08/08/2009 05:12 am ET Updated May 25, 2011

Bailing Out Luxury

With the start of Haute Couture Week in Paris, luxury is already on the ropes. Christian Lacroix is going under. Meanwhile, Prada and Armani are offering their brands to cell phone makers, televisions and cars.

Still, at the recent Financial Times Luxury Summit in Monaco, Bernard Arnault, chairman of the Moet Hennessy Louis Vuitton group, explained how the glut of luxury goods on the market was driving down costs and thus stimulating demand. And, as Marc Jacobs shoes sell for the same price as Loomstate at Target, more folks will choose champagne and caviar dreams. Or, as Arnault put it: "We don't buy our dreams at the supermarket."

However, this oversupply of luxury goods is not just the result of fewer spenders on Madison Avenue and Rodeo Drive. We, and our allies, are bailing out luxury.

We are offering government loans, grants and insurance to keep factories around the world over-producing luxury goods. Along with our allies, we are paying power bills, giving money to buyers to purchase these goods and bring them to market, and even building new factory towns from scratch to increase capacity.

This luxury bailout is making sure that artisan sewing jobs, supposedly essential to luxury manufacturing, do not return to Italy or Manhattan. In other words, we are keeping labor costs down overseas, making our own labor markets less competitive. We are also relaxing our legal rules, so that a purse made in China can wear a Made in Italy label by sewing on a strap in Europe.

Our fashion foreign policy is not just about what we wear abroad.

It is also about how we inject large amounts of money into fashion houses. As Louis Vuitton joins Citi, Chrysler and AIG, we should ask what public purpose is being served.