GM Chrylsler -- administration has largely ignored one of the biggest factors making them uncompetitive - the exchange rate.

An Industrial Renaissance Policy | OurFuture.org

For years Larry Summers and I had a running argument over industrial policy.

As a mainstream economist in good standing, he, of course argued that governments can't pick winners and losers and that even if it could, special interests would inevitably capture the process and distort it. Under no circumstances, he emphasized, should America have an industrial policy.

My view was that as an industrial nation we would inevitably make decisions that involved picking winners and losers. Breaking up AT&T, standards setting by the FCC or FDA, R&D spending by N.I.H, etc. are all examples of such decisions. The only question was and is whether those decisions would be guided by some overall productivity optimizing criteria or by chance or, more likely, the very special interests Larry feared.

Well, now that the U.S. government owns the banks, insurance, and auto companies with Larry as the chief winner and loser picker, that whole discussion has become moot.

But now that we are picking winners and losers, the question of how we are doing it has become very important. So far, the answer is "not very well."

While pouring big bucks into GM and Chrysler to keep them alive, the administration has largely ignored one of the biggest factors making them uncompetitive - the exchange rate. The strong dollar and the policies of China, Japan, Korea and others to undervalue their currencies tend to undercut the rescue effort. Industrial policy will only work if it is a complete policy, and a complete policy in this case must be one that deals with the exchange rate question. ...