The United States Government is taking great pains to prop up gigantic financial companies that made catastrophic decisions. One Harvard Business School professor thinks that small, local businesses will be the economic engine of the future.

That is how innovation works: small companies competing like crazy and trying out new things. Across cities, there is a strong connection between an abundance of small firms and local growth. The last thing that the government should be doing is propping up big declining firms. Real innovations are far more likely to come from someone’s garage, which is where Chester Carlson came up with the Xerox machine during the Great Depression.

The Big Three automakers pose real policy problems. The government is already on the hook for their huge pension liabilities. Vast layoffs will make the recession worse. I am not arguing for complete laissez-faire, but an open-ended commitment to this industry, or any other, is pure folly. Growth requires change, not binding our country to declining industries.

I’m not certain that the current knowledge economy, often depending on broad partnerships, will be just about one guy in his garage, but this would be a radically different approach to economic development policy.