GO
Loading...

A crisis of GM proportions is coming

The Greek mathematician Archimedes famously said, "Give me a lever long enough and a fulcrum on which to place it, and I shall move the world." The confident wisdom of Archimedes, a man of uncountable "Eureka!" moments, has endured for more than two thousand years. But today our capacity to come together to move the world is frustratingly elusive. Where can we find the lever and fulcrum and position them in a way to do big things?

Washington doesn't seem like a likely place to find answers, but it must be part of the solution. Yet leaders of different parties can't even agree on the problem. Recent signs of a thaw in the Washington brinksmanship are welcome, but are too tentative to inspire much hope. We are still far away from a framework in which big decisions can be made.

Andrew Tisch speaks on stage during the 2014 City Parks Foundation Gala in Central Park, June 3, 2014 in New York City.
D Dipasupil | Getty Images
Andrew Tisch speaks on stage during the 2014 City Parks Foundation Gala in Central Park, June 3, 2014 in New York City.

Whatever the ideological differences between the parties, the specifics of what needs to be done are hiding in plain sight. We need tax reform that broadens the base and eliminates incentives that no longer make sense. To secure the long-term future of Social Security, modest changes must be made, such as raising the retirement age and means-testing benefits. Medicare, the major structural barrier to a sound fiscal future, requires pragmatic reform. Other federal spending must be cut. And we must also make smart investments in infrastructure and basic research. A citizen's group I helped co-found, No Labels, has outlined such a program in its National Strategic Agenda. Other organizations have converged on the same priorities. Of course, not every item on the agenda is popular with everyone. But the sum of all the solutions will benefit everyone.

So we know what needs to be done. But still, inertia prevails.

Read MoreWhy this state is the worst for business

To understand the ultimate consequences of continued inaction, look no further than the situation at General Motors. While GM is currently facing a massive recall, the structural issues the company confronted before the financial crisis in 2008 offer a cautionary parallel.

Like the U.S. government, GM's problems, which had been building for decades, were widely known. In the mid-1950s, the auto maker had a 54-percent market share. By 2008, the company's share of the market fell below 20 percent. Yet GM continued to support the pension and health-care obligations of a much larger enterprise. It was not uncommon to hear people describe GM as a healthcare company that also made cars.

The solutions to GM's problems were as obvious as they were impossible to implement: The company needed to rationalize the number of nameplates, shrink the dealer network, renegotiate labor union agreements and restructure health care and pension obligations. Yet management, labor, government and dealers could never come together in a way that would tackle these big problems. As a result, GM's flexibility was limited. Potentially promising market segments were neglected as the company focused on selling higher-margin vehicles with limiting futures. The company had become ossified by its own inability to face reality.

Read MoreGOP establishment has lost its way: Marco Rubio

As Herb Stein once observed, "If something cannot go on forever, it will stop." For GM, the moment of reckoning was the financial crisis in 2008. It was only the intervention of the government that saved the company from liquidation. And guess what? The restructuring included all of the elements that people had been talking about for years.

A crisis of GM proportions awaits the U.S. if we do not come together to address our major problems. We've seen this scenario play out before in the steel industry and the airline industry, and now we are watching it in the city of Detroit, among other cities and states which are on the same path. The clear lesson of these examples is that if we wait too long, our range of options becomes increasingly limited. As we saw in 2008 and 2009, long-deferred decisions made in the middle of a crisis are likely to satisfy neither progressives nor conservatives. Nor are crisis-driven policy choices likely to be wise and fair.

While the government bailout of GM is often portrayed as an unqualified success, it is important to remember that the ultimate cost bill to the people — still not repaid — stands at $ 10.5 billion. By this measure, GM was one of the largest failures of the bailout program. And shareholders of GM also lost billions of dollars — at the end of 2007, GM's market capitalization was $14 billion; by June 2009, right before GM filed for bankruptcy its market capitalization was $1.2 billion.

Given our current situation in the U.S. — $17.5 trillion in debt and growing, slow growth and stubbornly high unemployment — what is the proper position for Archimedes's lever and fulcrum? The fulcrum can be moved in two directions. Moving it closer to the center represents classic de-levering: austerity. Moving the fulcrum in the other direction, toward the edge, means focusing more on growing the market.

Reasonable people will disagree on where the sweet spot is that represents balance between de-levering and growing the market. But surely there is common ground. Even now, both Republicans and Democrats are calling for lowering the corporate tax rate while eliminating incentives. Historically, both parties have embraced funding for roads, bridges and other parts of our overburdened infrastructure. A generation ago, a Republican president secured the future of Social Security for many years with broad bipartisan support. Securing the long-term viability of Medicare is the biggest challenge, and will require great political risk for leaders of both parties. But it is better that we focus on this now than try to find a solution when the program is closer to insolvency.

Read MoreIs the tea party over?

As a nation, we need to address these challenges, or our economy will continue to grow at a level below its long-term potential. We must avoid the temptation to focus only on near-term good news that masks the structural problems that continue to become larger. On April 13, for example, the Congressional Budget Office revised downward its deficit projections for 2014 to $492 billion. This good news will be short lived. Toward the end of the decade, CBO projects that deficits will trend back upward to $1 trillion a year due to an aging population and rising healthcare costs.

Despite all of the political dysfunction, there is a nagging sense that if our leaders were locked into a room and told they couldn't emerge until they came to an agreement on these issues, they could be released in time for dinner, or maybe breakfast the next day. They certainly wouldn't starve. The solutions are much easier than the politics.

Maybe we should try the approach deployed by Rolling Stones manager Andrew Loog Oldham 50 years ago. The up-and-coming band had yet to write its own songs. As legend has it, Oldham locked himself in a room with Mick Jagger and Keith Richards until they produced a new song.

The song they wrote, "As Tears Go By," was a big hit.

Commentary by Andrew Tisch, co-chairman of Loews, a conglomerate with businesses ranging from offshore drilling to hotels. He is also a co-founder of No Labels, an organization aimed at overcoming the partisan divide to effect change in Washington.

Read MoreThe best and worst states for US taxpayers

Contact Politics

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More