It’s official.  The White House now picks winners.

After the Senate failed to agree to auto bailout legislation, President Bush today announced that the Treasury will lend $17.4 billion to GM and Chrysler (two will likely merge) to prevent their imminent collapse.  Though their collapse would have disastrous economic consequences in certain rustbelt states, the action marks yet another step in the unwitting construction of a national industrial policy.

Though the loans’ terms require the companies to restructure their operations drastically, the public should remain skeptical.  If politicians employ the specter of increased joblessness to justify such an unprecedented level of Federal intervention, these same reasons can be used to modify these loan terms to preclude substantive restructuring.  Any decent analysis of the auto industry will conclude that GM and Chrysler, in order to survive, must make several politically unpopular steps: they must lay-off employees right away to reduce production to meet lowered demand, they must produce cars people actually want to buy, and they must cut the wages and benefits of their new-hires and those of their  long-time employees and those of their retirees.

Now that public money is put at risk to assist two poorly run companies restructure, many will view this public investment as an excuse to demand the automakers not make the necessary job, pay and benefit cuts.  After all, why should laid-off employees pay taxes to fund their own layoffs?

What a shame that the Administration in its decision to pick winners has picked two losers.