Let me start by saying that I have a ton of respect for New York Times columnist Thomas Friedman. With that out of the way, let me also say that this weekend that Friedman floated one of the worst ideas I’ve heard in a long time.

I’m talking about his column, posted on Saturday, called “Start Up the Risk-Takers.” 

Friedman’s critique of the automotive industry is right on target, as usual:

Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in government aid — on top of the billions they’ve already received or requested — leaves me with the sick feeling that we are subsidizing the losers and for only one reason: because they claim that their funerals would cost more than keeping them on life support.

Where he goes off the rails is the solution. First, I don’t agree the answer is just to shove them into bankruptcy and tear up the labor agreements. But that’s another discussion.

His truly awful idea comes from where he’d like the U.S. government to steer the bailout money: venture capital firms. Friedman says:

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

Now, it’s hard for me to gauge whether he’s serious, or he’s just trying to make a provocative point that we should be investing more in innovation and start-ups. I could get on board, if that were the case. But pumping money into venture firms? Puh-leeze.

First off, who told Friedman that venture firms were hurting for cash? In fact, they’re sitting on piles of money they’ve raised in recent years. A lot of that money did come from foundations and endowments, which have taken a whack.

But venture firms aren’t really out raising much money at the moment. That may be a problem two or three years down the road. But not right now.

The bigger immediate problem is the venture capital business model. The money raised assumes that the funds will invest the cash and achieve certain returns based on liquidity events. That is, when portfolio companies are sold or pull off an initial public offering of stock.

The problem is that the IPO market never really came back after the dot-com bust. And now it’s locked down tight. Since that’s closed, start-ups lose significant leverage when they negotiate to be acquired by someone else. There will certainly be plenty of acquisitions in the months ahead, but it’s a buyer’s market.

So it’s not certain that even when the economy rebounds that venture firms will be able to achieve the returns that justify the types of capital they’ve been raising. And that makes them a bad bet for U.S. taxpayers funds.

What should the government do? Stick to what it does best. Ramp up funding for basic research. If we want better returns on these investments, we should require a royalty payment on technologies that are commercialized.

And when cutting edge products emerge, the government can create a market by becoming an aggressive customer. The government did this way back when by being an early customer for semiconductors. And that’s worked out pretty well for Silicon Valley.