At the dawn of the 20th century, Banks said, Australia was the most prosperous country in the world. But by the 1980s, it had tumbled from first to 18th place on a ranking of countries, according to the value of their economic production per person.

This fall was self-inflicted, thanks to policies ''built on the myth that interests could be protected 'all around' from the realities of the markets'', he told an Australian Chamber of Commerce and Industry dinner. But in the 1980s and 1990s, successive Labor and Coalition governments rejected such protection, unleashing a new wave of prosperity.

And today, blessed by burgeoning global demand for our natural resources, we have got lucky again, he said.

But as the Productivity Commission chairman, he warned of an unhappy ending, given a renewed fondness ''across the political spectrum'' for supporting industries under pressure, particularly manufacturing. The media interpreted this as a swipe at the Opposition Leader, Tony Abbott.

The entire manufacturing industry got about $6.5 billion in net tariff assistance in 2009-10, plus about $2 billion more in subsidies, Banks said.

Before giving more, it would be good ''to determine what this assistance is achieving for the country and whether it could be better spent'', he said.

The next part of Banks's story goes like this: the citizens forgot their troubles during their traditional feasting season until this week, when the ''realities of the markets'' suddenly struck again and Toyota Australia announced compulsory redundancies for 350 workers at its Melbourne manufacturing plant. Then the cry went up from the economists of the land: Why are we continuing to feed a lame industry?

The federal government's recent support attempts ''are like providing Panadol to a heart attack victim. It might make them feel a little less pain but it will do nothing to cure what's killing them,'' said Richard Denniss, executive director of the Australia Institute.

Denniss claimed ''Australia makes the second-biggest and second-dumbest cars in the world'', the Commodores and Falcons that guzzle too much petrol - and we pay for them over again when we buy them for our government fleets.

Stephen Kirchner, research fellow at the conservative Centre for Independent Studies said that the $10 billion assistance being provided to Holden, Toyota and Ford between the years 2000 and 2010 amounted to hundreds of dollars per worker.

If the government is worried about the workers, it should instead put the money into structural adjustment programs, or even give it to the displaced employees themselves to retrain, he said.

''It would be a more productive use of taxpayers' resources rather than just tipping it into the pockets of multinational car manufacturers,'' he said.

Bill Mitchell, the economics professor who heads Newcastle University's centre of full employment and equity said: ''My priority always is to protect people's jobs, but … in the Australian car industry, we were pumping money in and employment wasn't growing.''

The Australian Manufacturing Workers Union, which represents the displaced Toyota workers, disagrees. Ian Jones, the union's vehicle section head, said: ''In the motor industry for 40 years, economists have been saying there ought not be industry assistance. If you didn't have industry assistance, you wouldn't have industry. That is the reality all over the world.''

Australian government assistance is substantially less than car makers receive in the United States and the European Union, he said. Australian success shines in the production of four-cylinder cars and hybrids when the world claimed it could not be done and in the engines which flow from Port Melbourne to dozens of countries, he said.

The federal Innovation Minister, Kim Carr, defends the level of government financial assistance, saying Australia is one of only 13 countries that can build a car from scratch, encompassing design, engineering and manufacture.

The government must keep the industry alive because ''the mining boom won't last forever'', he said.

Mining and agriculture receive more public funds than the car industry, including $6.2 billion to the miners over the past four years in diesel fuel rebates alone, he said.

The government calls it co-investment rather than subsidising and for every dollar it contributes to the industry, the car makers must put in three. The partnership is based on mutual trust, Carr says.

When the Herald asked Carr in Detroit earlier this month how much governments decide how much money to allocate, he said: ''We have a very good understanding [of the car industry]. I am advised by very competent officials. We are not unknowledgeable about these issues.''

Holden's boss, Mike Devereux, said: ''The documents Kim gets are the exact same Excel spreadsheets that I get sent [from General Motors in Detroit]. There's no editing of them.''

The industry in which the taxpayers are co-investors has suffered a decade of sales decline. Purchases of Holden Commodores halved and Ford Falcon dropped by more than two-thirds in that time.

Each of the nation's three car makers has struggled against imports that have become cheaper as tariffs have come down and the Australian dollar has risen.

Toyota, in particular, is concerned about a long-term strong Australian dollar, but it is keen to stay here for the long haul to supply the Middle East car market, which now takes seven in 10 of its Australian-made cars. Its sales there are expected to almost double to 2 million by 2020.

Despite axing one-tenth of its local workforce, Toyota is investing up to $300 million on a new engine plant for the Camry, due to open this year. As engine factories take 10 to 20 years to recuperate investment, it is an indication the company plans to stick around for the time being.

Holden's spokeswoman, Emily Perry, said: ''Shutting our operations is the absolute furthest thing from our minds. We've always been committed to designing, engineering and building cars in Australia and nothing has changed. But we've been very open about the challenges we face.''

While Holden and Toyota are planning to build more fuel-efficient cars, Ford, which has weaker sales and a lower factory output than Holden, has not disclosed its strategy. It recently secured a deal involving $34 million from the federal Government and an estimated $19 million from the Victorian government which Carr declared will keep the future of the Broadmeadows car factory and Geelong engine factory secure until 2016.

However many times there are images of grim-faced workers being turfed out of jobs by transnational companies despite the public money bolster, politicians find that there is something about a shiny new car.

But Kirchner said: ''If you go to the early postwar years when Australia first produced a motor vehicle, there was a sense of pride around the early Holden … but the idea that you produced something in the past, so you should go on producing it forever is ridiculous.''

Mitchell believes that manufacturers retain political clout, even though in his view, we have never been a really viable manufacturing nation.

''Out in public land, there is this romantic idea about manufacturing, that you are not a country unless you have a manufacturing sector,'' he said.

The justification for big tariff walls in the 1920s was that Australia would become a mature nation of robust factories, he said.

''The problem is that the baby never grew up. It was always substantially protected right through to the 1970s and 1980s,'' he said.

While Labor's past is protectionist and the Liberals' free trade, the boundaries have blurred. In the 1990s the Labor prime minister Paul Keating and union heavy Bill Kelty pulled down trade barriers, while recently Abbott had to quell restlessness within Coalition ranks from frontbenchers Sophie Mirabella and Ian Macfarlane over the plan to cut $500 million from assistance to the car industry. Abbott confirmed recently the plan would go ahead, while Mirabella, the industry spokeswoman, said she was working on a post-2015 assistance package.

Kirchner thinks there is always a chance of a bidding war between the parties over who will give the most assistance to industry.

Denniss believes the Coalition is torn between populism and ideology because Australian voters like the idea of keeping a car industry and it could be politically perilous to pull the rug. Instead of automatically funding the same industries, governments would be better to pump money into innovators, such as alternative energy companies, he has suggested.

Holden's Devereux said recently, as president of the Federal Chamber of Automotive Industries, that losing the car industry would mean walking away from exports worth $3.6 billion a year and at least 59,000 jobs. There would also be a loss of billions of dollars in research and design for many years to come, he said.

Next week, Jones must negotiate with Toyota management to switch those redundancies from compulsory to voluntary. He has no hard feelings towards the company, which until now has held onto its workforce despite progressively selling fewer cars, unlike Holden and Ford.

''The recent announcement by Senator Carr created 300 to 400 jobs at Ford Broadmeadows, so hopefully they can move from Toyota to Ford without loss of job,'' he said.

Perhaps during its four-year stay of execution, Ford can find something viable to build in Australia. However, the car manufacturers' dilemma remains that exports are crucial because our population does not buy enough vehicles to sustain all three.

As long as the Australian dollar remains strong, exports are unviable. A bedtime story for insomniacs.