Don’t give up on cars.

David Yermack, a professor of finance at NYU’s Stern School of Business, argues in today’s Wall Street Journal that American automakers have run their businesses into the ground by wasting enough money that they could have used that cash to buy the major Japanese carmakers instead. He champions former GM CEO Roger Smith, the Roger of Michael Moore’s “Roger and Me,” as brilliant because he shifted GM money away from cars and into the bargain purchases of Ross Perot’s EDS and the Hughes company that would later become DirecTV. Smith later sold the companies at a tremendous profit, while the bad management of GM’s automotive line has wasted about $1.5 billion a month for the last nine years. Yermack argues that this mismanagement is all the more damnable because so much of the cost of the failure is borne by society. By this logic, it’s foolish to give more money to automakers–we would do better to cut a $10,000 check to each employee and let the companies go bust.

That Yermack is a finance professor is telling. Why should we focus on the value of losing a major manufacturer? After all, Roger Smith was wise because he looked at what would make GM more money, and buying and selling companies will always use less employees than making cars. Efficiency! But such logic is behind the increasingly oxymoronic term “financial services industry.” What does the kind of finance we’ve been practicing really produce in the way of services? In the end, this “industry” got out of the business of providing services on sound commercial terms to keep the economy growing, and merely amassed capital for its own sake and redistributed it on terms completely divorced from reality. And, as Yermack fails to note, his preferred approach has now wasted far more money than the automakers have. To follow Yermack’s argument to its logical conclusion, the US should get out of the finance business because our financial titans have proven over the last 20 years that they cannot succeed without greater and greater injections of taxpayer capital.

As for the idea that we could invest in our automotive sector to build the next generation of automobile, to help us lead the way into the post-internal combustion engine world, Yermack dismisses the notion with one of 13 paragraphs, near the end of the piece. Because GM and the other US automakers fought environmental and fuel efficiency standards for so long, they don’t deserve a break now. This puts Yermack at odds with many environmentalists, including the filmmaker who exposed the industry’s offenses in “Who Killed the Electric Car?“, who are impressed with the Chevy Volt and the promise of an electric future.

The answer may not be to give GM everything it’s asking for, but if we are to bail out the Masters of the Universe who made–and cling to–their obscene compensation for making money off “crumbs,” the least we can do is find a way to buy time for the newly creative forces at GM to survive and, hopefully, help the US lead the world again in research and innovation. Our country is made up of drivers, and China is building highways the way we did beginning with Eisenhower. We should want the Chinese people, who increasingly are adopting the materialistic American dream, to drive American cars, and if they steal the technology to make their own cars, it is in our interest that they steal electric car technology. We simply can’t afford to have the Chinese population pollute the way we have over the past 50 years.

Professor Yermack, get your own house in order first, then tell us to abandon manufacturing.

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