Several sets of economists have written papers on the unintended consequences of the Endangered Species Act . These papers document that land owners crush the "natural capital" before the Act seizes (without compensation) their land. This preemption protects the land owner but depletes the environment. Today the New York Times documents that this same dynamic is playing out in New York City. Land owners who want to demolish an old building to build a "Don Trump" like tower anticipate that the New York City Landmark Preservation Commission may designate their property as a historic landmark. Land Owners lose development rights when this occurs (just like with the Endangered Species Act) and respond to this by demolishing the building early so that there is nothing left to preserve.


Switching gears and turning to chicken poop. The NYT also has an interesting
article
on the production of Chicken Poop in Maryland. What interests me here is public health consequences of economic growth at the agricultural/suburban spatial border. As suburbia grows, there are more people and more rich people living closer to agricultural areas. If a byproduct of agriculture is nitrogen fertilizer runoff and this gets dumped into the water and air, then public health issues arise.

How the Coase Theorem plays out here is an open question. The first issue of course is property rights. Do the farmers have the right to use any amount of chicken poop that they please? How much do the downwind suburban victims suffer from these private profit maximizing actions?

This is a very interesting excerpt of the article;

"Storm runoff from urban areas, lawn fertilizers and pollution from cars and sewage treatment plants also play major roles in polluting the bay. But Environmental Protection Agency officials say that agriculture is the largest single source of pollutants and sediment in the Chesapeake Bay, accounting for over 40 percent of the nitrogen and phosphorous and over 70 percent of the sediment.

State officials say that animal manure produces more phosphorus and nearly the same amount of nitrogen pollution as all human wastewater from treatment plants in the state.

Although the dairy and hog industry in states near the bay produce more pounds of manure, poultry waste has more than twice the concentration of pollutants per pound. Reducing pollution from agriculture is also about a tenth as costly as it is to achieve the same reductions from urban development, state and federal environmental officials say.

“The reason to focus on poultry,” said Tom Simpson, executive director of Water Stewardship, an environmental nonprofit agency, “is that sewage treatment plants have already been required to reduce their pollution and storm water runoff from cities and large dairy and hog farms have permits that can be used to limit their water pollution.”

But in the past two decades, the poultry industry has carved a special role for itself in terms of the oversight it receives, and it has twice defeated state efforts to impose permits."

Around UCLA, there are some very successful people living and working nearby. Some are connected to the "Hollywood" industry. Rick Byrd is one of them. He has played a key role on Alter Eco on TV with his buddy Adrian Grenier. On Wednesday, Rick gave a talk at UCLA. One of my students arranged his visit. He gave a great talk blending humor, business wisdom and his vision of how to market green products to a wider range of people than merely "hippies".


"Throughout the season, Adrian Grenier and the crew of Alter Eco has shown viewers how to be hip and green at the same time. Now, with the help of Byrd Development, they can display their ultimate achievement: the house in Los Feliz, California, has received LEED Platinum certification from the U.S. Green Building Council."

"In renovating the Los Feliz house, the goal was to blend style and function with the latest in green technology and building techniques. Rick Byrd, CEO of Byrd Developments, explained that "On the surface it's exactly what you expect to see in a traditional home, but the energy bills happen to be only $50 a month. We want to show people that you don't have to compromise the integrity of the house to be environmentally friendly and healthy." This accomplishment was rewarded with the USGBC's highest rating, making the Los Feliz house the first deconstructed house in California, and only the second in the state, to receive this honor."


Rick Byrd's Profile


While Rick may have thought that I'm a nerd, we did have a good discussion on the following point. He told me that thousands of people have visited his green certified LEED home in Los Feliz. I suggested to him that if he could track who visits his house (signup sheet) and then survey them afterwards, he could learn about how "experience" with touring a LEED home affects attitudes and perceptions of these homes ex-post. If people have a positive experience, this is likely to increase their demand for such homes and this should raise Byrd's profits.

Since "green products" are new unknown, guinea pigs need to see them to realize their strengths. Now there is a selection issue that Rick is attracting the self select sample of people who are interested in seeing and touring green homes but economists have not done enough marketing work on how "experience" with a new product affects demand.

Obama is hiring but other demanders of academic economists' efforts are substituting to some other input. This new webpage clearly signals that there are many schools who expected that they could hire new blood who then received the "new news" from the Deans that their search would not be authorized.

Real Business Cycle theory would say that this is a great time for us to play some golf and watch some NFL football (leisure). On the other hand, a great poet once said; learning begets learning, Skill begets skill. I'm thinking of investing in my skills to upgrade myself as I wait for the next boom.

Do recessions have a "chilling" effect on reallocating resources towards more productive sectors of the economy? Or because the opportunity cost is low, recessions are the exact right time for key reallocations? This has been a topic of esoteric macro (see http://econ-www.mit.edu/files/138) but now this issues has arisen in environmental policy. In a nutshell, will the world give up on trying to mitigate carbon emissions as they focus on the recession? Or, is there a triple win for the Obama Dream Team of simultaneously bundling; a Green New Deal that gets us out of the recession, helps to decarbonize the economy and reduces our imports of foreign oil?

As I said on my NPR appearance on tuesday, I have a few concerns with the sketch I have seen of the Obama Green Plan.

1. We need the Obama team to get a Carbon Price enacted by the Congress. Cap & Trade at around $25 per ton of CO2, this would be a credible incentive to get the ball rolling. Will the Obama team use its political capital to fight for this, or are they worried that this will be their "gays in the military back to 1993 with the first Clinton"?


2. The Boston Big Dig was a financial mess. The project's final cost ($17 billion was over 4 times what was ex-ante expected). How will the Smart Obama team guarantee that there will be accountability such that their Green Public Works project do not end up leading to millions of new Green Newmans from the television show Seinfeld? Newman wasn't working hard and the taxpayers were helping him to have a pretty good life. Was he an outlier or a glimpse of the future?

A good contract theorist would say that he can write down an optimal pay for performance contract such that the government will get good roads and green infrastructure per dollar we pay in the green big push. I hope this is true.

3. An alternative vision for the Green Big Push is more government investment at the NSF and the national labs in basic research. This will take years for the nerds to create a new "google" that trickles down but i know that this would be money well spent.

4. An alternative vision would be to sponsor innovation tournaments http://www.xprize.org/

5. We need some signal from the Republicans that they care about mitigating carbon. Is carbon mitigation a bipartisan issue or a Democratic issue? To send credible signals to the private investment sector we need them to believe that regardless of who controls the White House and Congress that carbon regulation is here to stay. That would be credible! If future Republican Presidents may renege on carbon pledges, then this creates time consistency issues and political business cycle issues and we will see very different green investment profiles relative to what we would have observed had there been bipartisanship on this issue.

November 27, 2008
New York Times Editorial

Save the Economy, and the Planet

Environment ministers preparing for next week’s talks on global warming in Poznan, Poland, have been sounding decidedly downbeat. From Paris to Beijing, the refrain is the same: This is no time to pursue ambitious plans to stop global warming. We can’t deal with a financial crisis and reduce emissions at the same time.

There is a very different message coming from this country. President-elect Barack Obama is arguing that there is no better time than the present to invest heavily in clean energy technologies. Such investment, he says, would confront the threat of unchecked warming, reduce the country’s dependence on foreign oil and help revive the American economy.

Call it what you will: a climate policy wrapped inside an energy policy wrapped inside an economic policy. By any name, it is a radical shift from the defeatism and denial that marked President Bush’s eight years in office. If Mr. Obama follows through on his commitments, this country will at last provide the global leadership that is essential for addressing the dangers of climate change.

In his first six months in office, Mr. Bush reneged on a campaign promise to regulate carbon dioxide and walked away from the Kyoto Protocol, a modest first effort to control global greenhouse gas emissions.

Still two months from the White House, Mr. Obama has convincingly reaffirmed his main climate related promises.

One is to impose (Congress willing) a mandatory cap on emissions aimed at reducing America’s output of greenhouses gas by 80 percent by midcentury. According to mainstream scientists, that is the minimum necessary to stabilize atmospheric concentrations of carbon dioxide and avoid the worst consequences of global warming. Mr. Obama’s second pledge is to invest $15 billion a year to build a clean economy that cuts fuel costs and creates thousands of green jobs. That includes investments in solar power, wind power, clean coal (plants capable of capturing and storing carbon emissions) and, as part of any bailout, helping Detroit retool assembly lines to build a new generation of more fuel-efficient vehicles.

Mr. Obama has surrounded himself with like-minded people who have spent years immersed in the complexities of energy policy.

His transition chief, John Podesta, was an early advocate of assisting the automakers and of finding low-carbon alternatives to gasoline. Peter Orszag, his choice to run the Office of Management and Budget (where environmental initiatives went to die during the Bush years) is an expert on cap-and-trade programs to limit industrial emissions of greenhouse gases.

Success is not guaranteed. Last year, a far more modest climate-change bill fell well short of a simple majority in the Senate. At least on the surface, it seems counterintuitive to impose new regulations (and, in the short term anyway, higher energy costs) on a struggling economy. Mr. Obama will need all his oratorical power to make the opposite case.

The historical landscape from Richard Nixon onward is littered with bold and unfulfilled promises to wean the nation from fossil fuels, especially imported oil. What is different now is the need to deal with the clear and present threat of global warming. What is also different is that the country has elected a president who believes that meeting the challenge of climate change is essential to the health of the planet and to America’s economic future.

California is the green guinea pig. We are setting the climate change mitigation agenda. AB32 is the key piece of legislation attempting to sharply reduce this state's greenhouse gas emissions. Economists are now debating what are likely to be the "macro state wide" impacts of this regulation.

I recently participated in this debate over how we conduct ex-ante evaluation of a policy that hasn't been implemented yet. How risky is this well meaning regulation? What will be its unintended consequences?

You are free to download all of the documents.

Air Resources Board's New Economics Page

My report is one of the "big six".

The Six Referee Reports on the AB32 Scoping Plan Economic Analysis

There are a large number of papers making cross-national comparisons. Can we compare these apples to the oranges? Is the U.S still richer than China? Is the gap narrowing? This may be an important paper http://www.nber.org/papers/w14499.

Understanding PPPs and PPP-based national accounts

Angus Deaton, Alan Heston

NBER Working Paper No. 14499
Issued in November 2008


---- Abstract -----

PPP-based national accounts have become an important part of the database for macroeconomists, development economists, and economic historians. Frequently used global data come from the Penn World Table (PWT) and the World Bank's World Development Indicators; a substantial fraction of the world is also covered in the PPP accounts produced by the OECD and the European Union. This paper provides an overview of how these data are constructed, and discusses both the theory and the practical problems of implementing it. All of these data are underpinned by the International Comparison Program (ICP), which collects data on prices worldwide. The most recent round of the ICP was for 2005 with final results published in early 2008; version 7.0 of the Penn World Table will soon incorporate these results. The 2005 ICP, like earlier rounds, involved substantial revisions to previous data, most notably revising downwards the size of the Chinese (40 percent smaller) and Indian (36 percent) economies. We discuss the reasons for the revisions, and assess their plausibility. We focus on four important areas: how to handle international differences in quality, the treatment of urban and rural areas of large countries such as China, India, and Brazil, how to estimate prices for government services, health, and education, and the effects of the regional structure of the ICP. All of these affect the interpretation of previous data, as well as the current revisions. We discuss previous revisions of the PWT, and their effects on various kinds of econometric analysis. The paper concludes with health warnings that should be kept in mind when using these data, which are not always suitable for the purposes to which they are put. Some international comparisons are close to impossible, even in theory, and in others, the practical difficulties make comparison exceedingly hazardous.

This paper is available as PDF (252 K) or via email.

I woke up at 520am this morning and jumped into a 6am cab. I knew the street address in West Hollywood where the recording studio is and I assumed that it would be a commercial building. To my surprise, the cab pulled up in front of a nice house on a residential block. A Mercedes was parked in the driveway. I panicked for half a second wondering in the dark of morning, "where am I"? I called a number on the sheet of paper that NPR's producer had sent me and a woman told me that I was at the right place but that I should go to Starbucks and return in 20 minutes.

This sounded reasonable to me so I asked her where it is. She said on Melrose. I asked "where is Melrose?" She said, one block north of where you are standing. So, with those instructions I found the starbucks and saw a photo of Christina Romer on the front page of the LA Times.

I then returned to the now open recording studio where my sound engineer (Omar) told me a little bit about the garage I was sitting in. This recording studio was a garage but no longer is. It is now filled with insulated glass and expensive recording equipment. I asked Omar whether anyone important ever shows up. He said that celebrities come in to do "voice overs". He dropped some names such as Chris Rock and I was impressed and aware that I was lowering the average.

Finally 7am arrived and I was locked in a sound proof booth. The Boston NPR Producers explained to me what would happen.

Tom Ashcroft was the interviewer and I was his 3rd guest. You can listen here: The audio tape of my NPR Debut

The other guests were quite smart and I think the 3 of us together did a good job.

I don't know whey they have call in questions. Some of the questions were reasonable but they are wildcars that scatter the previous discussion.

My friend Mike Cragg was kind enough to email me that he was listening live but that was the only response I have received. So, based on this data --- I predict that 8 people were listening. I still thought it was a very interesting morning.

I will make my NPR Radio Debut tomorrow morning. Wish me luck. Our general topic area will be President Obama's New Green Deal. Are recessions the right time to make fundamental changes to our economy's infrastructure? Have you noticed the full page ads in the New York Times taken out by IBM lobbying pretty convincingly for the need for a "Smart Energy Grid"? Can such large infrastructure projects be provided by the private sector? This seems unlikely. A new generation of private/public partnerships could help make this happen.
http://news.cnet.com/IBM-founds-coalition-for-smart-power-grids/2100-1012_3-6175261.html

Returning to my radio appearance tomorrow; here are the details; NPR Radio on 11-25-2008 at 10am Eastern Time . Please listen, I sometimes wonder whether I am just talking to myself!

Shock therapy is back. Austan Goolsbee is quoted as saying "The point is to, kind of, get people back on track and startle the thing into submission.” Do new macro policies have this common "homogenous" treatment effect on individual expectations of the future? Can Joe the Plummer be convinced that 2009 will be a great year once Obama announces his economic "shock and awe"?

Implicit in the Goolsbee TV quote is a belief that there is a common "expectations function" such that if Government takes action X that EVERYONE believes that the probability of good events such as stabilized housing markets and rising stock market = Y. In English, if government spends 2.5 trillion bailing out Detroit, bailing out Citigroup, bailing out New York City that GNP growth will equal 2% in 2009 and that everyone will act as if this is true and take actions that help to realize this expectation.

But, we live in a diverse world where people differ with respect to tastes, talents, resources, and expectations of the future. The best thinkers in dynamic macro are now studying this. See Tom Sargent's AER Presidential Address and this The Communism of Rational Expectations Interview .

Suppose that the world is X% Keynesians and 1-X% Bob Barros. The Keynesians will take their stimulus package and buy and the Barros anticipating higher taxes in the future will save (dynamic balanced budget conditions). The net effect of this intervention hinges on what "X" equals. If X=.2, then this policy does little.

A major idea in economics since the 1970s has been commitment and time consistency. Now that the government has signaled its willingness to enter and bailout every market, key game theory issues arise and moral hazard issues arise. The "too big" to fail industries recognize the positive probability of a bailout and this affects their dynamic decisions along many margins. This encourages rent seeking by these firms as they lobby Washington and it encourages them to merge into bigger firms (i.e AIG and Citigroup) to increase their leverage if the bad states of the world are realized.

The costs of government activism haven't been fully discussed in the midst of all this excitement.

Making matters even worse, Bill Kristol thinks we economists are dumb. Kristol sounds like he wants to sell short the stock of academic macro economists.

The real issue here is non-stationarity. Economists are able to study stationary processes. We can reverse engineer what is generating the staionary data we see. Once we have reverse engineered the process , we can calcuate effeciency effects and conduct policy counter-factuals. As new products, such as ARM mortgages and financial products are introduced, we can't generate enough data to figure out the stochastic process before the world changes again. Slow down the world, and we can figure its dynamics out!


New York Times
November 24, 2008
Op-Ed Columnist
Admit We Don’t Know
By WILLIAM KRISTOL

“In my view it has to be between five and seven hundred billion dollars,” proclaimed Senator Charles Schumer Sunday on ABC’s “This Week.” The “it” is the economic stimulus package the new Congress intends to send to the new president, Barack Obama, in January.

The truth is, Schumer hasn’t a well-grounded view, or even a well-informed clue, as to how large the stimulus package “has to be.” I’d be amazed if he could give a coherent explanation of why it should be $500 billion to $700 billion instead of, say, $300 billion or $900 billion. On TV, he simply invoked the authority of “most economists,” who, according to Schumer, “say, to make this work, you need about 5 percent of G.D.P., which would be $700 billion.” Nor do I think Schumer could begin to explain why a demand-side stimulus package oriented toward employment, infrastructure and consumer spending will “work” in dealing with an economic crisis whose origins seem to be in the collapse of a housing bubble and the deleveraging of overstretched financial institutions.

Now I hasten to add — wait a second, Senator Schumer, put down the phone, no need to call me at home this early in the morning! — that I don’t mean to pick in any way on Chuck Schumer, who is surely among the more economically literate members of Congress. It’s not as if his colleagues have a better understanding of what has happened, or of what should be done. And it’s not as if the rest of us do.

In his interview, Schumer appealed to the authority of economists. Economists still do have considerable sway in our public life — even though it doesn’t seem that a large number of them have been particularly prescient in warning about, or strikingly persuasive in explaining, the current economic situation.

In any case, the Obama economic adviser Austan Goolsbee also weighed in Sunday on television and said: “I don’t know what the number is going to be, but it’s going to be a big number. It has to be. The point is to, kind of, get people back on track and startle the thing into submission.”

So a key member of Obama’s economic team hopes a big federal spending number will “startle the thing into submission.” That’s reassuring. On the other hand, it’s not as if the analysis of many conservative economists is much more persuasive. At least the liberals, being more or less Keynesians, tend to agree on what should be done. The more idiosyncratic conservatives tend to be all over the lot. But, basically, it seems to me, we’re all flying blind. The markets are spiraling down, and our leading experts don’t have much of a clue as to what to do.

Given that, one has to welcome the expected appointment to senior positions in the Obama administration of economists like Lawrence Summers, Timothy Geithner, Jason Furman, Peter Orszag, and Goolsbee himself. They’re sober and competent people who know we face a real crisis — and who, importantly, may be more willing than many of their colleagues to adjust their thinking early and often.

Indeed, one hopes they’re not too invested in the findings of the economics profession of which they’re such distinguished products — because one suspects many of the conventional answers of that profession aren’t much applicable to the current situation. After all, wasn’t it excessive confidence in complex economic models and sophisticated financial instruments on the part of people well educated in modern economics that helped get us into the current mess?

So I hope the best and the brightest who will be joining the new president will at least entertain the possibility that a lot of what they think they know is wrong. I trust they’ll remember that successful economic policies in the past have pulled together elements from unlikely sources, and that they’re as likely to find wisdom from reading political economists like Friedrich Hayek or Joseph Schumpeter, or Keynes himself, as from poring over the latest academic paper in a peer-refereed economics journal.

During his two years on the campaign trail, Barack Obama has often cited Abraham Lincoln. Well, it turns out Obama could be taking over the presidency at something more closely resembling (though still far short of) a Lincolnian moment than one would have expected. And it was Lincoln who wrote, in his second annual message to Congress, in December 1862: “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew, and act anew. We must disenthrall ourselves, and then we shall save our country.”

I’ve worked in government. It’s hard to do much thinking there at all, let alone thinking anew. But Obama and his team will have to think anew, and those on the outside who wish to help will have to think anew too, if we’re to have a chance of rising to this daunting occasion.

Paul Krugman is off today.

President-Elect Obama must be concerned for Detroit's car makers and their workers. Today's New York Times has a "devil's advocate's" article about the benefits of bankruptcy based on the steel industry's experience. Recall that Rust Belt cities such as Pittsburgh were major steel makers. This created well paying unionized jobs, profit and pollution. International competition and inefficiency at the old steel mills led to a sharp contraction of this spatially concentrated industry in the 1970s and 1980s. The firms in the steel industry are heterogeneous see http://en.wikipedia.org/wiki/Steelworks also read 1995 New York Times Article on Steel Mini-Mills. Job destruction and job creation can simultaneously take place. While the Rust Belt shed steel jobs, southern steel jobs grew. If you are a data nerd, go get the data on SIC 33 here: http://www.econ.umd.edu/~haltiwan/download.htm

My point is that it is true that steel has made a comeback but the spatial distribution of these jobs is not random! Steel jobs have mushroomed in anti-union states where labor costs are lower.

Detroit wants the automotive industry to boom in unionized Detroit. How many production plants has Toyota built in Detroit? Without knowing the facts, I'm 99% sure that they are producing in southern states with weaker union laws.

So , my big point relates to interest groups; place based politicians and older workers who do not want to migrate care about industry/state cells. They want cars in Detroit to boom. From a macroeconomic perspective, do we care?


New York Times
November 23, 2008
The Nation
Is Steel’s Revival a Model for Detroit?
By DAVID STREITFELD

A FEW years ago, an industry whose history and mythology were indelible parts of the American identity was dying. The great steel mills of Pennsylvania and the Midwest had literally built this country, but the twin burdens of competition and self-inflicted wounds had brought them to the edge of extinction.

If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear. The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast.

The Detroit automakers are using the same argument as they seek a $25 billion bailout from Congress. “What happens in the automotive industry affects each and every one of us,” a General Motors Web site declares, warning that the consequences of a shutdown would be “devastating.”

Yet steel’s savior was not the government bailouts it ardently sought but exactly what it so long tried to avoid: bankruptcy. Only when the companies failed were they successfully slimmed down and retooled into smaller but profitable ventures. As debate continues over what, if anything, should be done for G.M., Ford and Chrysler, the steel industry may offer a model.

The steel and auto industries are both capital-intensive enterprises that peaked a half-century ago and have been intermittently embattled ever since. Both secured peace with their unions by vastly expanding benefits, a bargain that eventually hobbled them. Both had entrenched layers of management that believed — despite all evidence — they could wish away change.

There are also key differences. Steel is essentially a straightforward commodity industry: the companies compete on price. Auto sales are often ruled by consumer perceptions. This has been a problem for Detroit. Many of its customers long ago fled for Toyota and Honda and a bankruptcy would scare away many more.

The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the previous century.

Thanks to a strike at a key customer, Wisconsin Steel promptly went under. The company locked its gates one winter day without even bothering to notify its 3,000 employees that their wages were history. So was most of the government’s money.

Despite this fiasco, Jimmy Carter’s successors tried to deliver on demands for relief. In 1984, Ronald Reagan imposed import quotas to stem the tide of cheap foreign steel. In 1999, Bill Clinton guaranteed $1 billion in loans to beleaguered producers, and the following year imposed punitive tariffs on some imports.

It was never enough, particularly after the rise of low-cost minimills. By late 2001, their industry reeling, the steel makers wanted more from Washington: further protection from imports; pressure on other countries to reduce their steel-making capacity; and billions of taxpayer dollars to relieve the burden of their employees’ retirement costs.

They got a temporary tariff from President Bush, but not much more. And so the steel industry — what was left of it — shuddered and collapsed.

Bethlehem Steel, whose steel was used in the Hoover Dam, the Chrysler building and the George Washington Bridge, filed for bankruptcy in October 2001. It was followed by National Steel, Weirton Steel, Georgetown Steel and many others. The pain was great.

And necessary, some say. “If the steel companies had gotten all they wanted in terms of loan guarantees and import quotas, they would never have gotten better,” said Richard Fruehan, director of the Sloan Study on Competitiveness in the Steel Industry. “The bankruptcies forced their hand.”

Over the decades the companies had shed employees to stay afloat. Soon retirees greatly outnumbered the actual workers. At Bethlehem, the ratio was six retirees for every worker. All these retirees had good pensions and good health care plans, which they thought were guaranteed. But these costs were a tremendous weight on the companies.

Bankruptcy changed the rules, allowing the steel makers to unload billions of dollars in pension obligations onto the government’s Pension Benefit Guaranty Corporation and to cut more than 200,000 workers from their supposedly guaranteed medical care.

The failures also allowed for the renegotiation of labor contracts, something Wilbur L. Ross Jr., a specialist in distressed assets, realized when he began looking at the moribund industry. The only bidder for the bankrupt LTV Steel, he proceeded to buy Bethlehem and other old-line companies, putting them together as International Steel Group. He cut more employees and revamped work rules, taking Bethlehem, for example, from eight layers of management to three.

Steel’s turn-around was dramatic. The 17 leading companies went from a combined loss of $1.1 billion in 2003 to an after-tax profit of $6.6 billion in 2004, according to an analysis done for an industry trade group. Ross sold International Steel to the Indian entrepreneur Lakshmi Mittal for $4.5 billion in 2005, earning a tremendous return.

Thanks to all of steel’s tribulations and consolidations — and, no doubt, a world economy that was booming until recently — the industry is relatively healthy.

If only the car companies could get to this sweet spot. They assert they are chopping operating costs but need a lifeline in the form of the $25 billion in loans. G.M., the weakest of the three, says that without the money it will soon run out of cash to operate. Chrysler says it would not be far behind.

The history of government bailouts, so often littered with disappointment, had a great success with a car company. Chrysler used its $1.5 billion in government loan guarantees in the early 1980s to stabilize itself and improve its product. The loans were paid off, with interest. That’s a precedent the auto industry might be happy to discuss, as long as you didn’t ask why Chrysler is once again pleading for government help.

In a G.M. bankruptcy, the number of product lines would be reduced, the management replaced and the investors wiped out. The enormous costs of its retirees could be off-loaded. It would be painful, just as it was with steel, but in the end someone could come in and pick up the pieces. Perhaps it would be one of the foreign carmakers, looking to expand. Perhaps it would be a distressed assets specialist, like Wilbur Ross.

Not so fast, said Mr. Ross. The investor who made a fortune off steel companies that were not bailed out is in favor of a G.M. bailout.

Mr. Ross doesn’t dispute that the auto companies are as bloated as the steel companies were, and certainly doesn’t think they should get a blank check. But he thinks the consequences of what he calls free-fall bankruptcies — ones without any government role — could be disastrous. G.M. would drag hundreds of suppliers down with it, and they would all have trouble getting back up again.

Furthermore, it’s a tremendously problematic time. The final collapse of the steel industry came when the economy was relatively healthy and could absorb the blow. The current economy is the weakest in decades.

“Bankruptcy will be a total mess, and may not produce anything of value at the end of it,” Mr. Ross said. Instead, he would like to see a 90-day government loan to keep G.M. afloat on the condition that all the stakeholders — including employees, management, bond-holders — agree on a restructuring. The government would be there essentially to crack heads and make sure everyone made concessions.

This, however, would give the government ultimate responsibility for the death of G.M., should that come to pass. “The government would have to have the fortitude to say, ‘We’re not going to keep pumping in money,’ and mean it,” Mr. Ross said.

Would government regulators have such fortitude? Mr. Ross was uncertain but said if they didn’t, “they should hang their heads in shame.”