The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Tuesday, Federal Reserve Chairman Alan Greenspan said he would continue to tighten credit to fight inflation, the long delayed trial of Oliver North opened in Washington, President Bush said John Tower was not an alcoholic and should be confirmed as Secretary of Defense. We'll have details in our News Summary in a moment. Jim.

MR. LEHRER: After the News Summary, we examine the Greenspan/Bush differences over inflation with Wall Street economist David Jones and author William Greider. Then come extended excerpts from President Bush's news conference, a Nina Totenberg briefing on the opening arguments in the Oliver North Trial and a conversation with movie director Frank Oz. NEWS SUMMARY

MR. MacNeil: Federal Reserve Board Chairman Alan Greenspan said today that he would continue to fight inflation by a policy of tightening credit. Testifying to the Senate Banking Committee, Greenspan reiterated his differences with the Bush administration by saying that the current rate of inflation is not acceptable and our policies are designed to reduce inflation in coming years. We'll have excerpts from Greenspan's testimony and analysis after this News Summary. Jim.

MR. LEHRER: The Oliver North trial began in earnest today. Lawyers on both sides gave opening arguments, describing the former Reagan White House aide in very different terms. Prosecutor John Kecker described North as a liar who placed himself above the law. Defense Counsel Brendon Sullivan said North always operated with the approval of his superiors in the best interests of his country. The jury of nine women and three men is considering 12 felony counts against North, ranging from lying to Congress and the Attorney General to destroying government documents. The trial is expected to last at least five months.

MR. MacNeil: President Bush urged the Senate to confirm John Tower quickly as Defense Secretary, saying that the latest FBI report showed no evidence that the former Senator is an alcoholic. The President told a news conference there is no evidence of the disease of alcoholism. He said the new reports should settle the controversy over his nominee.

PRESIDENT BUSH: What I got from it was that there has been a very unfair treatment of this man by rumor and innuendo over and over again, rumors surfacing, with no facts to back 'em up, and I saw this as a reaffirmation of what I felt all along, and that is that John Tower is qualified to be Secretary of Defense, he will be a good Secretary of Defense, although the report didn't answer that, but the allegations against him that have been hanging over him this, simply have been gunned down in terms of fact.

MR. MacNeil: In his first public comment on the furor over the book "The Satanic Verses" and Iranian death threats against the author Salman Rushdie, the President said, "However offensive that book may be, inciting murder and offering rewards for its perpetration are deeply offensive against the norms of civilized behavior.". He also said he supported yesterday's decision by the 12 nations of the European community to withdraw their envoys from Iran. Iran retaliated today by recalling all its ambassadors from Western Europe, and Britain ordered Iran's top diplomat in London to leave the country. We have a report from David Smith of Independent Television News.

DAVID SMITH: The Iranians are trying to make it look as if they've decided to leave rather than being ordered out. Their embassy in London was still open today. Their two diplomats here are expected to go this week. A statement from Tehran this morning said Iran was now recalling all its envoys in Europe in retaliation for the decision taken by the common market countries yesterday. The Iranian government is now isolating itself from the world outside. Whether it's effective or not depends to a large extent on what the Iranians do next. The latest pictures from Iran show Ayatollah Khomeini being acclaimed to an audience there yesterday. The latest word from his politicians is that Europe's diplomatic boycott will backfire. Suddenly, Khomeini appears to have come out decisively in favor of the radicals. Today's withdrawal of Iranian diplomats represents yet another setback for those who advocate compromise with the West. It's a sign of a changing mood here that today the leading moderates in Iran, Hashami Rafsanjani, the speaker of the Parliament, said there was no turning back, Iran would not be intimidated. And President Ali Khomeini making a state visit to Yugoslavia rode back publicly on a statement he'd made just a few days ago. Then he'd suggested Rushdie could be pardoned. today he said Iran would not be blackmailed into any such thing.

MR. LEHRER: There was a huge drug bust in New York City today. Police and FBI agents seized 800 pounds of heroin hidden in hollow, rubber tires. Officers said it was smuggled in by a Southeast Asian drug ring. The heroin had a street value of about $1 billion. Seventeen people were arrested and $3 million in cash was seized. FBI officials said it was the largest single drug seizure ever in this country.

MR. MacNeil: The Supreme Court said today that states may use anti-racketeering laws to fight pornography, but in a 6 to 3 decision, the court said authorities may not seize materials from adult bookstores before they were judged obscene at a trial. The court said the authorities in Ft. Wayne, Indiana, had illegally seized such materials before a trial.

MR. LEHRER: Survivors of the 1984 Bhopal tragedy in India protested a court settlement today. Some 2500 of them blocked roads to the Supreme Court building in New Delhi. They expressed anger at the court's agreeing to have Union Carbide pay only $470 million as a full and a final settlement of their claims. Thirty- four hundred people died in the gas leak from the Union Carbide plant. Another 20,000 were considered medically affected.

MR. MacNeil: In South Africa, two of Winnie Mandela's bodyguards were indicted on charges of murdering a teenage boy. Mrs. Mandela's fellow anti-apartheid leaders publicly denounced her last week largely because they said her bodyguards, known as the "Mandela United Football Club", created terror in the black community. We have a report from Ann Lukers of Independent Television News.

ANN LUKERS: Two boys were among four members of the Football Club arrested in a raid on Winnie Mandela's house on Sunday. One of those charged is the self-styled trainer of the team, Jerry Richardson. The two others detained that night have now been released. Police had woken the boys in their beds, then gathered all their possessions in a detailed search for evidence. The raid was filmed by South African Television. Throughout the eight hour operation, Winnie Mandela had cooperated fully with the police, though she insisted that the boys had nothing to do with 14 year old Stumpie Mcketsie, the small boy in the center here. He was one of four youths allegedly abducted in December by the Football Club. His decomposed body was only identified a week ago. The charges will add to growing controversy about the Football Club bodyguards. Their activities have already led to some leaders of the black community in Sueto disassociating themselves from Winnie Mandela.

MR. LEHRER: And that's it for the News Summary tonight. Now it's on to the dangers of inflation, President Bush's news conference, the Oliver North trial and an Oz named Frank. FOCUS - PRICE PRESSURE

MR. LEHRER: Inflation is first tonight as it is with the Chairman of the Federal Reserve, Alan Greenspan. He expressed his firmly held views on the subject again today before a Congressional committee. They are views that have put him on a policy collision course with President Bush. We follow both forks in that course in a moment after some build up from Correspondent Kwame Holman.

ALAN GREENSPAN, Federal Reserve Board: The central tendency of forecasts made by members of the Federal Reserve Board and presidents of Federal Reserve banks is for inflation to rise slightly in 1989, but let me stress that the current rate of inflation, let alone an increase, is not acceptable and our policies are designed to reduce inflation in coming years.

KWAME HOLMAN: In his testimony before the Senate Banking Committee this morning, Federal Reserve Chairman Alan Greenspan, like Paul Volcker before him, said the fight against inflation is his top priority.

PRES. RONALD REAGAN: Paul Volcker has advised me of his decision not to accept a third term as a member and chairman of the Federal Reserve Board.

MR. HOLMAN: When he was Fed chairman, Volcker managed to put the brakes on the double digit inflation of the late '70s and early '80s by boosting interest rates. The Fed under Volcker pushed rates as high as 21 percent. Inflation slowed, but the result of the Fed's policy was a 16-month recession beginning in 1981. In many ways, Alan Greenspan has been luckier. In his first year in office, 1987, inflation was a relatively low 4.4 percent. Though the rate fluctuated slightly by the end of 1988, inflation was an identical 4.4 percent. But recently, one key indicator of inflation, the Producer Price Index, took a big jump that may spell bad news. The Index leapt to an annual rate of 12.7 percent for January of this year. Another inflation figure for January, the Consumer Price Index, is due out tomorrow. For most of the past year, Greenspan has fought inflation, trying to slow the growth of the economy by gently tightening the money supply and raising interest rates. Last March, the prime interest rate, the rate big banks charge their best corporate customers, stood at 8 1/2 percent. Since then, it's risen to 11 percent. That higher interest rate in turn made mortgages, car loans, and every other kind of consumer borrowing more expensive. So Alan Greenspan believes raising the cost of borrowing is the lesser of two evils. But George Bush has shown signs he may disagree. In his first week as President, Mr. Bush drew a distinction between his views and those of the Fed chairman.

PRESIDENT BUSH: He is more concerned about inflation pressures than I am right now. It seems to me there's an area of difference.

MR. HOLMAN: Two weeks later, the President told The Wall Street Journal he opposes raising interest rates further, that is, he opposes precisely what Greenspan's Fed has been doing and is expected to continue to do. Despite much attention from the press over a possible rift between the President and his Fed Chief, last Thursday, the President tried to play down his differences with the man who holds the job that's sometimes called the second most powerful in the country.

PRESIDENT BUSH: People I think like to try always, whoever's President, drive a wedge between the President and the chairman of the Fed, it's one of the best fights in town.

MR. HOLMAN: In today's hearing, Sen. Tim Wirth questioned Greenspan about the Fed's anti-inflation policies.

SEN. TIM WIRTH, [D] Colorado: The assumption is that you all can calibrate interest rates carefully enough so that you can slowly edge them up without throwing real crisis into the S&Ls beyond where we are today or cause some of the fragility of various leveraged buyouts to get real problems because of increased interest rates. That's really the assumption and that's the balancing act that you all are in, correct?

ALAN GREENSPAN: Yes. It is what we endeavoring to do.

SEN. TIM WIRTH: I understand.

ALAN GREENSPAN: It is not easy.

SEN. TIM WIRTH: That's the point that I'm making, however, is that if -- well, let me ask the question, is there historic evidence to suggest that you can calibrate that carefully?

ALAN GREENSPAN, Chairman, Federal Reserve: We have never confronted a situation that is exactly comparable to what we are in at this particular stage. It is an economic environment which coupled with a very large trade and central government deficit creates a set of circumstances which we cannot merely look at some historical period and say this looked exactly like nineteen twenty X or something like that, and then evaluate how it came out.

SEN. TIM WIRTH: I think what we've really identified here though is really a high wire act that you're on at this point.

ALAN GREENSPAN: It is.

SEN. TIM WIRTH: And that our economy essentially is on. We've never been in a situation that is potentially as unfriendly as this economic situation.

ALAN GREENSPAN: All I will say, Senator, is that we are acutely aware of all of the various elements that are impinging upon what policies we take and hopefully we will choose over the years the series of the right paths for policy.

MR. LEHRER: Now to two different views on inflation and who's right. They are those of David Jones, Sr. Vice President of Aubrey G. Lanston, a Wall Street securities firm, and journalist William Greider, author of the recent book "Secrets of the Temple: How the Federal Reserve Runs the Country". Mr. Jones, you believe Greenspan is following the right course, correct?

DAVID JONES, Economist: He's been on exactly the right track. He's done a little bit of tightening when he needed to. Actually, I'd go back to the period right after the crash and give him an A+, but he is on a high wire right now and he's going to be sorely tested in 1989.

MR. LEHRER: Tell us why -- take us through with very simple terms -- why the fear of inflation is so extreme in his case and I assume in yours as well.

MR. JONES: Well, it looked like Fed Chairman Greenspan had some time. That's the most important thing a Fed Chairman needs, some time to look at the data, and Fed Chairman Greenspan is perhaps the biggest numbers cruncher around. He loves every number. He's never seen a number he didn't like.

MR. LEHRER: Is that a compliment?

MR. JONES: That's a compliment.

MR. LEHRER: That's a compliment. All right.

MR. JONES: He has enough time to analyze those numbers and to detail a response. As we saw late last year, starting in late March, five small tightening steps through June, then a discount rate increase in July, very orderly process. Well, starting in December, he began to get a little nervous again, but still had time. Then the big bell ringer came and it was that January Producer Price Index already referred to. That was a big jump way beyond anything we've seen. Some of it was volatile. Fuel and food always jump around each month, but looking behind that number, it just shows you building inflationary pressures, demand pressures pressing on existing capacity, and so the Fed Chairman is probably going to have to end up doing some more tightening than he might want to do, a little bit faster at some point.

MR. LEHRER: And interest rates will continue to go up?

MR. JONES: And interest rates will have to go up.

MR. LEHRER: And that's good?

MR. JONES: Well, you've nailed me on that one. I don't want to say necessarily good. It's only good if rates are needed to go up in order to keep inflation down. Let's put it this way. Inflation is bad. The only way Fed fights it is by raising interest rates and making credit more expensive for consumers and businesses.

MR. LEHRER: So it's a choice of which evil you want, in other words, to put a better face on it?

MR. JONES: Exactly.

MR. LEHRER: Bill Greider, you think this is total hogwash, right?

WILLIAM GREIDER, Author: 90 percent.

MR. LEHRER: 90 percent hogwash. All right.

WILLIAM GREIDER, Author: I think David is very good as a Fed watcher, what he does, one of the best, but he and others in financial markets and the Federal Reserve as an institution I think are fighting the last war. And the last war for them was the 1970s when inflation did get out of control, went up to double digits, financial investors got burned very badly by that, and they have this memory locked in the front of their heads and they're by God not going to let that happen again regardless of the consequences. And what most people don't get clear in their heads across America is that yeah, inflation at a certain rate makes people behave crazy in the economy, but moderate inflation is a trade-off with lots of other things, employment, wage levels, profits, if you are a debtor, as most Americans are, borrowing in a climate of moderate inflation actually makes it easier to buy a home, to acquire goods, to start a business.

MR. LEHRER: Why is that? Why does it help?

MR. GREIDER: Well, the fundamentals which every smart investor understands, are not the nominal rate you see printed in the newspaper. They're what's called real interest rates, and that's simply the nominal rate minus the inflation rate. That measures the real return on credit and capital, so if you're sitting in Wall Street managing somebody's fortune or big bank, naturally, you want a real rate that's high or higher because that means your return, your real return is higher. But if you're a borrower borrowing for a home, borrowing to expand a business, all the other activities of credit that flow through our economy, you want a reasonable real interest rate, one that is not too high. Now in the '70s if you were buying a house, real interest rates on those mortgages were actually negative.

MR. LEHRER: Now I don't understand that.

MR. GREIDER: All right. You bought a home with a 10 percent mortgage and your father said to you, that's terrible, I had a 6 percent mortgage when I bought my house, and you thought it was terrible, but, in fact, the inflation rate was running at 10, 11, 12 percent, and you were, in fact, making money on that borrowed money. I mean, David would say the same thing. This is a fundamental of money which has been true forever, so if Americans could learn to follow the real rate, they would really have a better sense of what the Federal Reserve or financial markets are demanding of the real economy.

MR. LEHRER: I think I followed you on this, Bill, but translate that into what Jones and Greenspan are saying now about inflation and interest rates.

MR. GREIDER: Go across the American economy and ask the steel workers, for instance, are they about to get a breakout of wage inflation, are they going to get big labor contracts that go to 10, 11 percent like they were doing in the '70s, they will laugh bitterly in your face if you tell them that. Go to wage earners generally and say, do you want the economy to slow down, the Federal Reserve says the economy is growing too fast, and here's the trade-off.

MR. LEHRER: So who gets helped then by the Fed policy?

MR. GREIDER: Yeah. The fundamental point I've been trying to get across is that this is a political debate. It's not science. It's not arcane economics. It's an argument about choices. What are our economic priorities? And what we have in the present situation which has existed for several decades is the government's policy making over the economy is literally split into and does not necessarily have to talk to each other, much less be consistent with each other, and David would agree with this I think. You've got a car with two drivers, as Wright Patton used to say.

MR. LEHRER: You mean the Fed and the President?

MR. GREIDER: The President has his foot on the gas. He stimulates the economy with tax cuts or federal spending, the budget, fiscal policy. The Federal Reserve has its foot on the brake. It can slow down the economy by simply jacking up interest rates, dampening sales across the whole economy, but particularly auto, homes, et cetera, and you literally, in the last decade, crazy as it seems, have had these two engines by which the government steers the economy in conflict, in profound conflict with one another.

MR. LEHRER: Do you agree with that, David Jones?

MR. JONES: Do I get equal time, Jim?

MR. LEHRER: More or less. I'm keeping the watch. Go ahead.

MR. JONES: Let's get down to basics. Paul Volcker had to run this -- go back one Fed Chairman -- he had to run this economy through a wringer to kill the inflation psychology that Bill's talking about. Human nature is such that if you try to let a little bit of inflation exist, you're going to buy a couple of houses to take advantage of that inflation and pretty soon demand is going to start pressing against supply and the inflation and wage process is going to go higher and higher. It's human nature to end up, when you think you're going to accept a little bit of inflation, ending up with in two or three years double that. Now we have a perfect experiment here. Instead of talking about fancy concepts, let's get down to basics. Paul Volcker ran this economy through the wringer, some people would argue ran it through two wringers, but what we had is the base laid for the longest post war expansion we've ever had, almost, we're going into our seventh year of expansion. He cleared the decks, wrung inflation out and gave us a chance to grow, more jobs created, more money for consumers to spend. What Alan Greenspan is trying to do as hard as he can is to keep inflation down enough so that we can sustain this economy over a long period of time, so we don't need these ups of too much inflation and downs of recession to try to stop too much inflation. And actually, if Greenspan gets in early enough and tightens the screws on a timing interval that is appropriate enough, we can still get through without a wringer, without going through the wringer.

MR. LEHRER: That's what I was going to ask you. Under your thesis and Greenspan's thesis if it works, what is the end result? What's the good mercy that comes from this?

MR. JONES: A nice soft landing long about perhaps early 1990, and by soft landing I mean real growth in the economy which is running about 3 1/4 percent now above or long-term potential, gets down to about 2 to 2 1/2 percent.

MR. LEHRER: Even with the President of the United States saying, hey, I don't think that's really a good idea, and if Bill Greider is right, there's a collision of concepts here?

MR. JONES: This is critical. The politicians always want a little more growth, they always want to spend for a constituent and you can always guarantee they're going to end up with more inflation than they thought they were bargaining for. There's only one keeper of the gate here and that's the Fed Chairman. And that's what Alan's trying to do, taking the punch bowl away before this party gets too wild with inflation.

MR. LEHRER: If Greenspan continues to do this, what do you think the end result will be, Bill Greider?

MR. GREIDER: Well, I'm not a forecaster. I begin by saying I don't presume to be, but it is clear in history, the Fed has now, albeit gradually, pushed short-term interest rates like the rates on one year Treasury bonds so that they're actually higher than the rate on long-term investments like 30 year bonds. That's called an inverted yield curve in financial markets, and since World War II, it's happened seven or eight times, and in allbut one or two instances, it was followed by recession. That's history. The question is, will Greenspan keep interest rates in that position long enough to cause a recession or will he back off? I hope he backs off, but I wouldn't bet a lot of money on it, because this is again a political fight. Let me say a word in behalf of the dirty politicians. Whatever their failings, and they have many, by their nature they have a much broader vision of the country than the governors of the Federal Reserve and the bankers and the financial advisers who are constantly telling the Fed what it ought to do for the good of America. They see the collateral consequences of this campaign that David has described like the homelessness in the street and the decline of home ownership in this country, like the trade deficit which not entirely through the Fed's fault, but it did fall out of Paul Volcker's campaign, like the collapse of farming and oil, like the savings & loan crisis which we are now going to pay a very big bill for. If I could get the people from Wall Street to talk about the whole range of trade-offs that are involved in monetary policy, then I would feel much more comfortable about them saying, yeah, let's go ahead and tamp out inflation.

MR. LEHRER: In other words, what David Jones is saying is good for Wall Street, but it's not good for very many others?

MR. GREIDER: Well, it's much more complicated than that, but it is always going to be good for Wall Street. If you're a holder of wealth, hard money maximizes your return and the value of your wealth. That's as old as money.

MR. JONES: What I'm saying is simply this, that we can all be happy if we can keep growth going, just as we've seen it in this expansion. More jobs will be created, more money will be in people's pockets, and this economy can keep going. If we let it get too hot, if we let inflation start to run away with itself, as sure as the world you're going to get a dose of restraint and you're going to get a recession.

MR. LEHRER: Gentlemen, we have to leave it there. I'm now going to go away and think about what you both have said. Thank you very much.

MR. JONES: Thank you.

MR. LEHRER: David, Bill.

MR. MacNeil: Still to come on the Newshour, the Bush news conference, the Oliver North trial, and Frank Oz, the creator of Miss Piggy. FOCUS - TAKING QUESTIONS

MR. MacNeil: President Bush is next tonight. As we reported, he held a news conference this morning specifically to announce that Rep. Bill Grant, a Democrat from Florida, was joining the Republican Party. But the President was asked about a number of other topics, including the 12 nation European community's decision to pull their diplomats from Iran because of Ayatollah Khomeini's call for the murder of Salman Rushdie.

PRESIDENT BUSH: I strongly represent the EC 12 declaration in response to the Iranian threats against Rushdie. However offensive that book may be, inciting murder and offering rewards for its perpetration are deeply offensive to the norms of civilized behavior and our position on terrorism is well known. In the light of Iran's incitement, should any action be taken against American interest, the government of Iran can be expect to be held accountable, and so that is my view on it and I think the EC 12 did the right thing.

LESLEY STAHL, CBS News: Mr. President, on John Tower, if we could, you said that the process has been unfair, and I'd like to ask you specifically about Sam Nunn who some people say will now run defense policy because John Tower has been so weakened and damaged by this drip, drip, drip of allegations.

PRESIDENT BUSH: I think Sam Nunn would be the first to deny that. I think he's been fair and have so stated before. The rumors, and he's not been promulgating a lot of endless rumors that prove to have no basis in fact, none, so he's done -- but the idea that he will run defense policy, I think he'd be the first to say that's not true. He will be a key player in it, and I hope that he'll be able to support Sen. Tower.

LESLEY STAHL, CBS News: Is Sen. Tower damaged in his ability to speak out for the Pentagon now that he's had such a lengthy process --

PRESIDENT BUSH: No. No. Anybody who's been through this ordeal will be stronger, not weaker.

JIM MIKLASZEWSKI, NBC News: But Sen. Nunn is concerned about these reports of Sen. Tower's drinking problems. The FBI report acknowledges that the Senator apparently did have a drinking problem in the 1970s. Do you think he's overly concerned, and why are you so convinced that this won't present a problem?

PRESIDENT BUSH: Because I know Sen. Tower. I've talked to a lot of people that have worked with Sen. Tower. I've seen the report on Sen. Tower, and I see nothing in there that would make me if I were a Senator vote against Sen. Tower. Now Sen. Nunn, he's got to reach his own conclusions, and I think he's been fair. And I think he is approaching it in a very professional manner, but I hope he reaches the same conclusion that I've reached.

CHARLES BIERBAUER, Cable News Network: Mr. President, you've said that you wanted your first step in the Middle East to be prudent. What do you mean by a prudent step? What do you have in mind?

PRESIDENT BUSH: What I have in mind is I don't want to just send somebody charging off on a mission to counter Mr. Shevardnadze's trip to see Mubarak and others. Let's do something that's going to hopefully have results. And I'm not saying that we have to know that a trip by the Secretary or a trip, instructions to an Ambassador are going to result in a settled policy, everything's settled in the Middle East, but I don't want to be stampeded by the fact that the Soviet Foreign Minister takes a trip to the Middle East, so in my view, that's a good thing.

CHARLES BIERBAUER, Cable News Network: What role do you think Mr. Shevardnadze and the Soviets could and should be playing?

PRESIDENT BUSH: I think that should be a limited role and I think that's what it's going to be, and that's exactly the way it should be, and I think the people in the Middle East feel that way. But the fact that he goes there really shouldn't be bad.

GERALD BOYD, New York Times: Mr. President, I think what concerns some people about Sen. Tower is the fact that he has admittedly had a drinking problem in the '70s and he hasn't really had any kind of treatment program or been enrolled in any kind of treatment program. What do you say to people about the potential of a relapse?

PRESIDENT BUSH: I say that there is no evidence of any kind of the disease alcoholism, none, none whatsoever, and that would be something that would be, that your question is addressed to, and I'd say that I looked at the reports with this in mind, and I didn't listen to rumors. I didn't listen to mindless allegations. I was fair enough to look at the facts, and I've known Sen. Tower and known him professionally and known him as a friend, and I do not think that these charges that are tried and then shot down and then tried again and then shot down again have helped the process. And so I'm not about to make a judgment on some rumor or some innuendo. And we've looked at the facts and I think the report speaks to the fact that a lot of the -- most -- I'd say all of these charges that we've read about have been rumor, and a lot of it vicious rumor, and so I am convinced that he is not only capable of doing this job but will do it in an outstanding way.

SARAH McCLENDON, McClendon News Service: I want to ask you about gun control. All over the country, the parents and the people - - now don't leave me, don't leave me --

PRESIDENT BUSH: Oh, Sarah --

SARAH McCLENDON, McClendon News Service: All over the country the parents now are going to city hall about this. Cleveland, they just had a vote. Polls are being taken. Mothers are up in arms about this. Something is going to have to be done about stopping guns and you say you're for them.

PRESIDENT BUSH: For what?

SARAH McCLENDON: You said the other day that you were not going to be for the ban on gun control.

PRESIDENT BUSH: I'd like to find some way to do something about these automated weapons. I'd like to see some way to enforce the laws that are already on the books about automated AK-47's coming into the country, and I'd like to find a way to be supportive of the police who are out there on the line all the time, and maybe there is some answer to it, but I also want to be the President that protects the rights of people to have arms, and so you don't go so far that the legitimate rights on some legislation are, you know, impinged on.

SARAH McCLENDON: That's what we said last year, but now --

PRESIDENT BUSH: Sarah, look at the laws on gun control, and you'll find where some of the most stringent gun control laws exist that weapons are procured there and weapons are used there, so you're not going to get me to do anything other than to say, look, I'm very concerned about this, I'd like to find a way to do something about this, and we're going to take a hard look to see what we can do about it, if anything, that would be helpful. But whenever there is a crime involving a firearm, there are are various groups, some of them quite persuasive in their logic, that think you can ban certain kinds of guns, and I'm not in that mode. I am in the mode of being deeply concerned and would like to be a part of finding a national answer to this problem.

KAREN HOSLER, Baltimore Sun: I want to ask you if it disturbs you at all that American book sellers were forced to take Mr. Rushdie's book, intimidated into taking Mr. Rushdie's book off the shelves, and if you've given any thought to some sort of federal protection to help them defend the --

PRESIDENT BUSH: The answer is yes and federal protection would be to enforce the laws that exist against people doing violence, and of course I'm concerned about that. Who wouldn't be?

OWEN ULLMANN, Knight-Ridder Newspapers: Do you plan to take any unilateral action toward Iran because of these death threats since Karen mentioned American book sellers have had to already as a precaution, they claim, to remove books from their shelves, there is an American connection, and you've also been slow to speak out about it?

PRESIDENT BUSH: We're speaking out here today and my view is that we're an open society. None of us like everything that's written, but certainly people should have protection of the law if they decide to go ahead and sell a book of this nature.

MR. MacNeil: The President also defended his trade policies. Asked about Japanese economic power, Mr. Bush said the U.S. open market policy required continued foreign investment in the U.S. and a lessening of trade barriers against U.S. sales overseas. The President leaves early tomorrow on a trip to Japan for the funeral of Emperor Hirohito before going on to stops in China and South Korea. UPDATE - DAY IN COURT

MR. LEHRER: The trial of Oliver North finally got down to business today in Washington. Judy Woodruff and Nina Totenberg look at what happened. Judy.

MS. WOODRUFF: After nearly a year of legal wrangling, the trial of former White House aide Oliver North began today in federal district court in Washington. North is charged on 12 criminal counts, including lying to Congress and the Attorney General and profiting personally from the Iran/Contra scheme. The jury was sworn in this morning and immediately afterward heard opening arguments from both the prosecution and the defense. Nina Totenberg, who is Legal Correspondent for National Public Radio, was there and now she's here to tell us what happened. Nina, all right, the prosecution went first. John Kecker is the attorney representing the prosecution. First of all, how long did he go on?

NINA TOTENBERG, National Public Radio: He went on for about an hour and a half using an easel with pieces of paper on it so that he could write words that he particularly wanted to stress and he said that Oliver North had lied to members of Congress, that he had looked them in the eye and lied to them, that he had looked the Attorney General in the eye and lied to him, that he had covered up his actions, that is, his actions orchestrating aid to the Contras at a time that aid was banned by the Congress, that he had covered that up because he knew it was illegal, that he had profited personally, as you said, that he had used travelers checks that were meant for the Contras as his own personal piggy bank, that he had accepted an illegal gratuity in the form of a fence around his house, and that he knew it was illegal because he tried to cover that up, that he, in addition, violated the tax code wilfully, and in short, I think I'm accurately quoting the prosecutor when he said when it came time for Oliver North to tell the truth, he lied. When it came time for Oliver North to come clean, he shredded and altered documents. When it came time for Oliver North to let the sunlight in, he covered up.

MS. WOODRUFF: Did you get a sense from listening to Kecker as to how strong the case that he has to present?

MS. TOTENBERG: I think the case is quite strong because Oliver North did do these things. We know that. The jury doesn't know that, but in his testimony before Congress, he admitted to many of these things. And there are aspects of the case that I think are probably particularly difficult for him, namely the charge that he lied to the Attorney General, because the Attorney General, after all, was carrying out a Presidential inquiry, so how can he claim that he was carrying out the President's orders.

MS. WOODRUFF: Did you get any sense of the jury's reaction, how closely they paid attention?

MS. TOTENBERG: They paid very careful attention to the prosecutor. In all candor, I would have to say that they seemed far more wrapped up in the story that the chief defense lawyer, Brendon Sullivan, told. There were jurors who were leaning forward who seemed to be listening to it almost if it were a soap opera, a very dramatic story. They were like this, they were hanging on his every word. He went on for considerably longer, 2 1/2 hours or more.

MS. WOODRUFF: Now why do you say that's a story in contrast to what the prosecution was saying?

MS. TOTENBERG: Well, the prosecution was laying out specific allegations of criminal conduct. The story that the defense lawyer, Brendon Sullivan, painted was a story of the man, Oliver North, whom he showed you from his childhood as an altar boy, to his heroic deeds in Vietnam, this man who became essential to the National Security Council, whenever there was a deed that needed done, whenever there was a crusade that needed crusading, some cabinet member said, get Ollie, and this man became the President's arm in as the defense lawyer put it keeping the Contras together body and soul, which was the order of the President according to the defense lawyer, and the defense lawyer, Brendon Sullivan repeatedly attached Oliver North to President Reagan and said he was carrying out his wishes in everything he did, that he was a creature of the secrecy of the very important anti-communist and anti-terrorist activity that he was carrying out on behalf of the President, that secrecy was the name of the game, that the President knew everything was secret, that he meant for it to be secret, that at one point he even said, if this leaks out to Congress parenthetically, we'll all be hung by our thumbs in front of the White House.

MS. WOODRUFF: Now what was so compelling about it? Was it the way that Sullivan was delivering it? Was it the portrait that he painted of Ollie?

MS. TOTENBERG: I think it was the portrait that he painted. It's a very dramatic story as told by Brendon Sullivan, and the last thing he said to this jury in a very harsh whisper, he said that Oliver North lived by the Marine motto "Sempre Fidelis", faithfulness, always faithful, that he'd been faithful to his family, to his wife, to his President, and in the end said the lawyer, the government of the United States abandoned him.

MS. WOODRUFF: Was there anything to note about the atmosphere in the courtroom through all this? I mean, was everyone hanging on every word?

MS. TOTENBERG: It's a very busy courtroom. There are people there who represent other indicted defendants. There are a lot of reporters. There are people from the special prosecutor's office and from the Justice Department. There are a lot of people doing their jobs in that courtroom. And so there's a lot of note taking. It's just a very busy, concentrated place. The people who are most hanging on every word are the jury.

MS. WOODRUFF: I'm going to ask the same question I did about the prosecution. Did you get a better sense after listening to Brendon Sullivan for 2 1/2 hours as to what his line of argument is going to be? Is it going to be that this was all done in the name of Ronald Reagan?

MS. TOTENBERG: Yes, that is going to be his line of defense, that this was done at the behest essentially of Ronald Reagan, and I think it makes it at least increasingly possible that the former President will have to testify if for no other reason than to save his own reputation because if Oliver North has his way, he will portray Ronald Reagan as as much of a liar as he was, in other words, every lie he told he believed that he was carrying out the wishes of the President of the United States, and if Ronald Reagan wants to deflect that, to change that impression, he's going to have to do it, himself, I think.

MS. WOODRUFF: Well, Nina Totenberg, thank you once again for being with us.

MS. TOTENBERG: Thank you, Judy. CONVERSATION - THE WIZARD OF OZ

MR. MacNeil: Finally tonight a conversation with Frank Oz. Frank Oz's world is one of muppets, men, and a femme fatale pig. At the age of 198, Oz began his collaboration of Jim Henson, the driving force behind the muppets. Together they made puppet history,creating one of the great romances of the 20th century. Oz is the vulnerable but tough Miss Piggy, but when she's not pining for the hard to catch Kermit the Frog, portrayed by Jim Henson, is a defined feminist who won't be kept down by any frog. [Miss Piggy Singing About Kermit]

MR. MacNeil: Oz also portrays Fozzy, Bert, Grover, Cookie Monster, and Animal and he played the character Yoda in the sequel to Star Wars. From directing The Muppets Take Manhattan and Little Shop of Horrors, Frank Oz made his first all people movie this past year. Called Dirty Rotten Scoundrels, the movie stars Michael Cain and Steve Martin as conmen who use a variety of ruses to fleece rich, gullible women. Here Martin poses as Cain's odd brother, Ruprecht. [Scene from Dirty Rotten Scoundrels]

MR. MacNeil: I spoke with Frank Oz about his multi-faceted career in our New York studio recently.

MR. MacNeil: Frank Oz, thank you for joining us. It is always intriguing to people when an artist they admire and love for one kind of work, in your case the muppets, decides to go off and do a different kind of work, in your case movie directing. Talk about that, why you wanted to do that and what it means to you artistically.

FRANK OZ: I guess I want to just have some control and not control in that I want to control people but I want to have a sense of vision. As an actor, puppeteer, performer, you're really a slave to the editor and everything. Here I can work with the editor and I can create things, so I really wanted to kind of go off and kind of have my own vision. It sounds hifalutin to have your own vision, but it winds up being that really.

MR. MacNeil: Are you tired of the muppets? Have they worn you out creatively?

FRANK OZ: I'm not tired of the muppets. I'm tired of Jim Henson personally. He's getting on my nerves actually is what it is. No, no, I love the muppets and I'll be with muppets forever. I love the muppets. Mainly I love the muppets because not because as puppets, I'm not a big huge puppet man here, I'm not a fan of puppets necessarily. I love character work and I think the muppets do character work. I see those as characters and that's what I love about it. Nobody does it better than the muppets. I have no reason not to do muppet work. I love the people, I love the characters, so I'll always do the muppets, you know, along with hopefully other stuff.

MR. MacNeil: In your new film, Dirty Rotten Scoundrels, it is your first chance to work with all human actors. You've had a mixture in the past. Is that liberating, or is it confining compared to working with things that you can control and manipulate?

FRANK OZ: It's so liberating because when you're dealing with a muppet movie, Jim, who's directed two of them, I've directed only one, you know, I've learned from Jim, and we have to pay all kind of camera tricks to convince you, the audience, and me the audience also, that you don't care that they don't have legs, because really, if you thought about it, you'd say, wait a second, how could that little character be that tall. You have so much work to do to to convince the audience that they are characters and not puppets.

MR. MacNeil: When you deal with the muppets, when you're dealing with your own muppet characters, you are the person who created the characterization and you perform for the muppet or inside the muppet or you perform the thing, doesn't that make film making somewhat limited by comparison where you are trying to move a human being around who may have a different conception of what the character is?

FRANK OZ: No,because I don't really move human beings around. When I perform, it's great because I love the characters that I'm doing and I work well with the other characters that the other performers are doing, but when I'm directing humans, directing is a misnomer, you see. You don't really direct people. You hope, you hope they'll do what you do. You know, it shouldn't be directed by Frank Oz or directed by -- it should be hoped by Frank Oz or hoped by Steven Spielberg or whoever, because you don't direct people. When you're dealing with talented people like Michael Cain or Steve Martin or Glen Heather, or whoever else I'm working with -- Rick -- et cetera -- you hope, you work with them, you talk about things. You know, there's the old vision of the director with the writer's crop saying get over there and shut up, I don't want to hear from you, I told you to go over there and that's it. You'd get laughed off the set so it's not directing really.

MR. MacNeil: Have you found what you consider is the ideal medium to release your ideas and your talents?

FRANK OZ: I think this show, this show is it for me.

MR. MacNeil: This show, our show?

FRANK OZ: Your show.

MR. MacNeil: All right. We'll accept that.

FRANK OZ: No. I think -- I like writing and directing really. Performing is great because as a director, you know, most directors are out of work until the next job. Me, fortunately, you know, I'm able to go back to the muppets as long as Jim will have me and I can perform and I can keep my machinery honed, I can really do that work, so I have a lot of fun there too. But I guess for what I want to express I think directing, although I'd love to direct theater too -- I'd like to bop around between theater and movies eventually, I'd really like to do that.

MR. MacNeil: You've created some characters who've become kind of permanent fixtures in the popular mind of this country.

FRANK OZ: That's amazing, isn't it?

MR. MacNeil: I was just thinking that it was.

FRANK OZ: You know, I sit here -- I came to New York when I was 19 -- and I sit here -- and I was 19, and I thought, gee, this is great, I'm working with all these professionals, and this is great, and all of a sudden here I am, you're asking me these questions, and I'm one of these guys I thought were pretty good. It's odd.

MR. MacNeil: I wonder whether you think it's odd or whether you stop and think about it, because it's not given to many people to create something that millions and millions of people through all the many generations of children growing up and the adults, themselves, are going to have great affection for and have as symbols of affection for themselves and their children like the Cookie Monster and Grover and Bert and Miss Piggy particularly, does that pass through your mind? I mean, they've become the equivalents in our generation of Mickey Mouse and Donald Duck and things like that.

FRANK OZ: No, it doesn't. It doesn't on purpose, because if you were to think how many people you reach, if you were to think how many people see a performance on a television show or a movie, and then becomes very important, and you lose that sense of spontaneity and that sense of fun. I mean, I think it's important to just do your work in that pit, in the pit wherever you're working with -- I say the pit, that's where the actual perspiration, the work happens with your fellow workers, and if you think that this is more important than it is, I think you're in trouble. I think you just do the best you can. I never think about it. After this program, I'll go home, I'll see my kids and my wife, and I won't think about it at all. I'll just go do my laundry, out to see a movie. If I start thinking I'm more than I am, then the work suffers. The important thing is the work and I just don't think about it, I can't. If I do, I think the work will suffer.

MR. MacNeil: Has it occurred to you ever that Miss Piggy or the Cookie Monster might outlive you, that they would be your immortality?

FRANK OZ: I'm so depressed right now after you said that.

MR. MacNeil: Really?

FRANK OZ: No. I'm thinking how long do I have to live here, I mean -- well, it's --

MR. MacNeil: I'm speaking just by analogy that certainly Mickey Mouse outlived Walt Disney.

FRANK OZ: It will. And I think hopefully in my new profession in, you know, ten, fifteen years down the line if I'm still around, that something I've done will also be significant enough to have as much impact. I don't know. I hope so, maybe not, but I think that if that happens, it's not bad. It's kind of nice to do that, you know, to have Cookie Monster -- those are great characters. I enjoy those characters. All of a sudden what's going on in my mind right now is that this tape is now playing 20 years later when I've died, see, and they're playing this back about how I feel, but, no, I think if it's all to the good, yeah, I think it's great. I'm very proud of the work I've done with Jim.

MR. MacNeil: You are the only Cookie Monster, right, and you're the only Miss Piggy?

FRANK OZ: Yeah.

MR. MacNeil: Nobody else goes in and plays those.

FRANK OZ: No. Nobody else could do you. I'm not being facetious when I say. Nobody else can do you, nobody else can do me.

MR. MacNeil: Yeah, but there are all kinds of people who can do what I do.

FRANK OZ: But nobody can do it better than you being you.

MR. MacNeil: But it's unusual for somebody to create a character that then remains their own only. I mean, for instance, the famous cartoon characters in the comic strips are often drawn by relays of people, I mean, Pogo has just come back into existence after Walt Kelley has been dead for 17 years or something.

FRANK OZ: Yeah, that's drawn. This is actual performance. This is "hands on". I maybe Rich Little could do your voice possibly, but Rich Little couldn't sit here and do you. Only you can do you. Jim Henson does all his own characters. The other people that work with us you don't know, Jerry Nelson, Richard Hun, et cetera, they do their own characters too. It's because no matter how you get around it the characters that I do have aspects of myself in them and if you tried to do it or somebody else who was proficient at it, you could not help but bring your own aspects in and that changes things. You just can't do it. You can approximate it and you can do it for a little while but not for long.

MR. MacNeil: I've seen you quoted as saying there is a down side to your work in that you've covered such a variety that people expect you to be, as I think you've said, decent and likable and warm and wonderful because your popular characters are. Now how is that a negative thing and have I quoted you correctly?

FRANK OZ: Yeah, yeah. Well, if you're an individual who wants to grow in some way -- and here I'm being treated as somebody who's arrived, I don't believe I've arrived, I don't believe I've done the things I want to do. I'm still on the road, so by no means do I see myself as an authority figure on arriving here, but nevertheless, I'm the guy sitting here so I'll answer the question. Those things I said really have to do with only one aspect of yourself. Ifyou are doing the muppets, the only down side I have of the muppets is that people see me as a munchkin often or as a wonderful human being because I do all things for kids. I do this because I'm with the muppets. I may do a movie that's R rated. Who knows? But when I'm with the muppets, there is an aura -- Jim really is the one responsible for the muppets, I'm not -- but there's an aura there that we're doing wonderful things and it's not unlike a person who is thought of as evil, I'm sure there are some wonderful things about him too. You don't want to be thought of as one thing or another. You don't want to be thought of as all decent, all good, all wonderful, because there's other parts of you, and I think I'd much prefer to have all aspects of myself out, you know, that's all.

MR. MacNeil: Is there --

FRANK OZ: It lacks, it limits growth if your thought is only one thing, that's all.

MR. MacNeil: You say you don't consider yourself somebody who's arrived yet.

FRANK OZ: No.

MR. MacNeil: What do you have to do to have arrived, in your view? When will you think you've arrived?

FRANK OZ: I guess I'm not looking to arrive. I hope I never arrive. I hope I continually am in the process of arriving. I think if I have arrived, then I think I'm in big trouble. I'm not looking to arrive so I guess when I said that I haven't arrived yet, what I really meant is that I hope I never arrive, and, therefore, I should never be in this position to talk to you, because I should never be, I should never be an authority figure or anything, because I think as soon as you know something, then I think you're not that smart because you never know enough. I believe in knowledge for knowledge's sake and I think you should keep on learning and keep on striving. That's the exciting thing, not the arrival.

MR. MacNeil: Well, then we'll pretend you never did this.

FRANK OZ: Okay, fine. Well, it's been nice not talking to you.

MR. MacNeil: Thank you. RECAP

MR. LEHRER: Again, the major stories of this Tuesday, Federal Reserve Board Chairman Alan Greenspan said he was sticking with his policy of combating inflation by tightening credit, President Bush said the latest FBI report cleared the air and the way for the confirmation of John Tower as Defense Secretary, and in opening arguments in the Oliver North trial, the prosecutor accused North of believing and acting as if he were, as he is above the laws of the land. The defense counsel said he was operating always on approval from above. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the Newshour tonight and we'll be back tomorrow night. I'm Robert MacNeil. Good night.