If you want to know why Detroit's "Big Three" auto companies are pleading for a congressional bailout today, you need to know what happened in 1980.

That was the year that Chrysler, the No. 3 U.S. automaker, came close to going belly up. After years of unsuccessfully struggling to adapt to a more competitive marketplace due to Japanese imports and a growing presence in the United States of Japanese-owned manufacturing plants, Chrysler was bailed out with a $1.2 billion government loan guarantee and a quasi-Chapter 11 bankruptcy proceeding.

Several years later the U.S. Treasury was able to auction off Chrysler common stock warrants at a profit of $300 million. But while taxpayers at the time may have thought they came out ahead, the bailout created a mega "moral hazard" precedent that Big Three managers, shareholders, workers and affiliated politicians are frantically trying to leverage again today.

A moral hazard occurs when companies can avoid tough decisions or take unreasonable risks because they don't pay the price -- someone else does, such as we the taxpayers.

For Big Three management and board members, the lesson of 1980 is clear: If Chrysler was too big to fail then, certainly all three must be considered too big to fail now. Truly serious downsizing, substantive labor contract re-negotiations and a vast change in management culture can be avoided since the U.S. government will be always be there to bail them out.

The argument today, as before, is that too many jobs are at stake, starting with 240,000 at the Big Three and more if you include suppliers and ancillary businesses. If you think "economic impact studies" that gauge spinoff effects are usually worth reading (I don't), one industry-supported research group claims that a 50 percent reduction in Big Three U.S. operations would lead to a loss of nearly 2.5 million jobs in 2009. (Give me the right assumptions, and I can get you to the moon.)

But letting car companies go bankrupt, while generating substantial problems for many suppliers, creditors and others, does not mean that the companies or facilities necessarily would disappear. Indeed, to the extent that the underlying demand for Detroit's better-selling cars and trucks remains, those production lines are likely to stay open. To the extent that buyers switch to domestically produced Hondas, Toyotas and the like, U.S. jobs will be added to the roughly 113,000 now provided by these foreign "transplants."

Just as imports and upstart "mini mill" operators such as Nucor and Steel Dynamics helped drive many old-line steel companies to the wall in the 1980s and 1990s with their new technology and work practices, imports and foreign auto transplants today are demonstrating that the Big Three American producers have not made needed adjustments. Instead, they have wasted vast amounts of capital ($182 billion at GM alone over the past 10 years, according to finance professor David Yermack of New York University). There has been no credible demonstration by any Detroit CEO that additional billions from the federal government are going to be used differently.

The argument is being made by some politicians and industry supporters that bailing out the auto industry is a matter of "equity" -- the government is advancing billions to financial institutions, so why shouldn't it do the same for hard-pressed manufacturers?

The answer is that the actions taken by the U.S. Treasury, the Federal Deposit Insurance Corp. and the Federal Reserve have been directed at stopping a massive run on the financial system, including $3.4 trillion in mutual funds. The focus has not been on saving individual financial firms or jobs (of which 200,000 have been lost since December 2006). It has been on reviving a banking system that suddenly stopped lending, threatening to shut down large chunks of the economy.

Although it appears the run has been halted, the availability of new loans remains seriously constricted for many private and public sector borrowers all around the country, with serious effects on job-creating investment.

A third argument for an outright bailout is that bankruptcy for one or more of the Big Three would push us into a depression.

No doubt there could be a more convenient time for such a trauma to take place. But as someone who remembers vividly the double digit unemployment rates of the 1980s as part of the steep price for getting inflation under control, I think we should accept such an tradeoff. A 10 percent unemployment rate is nowhere close to the mass unemployment of the 1930s, and today's federal government has more safety-net programs in place to cushion the blow.

The Big Three's "tin cup" expedition to Washington last week illustrates perfectly the moral hazard of bailouts: precedents influence the behavior of those who follow.

If Chrysler had been eliminated as an independent automaker in 1980, much as LTV, Bethlehem, and other American steel companies have disappeared, chances are that GM management and workers would have seen the light. They would have taken more of the necessarily painful steps to get their house in order. This is what U.S. Steel did after outsiders Wilbur Ross and Lakshmi Mittal established their credibility with investors and with the steel workers' union and then reorganized much of the faltering integrated U.S. steel industry.

A bailout of the Big Three designed to avoid bankruptcy would reinforce a precedent that, in the long run, would rank as a major achievement in eroding American competitiveness in global markets. It took the collapse of Penn Central in 1970, the largest corporate bankruptcy of its time, to start the fundamental restructuring of the American railroad system (despite an attempt by the Nixon Administration, blocked by Congress, to bail it out.) Let's emulate 1970, not 1980.

What is needed today for Detroit auto makers is a massive, painful restructuring under new leadership, probably from outside the automotive industry. If a modest amount of federal assistance could help make that happen (as it did in the case of the steel industry), it could be money well spent.

But the industry's management and labor leaders show no signs of being ready to undertake such an effort. It may be best for taxpayers and the long-run future of the American economy to let some of the Big 3 go bankrupt so that the "creative destruction" of capitalism can do its job and allow a new, more competitive auto industry to rise in their place.