirmation hearings whether continued ownership of stock in GM would pose a conflict of interest, who replied that “for years I thought what was good for the country was good for General Motors and vice versa.”

Many are not so sure of that notion today. A new bailout faces a steep climb in Congress, at least during the current session. Congressional Republicans, such as Sen. Richard Shelby of Alabama, for example, oppose the bailout, saying that the financial straits of the Big Three is “the legacy of the uncompetitive structure of its manufacturing and labor force . . . [It] is not a national problem but their problem.”

The opposition to a new round of bailout includes long-term critics on the left who see this as just a moment of comeuppance for the industry for having fought against emissions standards and environmentally responsible innovation. Market ideologues take a hard line approach, arguing that the automakers should pay the price for their own misjudgments, and that market correction will more than compensate for whatever short-term economic dislocation might result.

Some critics even make an affirmative case for bankruptcy. They claim that it may be better for the industry and society by offering more options for reducing debt, modifying labor and supplier contracts, and eliminating unprofitable segments of production.

Proponents of the bailout state flatly that bankruptcy is not an option. There are massive costs associated with any protracted legal proceeding and the outcome of any such judicial process is matter of tremendous uncertainty for everyone having a stake.

More immediately, 350,000 jobs are affected directly and as many as 3 million jobs overall are at risk. Some optimistic bailout advocates, however, characterize this crisis as an opportunity. Optimists hope that it can be coupled with conditions designed to help wean the United States off oil and reduce carbon emissions. In return for the bridge loans the automakers should be required to “produce large numbers of affordable, durable, safe, fuel-efficient, low-carbon vehicles within the next five years” and to promise to end their fight against higher carbon emissions standards.

Market theorists can be forgiven perhaps if they were to ask whether the public will be required to buy the new products. Some will say that the demand side of the equation will follow if Detroit’s products break decisively with the past. GM in particular, has been promising a new generation of hybrids that will leapfrog over the current technology. An implicit part of the bailout sales pitch is the assumption that, given a bit of borrowed time, a turnaround based on unprecedented innovation is within reach.

Chevrolet’s much-hyped Volt, for example, promised to be ready for 2010 production, is touted as an example of a plug-in car that can go as many as forty miles before using any gasoline. That would put a big dent in gas consumption since most commuters drive less than that distance daily.

However, the promise is quite speculative. The batteries don’t exist, and even the ballpark estimate of price and profitability are wholly unknown. Even if successful, there is potential for the new technology to be overtaken, just as the Tesla has displaced the Prius as the darling of the affluent, environmentally-conscious consumer.