The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. I'm Jim Lehrer in Washington.

MS. HUNTER-GAULT: And I'm Charlayne Hunter-Gault in New York. After the News Summary, we zero in on one of the hottest items on the campaign trail this week, foreign policy. Then half of our Gergen & Shields team, David Gergen and guest Wendy Sherman weigh in on that and other political hot potatoes. Next, Correspondent Paul Solman reports on the culprit behind the recession, and we close with a "Can We All Get Along" conversation. Tonight: The views of Asian-American Evelyn Hu-Dehart. NEWS SUMMARY

MR. LEHRER: Two more major reports on the economy were released today and they sent different signals. The Commerce Department reported factory orders jumped 2.3 percent in June. That was the best performance in almost a year and the fifth gain in the past six months, but a separate report from the Commerce Department showed no growth in personal income last month and that personal spending was up only .5 percent. President Bush said again today he would step up his attacks on the Democratic ticket after the Republican Convention. He spoke at a campaign rally in Riverside, California.

PRESIDENT BUSH: You wait, because I've been going through a little javelin catching for about 10 months from the political opposition, and I cannot wait for our convention to roll up my sleeves and go after them, and tell the American people what's really going on! [applause] And they've been dishing it out for about 10 months, helped by some on the editorial pages, and let's see if they can take it, starting two weeks from now. That's the way I feel about it.

MR. LEHRER: Bill Clinton today responded to earlier attacks from the President. Yesterday, Mr. Bush charged Clinton would gut the defense budget, wiping out a million jobs and jeopardizing the nation's security. In Little Rock, Clinton told a youth group a weak economy was a greater danger. He said cutting some defense programs would free up money to revive the economy. He said we'll still have the strongest defense in the world. Charlayne.

MS. HUNTER-GAULT: A Thai Airways jetliner crashed into the side of a mountain in Nepal today. One hundred thirteen people were on board, including eleven Americans. There was no word on survivors. The crash happened about 60 miles South of Nepal's capital, Katmandu. Flight controllers said they had warned the pilots of poor visibility due to monsoon rains. In China, at least 100 people were killed when an airplane crashed while taking off from the Nanjing Airport. The Chinese airliner burst into flames about 600 yards from the runway. Twenty-six people reportedly survived. Back in this country federal investigators began searching the wreckage of a TWA jet which burst into blames yesterday at JFK Airport in New York. The plane was about to take off when the fire in the tail engine broke out. The takeoff was aborted and all 292 people on board managed to escape. There was a report today that investigators are looking at the possibility of a ruptured fuel line.

MR. LEHRER: A list of 39 American civilians believe jailed in the Soviet Union at the end of World War II was released in Moscow today. James Mates of Independent Television News reports from Moscow.

MR. MATES: A Russian general reveals for the first time a list of 39 Americans imprisoned in the Soviet Gulag and still thought to be alive a month after President Yeltsin first raised the possibility there is now proof from the KGB's own files that American prisoners may have survived decades in captivity. American investigators in Moscow are excited by the news but uncertain what to make of it.

COL. BILL SAXE, U.S. Investigator: We can't say with certainty just what it is we've got. You know, we've got some information, it looks promising, but exactly what it is and how well documented it is I can't say right now.

MR. HOLMAN: Last month, Col. Saxe had led a team of officials to a Siberian prison camp North of the Arctic Circle. They were searching for an American airman shot down during the Korean War and reportedly seen here by a fellow prisoner. They didn't find him, but promised the search would go on in the belief the KGB had held many Americans after the war, particularly those whose ancestors had once emigrated from Russia.

MR. LEHRER: The Russian general said the Americans were subjected to pressure to renounce their citizenship. He said those who didn't were sentenced to long prison terms. A relative of one person on the list came forward today to say she was alive and living in a nursing home near Pittsburgh. The brother of Pennsylvanian-born Irena Burkow said she spent about 20 years in a Soviet psychiatric hospital. He said their mother brought her back to the United States in 1961.

MS. HUNTER-GAULT: The humanitarian airlift to Bosnia was temporarily suspended today because of heavy fighting in the capital. Some of the heaviest took place overnight as Serb and Bosnian forces traded fire near the Sarajevo Airport. At least eight people were reported killed and fifty-three wounded, among them five United Nations peacekeepers. They were protesting a U.N. radar installation when their position came under fire. The U.N. is investigating the incident.

MR. LEHRER: The space shuttle Atlantis blasted into space this morning from Cape Canaveral, Florida. It and its seven astronauts are on a seven-day mission. The primary work is to reel out a satellite on a 12-mile-long cable and then drag it through space at 17,000 miles per hour. The experiment is designed to generate electricity. It is a joint U.S.-Italian enterprise. And that's it for the News Summary tonight. Now it's on to foreign policy politics, Gergen & Sherman, economic recovery and "Can We All Get Along?" FOCUS - POLICY OR POLITICS?

MR. LEHRER: Some foreign matters finally came up in the 1992 race for President the last few days, matters such as Yugoslavia and Iraq. President Bush and Gov. Clinton plus their various spokespeople and surrogates exchanged blasts over the Bush-Quayle record and the Clinton-Gore prospects for handling international crises and problems. A Republican Senator and Democratic Congressman will continue that exchange here after this backgrounder by Kwame Holman.

MR. HOLMAN: Last Sunday during a campaign swing through Western states, Bill Clinton blamed Serbia for the ongoing ethnic violence in Yugoslavia. In a written statement, he said the "U.S. should take the lead in seeking U.N. Security Council authorization for air strikes" against Serbian targets if relief efforts continued to be disrupted. On Monday, in an off-camera briefing, White House Spokesman Marlin Fitzwater attacked Clinton's recommendations on the Yugoslavia crisis as a "reckless approach to foreign policy." Fitzwater went on to say Clinton and running mate Al Gore were "a long way from being qualified to lead the country." Later Monday, President Bush, in Detroit for a campaign appearance, made a point of touting his own experience in international matters.

PRESIDENT BUSH: [July 27] Many times in the White House late at night the phone rings and usually it's some young aide, double checking on the next day's schedule, but occasionally it's another voice, more serious, more solemn, carrying news of a coup in a powerful country, or asking how we should stand up to a bully halfway around the world. And the American people need to know that the man who answers that phone has the experience, the seasoning, the guts to do the right thing.the

MR. HOLMAN: On Tuesday, the Democrats fired back, signalling they were not going to cede the administration the edge in foreign policy.

AL GORE: [July 28] If President Bush and Vice President Quayle are such whizzes in foreign policy, why is it that Saddam Hussein is thumbing his nose at the entire world?

JIMMY CARTER: It is I think a very sad mistake and an unacceptable precedent if the Secretary of State does step down from his role and assume the role of a political campaign manager. And I think this is so indicative of the superficiality with which the foreign policy issues in this campaign are likely to be addressed.

MR. HOLMAN: When he returned to the campaign trail toward the end of the week, President Bush continued the attack on Clinton's foreign affairs experience. Yesterday, in Anaheim, California, the President talked about Bill Clinton's acceptance speech at the Democratic National Convention.

PRESIDENT BUSH: [July 30] He went on about the future of the country -- I'm told -- for about an hour. And out of all that time that speech spent about one minute on the national security of this nation.

MR. HOLMAN: But Clinton has continued to challenge Bush's foreign affairs strong suit. Yesterday in Little Rock, he talked about his statements prior to the Gulf War about sanctions versus the use of force in Iraq.

BILL CLINTON: [July 30] We'll never know whether the sanctions would have worked at some point in the future. My instinct is that they would not have. And I think we now know more than we did at the time about how ineffective they are with a person like Saddam Hussein who apparently has capacity to break embargoes for the elite in Iraq and doesn't mind how much his own people suffer.

MR. LEHRER: Now the views of Sen. John McCain, Republican of Arizona, and a member of the Senate Armed Services Committee, and the Select Committee on POW/MIA Affairs, and Congressman Dave McCurdy, Democrat of Oklahoma, Chairman of the House Intelligence Committee, and a member of the House Armed Services Committee. Sen. McCain, Marlin Fitzwater accused Gov. Clinton of having a reckless approach to foreign policy. Do you agree with that?

SEN. McCAIN: If we are talking about air strikes into "Serbian positions" I have to. I'd be curious where those positions are that he wants to strike, how many civilians live around there -- as you know, it's a very heavily populated country -- and whether we're prepared in those "air strikes" on Serbian positions to sacrifice the lives on innocent civilians. So I'd say yes and I'd also like to comment on the quote that you -- the clip that you had of Gov. Clinton where he said he suspected that the sanctions wouldn't work. In January 1991, he said, "I agree with the arguments of the people in the minority on the resolution that we should give sanctions more time and maybe even explore a full scale embargo before we go to war." I think that's how you get the reputation for equivocation.

MR. LEHRER: Congressman McCurdy, what do you think about the "reckless" charge against Gov. Clinton, is there validity to that?

REP. McCURDY: Not at all. As a matter of fact, I assume Sen. McCain's going to say that Sen. Lugar has been guilty of recklessness as well, because he and a number of prominent Republicans, as well as a number of us Democrats, have said that in order to stop the manslaughter and the genocide against innocent civilians in former Yugoslavia and Bosnia that the union should continue the use of force. Now, they've not outlined exactly what that force may be, but I think it's clear that for us to stand by on the sidelines as thousands and thousands of people are slaughtered and millions of people turning to refugees, is -- and perhaps that is more reckless than saying that we'll put the integrity of the United States in working with the United Nations to see if we can't put a halt to that.

MR. LEHRER: Well, Senator, what about that point? Sen. Lugar, who is a prominent Republican member of the Senate Foreign Relations Committee, and other Republicans have said almost exactly what Gov. Clinton said. Why is it different when he says it?

SEN. McCAIN: Jim, they haven't said that, my friend, so you're wrong there.

MR. LEHRER: Well, I can read it to you.

SEN. McCAIN: Please read it to me, because he didn't say they wanted to launch air strikes onto Serbian --

MR. LEHRER: No, but what they said --

SEN. McCAIN: -- positions, so go ahead and read what you want, but he didn't say launch air strikes into Serbian positions. It's one thing to use force if necessary in a measured and calculated way so that we're not going to send American young men and women into a meat grinder. There's a very significant difference. We started the Vietnam War, Jim, with air strikes were going to settle the problem of the Vietcong.

MR. LEHRER: So you do not favor -- you and President Bush and the Republican Party do not favor the use of any kind of force?

SEN. McCAIN: No, I didn't say that.

MR. LEHRER: All right.

SEN. McCAIN: I didn't say that at all.

MR. LEHRER: What do you favor, sir?

SEN. McCAIN: What we favor is a United Nations mandate and all of the support like we the President successfully garnered during the Persian Gulf War, if necessary, but we also believe that the Europeans should lead in this since it's primarily a European problem. And don't let the Persian Gulf War make you believe that the United States can be the world's policeman, because frankly I don't know if our soldiers know Serbians from Croatians, from Bosnians from others, and so if we have to use force, it has to be a United Nations effort, and I would suggest that it probably has to be something on the ground to start with, like clearing the path between the airfield and the people beleaguered in Sarajevo.

REP. McCURDY: Well, I find that full of contradictions because, in fact, what you have is an effort by the Serbians for ethnic cleansing. They're driving out the ethnic minorities within that region, which amounts to genocide. What Gov. Clinton has been saying is that the U.N. should lead, butthat there should be forces, including the United States, in support of that U.N. effort, including those mandates, and that should be collective. But the sad reality is that President Bush thinks now that he can cede foreign policy to the Europeans who have shown no interest in providing leadership on something of this importance. What Gov. Clinton is saying, he wants to use the power of the United States to maintain our position as the leader of the world, not the world's policeman, but remain engaged in efforts to provide moral leadership as well as support for dictators around the world, which seems to be the case in the Bush scenario.

SEN. McCAIN: I find it curious that he wanted to use force, wants to use air strikes into Serbia, but he did not want to use force in the Persian Gulf.

REP. McCURDY: That's not true.

SEN. McCAIN: The quote is right there.

REP. McCURDY: But the time of the quote itself --

SEN. McCAIN: January 1991, when we were deciding.

REP. McCURDY: No. You actually look at the dates of the vote and Gov. Clinton and Sen. Gore supported the Gulf War, as did I. It's ironic that today many Republicans are saying, well, it appears that Gov. Clinton's going to support a foreign policy directed by George Bush. They didn't accuse us of bipartisan support when we were actually working to provide force in --

SEN. McCAIN: We got very little bipartisan support --

REP. McCURDY: No, actually --

SEN. McCAIN: -- in the United States Senate, Dave, or --

REP. McCURDY: Well, thank goodness --

SEN. McCAIN: -- there was like five or six --

REP. McCURDY: Thank goodness that Al Gore and myself and others provided leadership so there was a majority that provided that. What we see now --

SEN. McCAIN: It was a bare majority of 52 to 47 in the United States Senate.

REP. McCURDY: What we have now is a spokesman for the Democratic Party, the clear spokesman now saying he wants to use foreign policy, one of engagement, one of support for democracies, and it's not just using a rolodex to be on first-name basis with dictators around the world, but to actually use this force for good. And he also understands a very important point which George Bush obviously has not understood, and that is he understands the connection between a strong domestic economy at home and our engagement in foreign policy abroad. If George Bush had said that right after the Gulf War he was going to use the momentum and the unity that was achieved during the Gulf War to address our pressing problems here, then perhaps he would be in the lead in the polls today.

MR. LEHRER: Let's go to the more general issue on foreign policy, Sen. McCain. And the President -- we used it in the clip a moment ago, a clip of the President that's been used already by other Republicans against Gov. Clinton, and that is the experience point, that President Bush has much more, has a tremendous amount of experience in foreign affairs, Gov. Clinton has none. Is that important?

SEN. McCAIN: I think it's quite important. The foreign policy experience that I know of that Gov. Clinton has was working for Sen. Fulbright as an intern and leading anti-war demonstrations during the Vietnam War outside the U.S. embassy in London. Yes, clearly, he has very little, but he's -- but I must give some credit. He is using a strategy, a Karbell strategy, which I think is very intelligent.

MR. LEHRER: That's James Karbell, one of his advisers.

SEN. McCAIN: Right. I just agree basically with everything that President Bush is saying with minor modifications. The fact is that if youcut the defense budget by 100 billion of his 90 seconds that he devoted to foreign policy and none to veterans by the way, that clearly he has very little experience, and he's very uncomfortable with it, but he is handling it I think in a way which focuses a lot on our economy, but lately I'm very concerned, as the Wall Street Journal was this morning and others, about his apparent abrogation of his commitment to the North American Free Trade Agreement, which I think is vital to the economic future of this country.

MR. LEHRER: Congressman McCurdy, speak to the experience problem that he has.

REP. McCURDY: Experience does not always connote judgment and experience didn't help George Bush in his pre-war assessment of Saddam Hussein and his ability to work with him, or even to provide assistance. It didn't -- experience didn't indicate that he should stop supporting the octogenarian leadership of China, the communist dictators, and as opposed to working with the pro-democracy movement. Experience didn't tell him that he should work to support Boris Yeltsin instead of clinging to Gorbachev right up to the very end. And let me tell you something. John McCain has just said that it's reckless to cut $100 billion out of the defense budget, however, with his experience, Sen. McCain has made a proposal to cut the defense budget by $130 billion over the same time frame.

SEN. McCAIN: That's false. Yes, it's false.

REP. McCURDY: Well, John, you can --

SEN. McCAIN: You can look at the Senate Armed Services Committee --

REP. McCURDY: -- see November 9th and November 26, 1991, Sen. McCain says cuts the defense budget 6 percent a year for a total of $130 billion, and he's talking about force levels in Europe less than Bill Clinton. He's talking about major terminations of programs, more than what Bill Clinton has said --

SEN. McCAIN: I called --

REP. McCURDY: -- so I don't think it's experience and judgment being able to selectively take these arguments. The fact of the matter is the Bush candidacy, the Bush campaign is desperate, they're behind. They're going back to the old bugaboos of trying to cast aspersion, go after character, talk about experience, but experience has not paid off. The international landscape is littered with foreign policy failures of the Bush administration.

SEN. McCAIN: Jim, I supported the elimination of the Sea Wolf submarine which Gov. Clinton, who wants to reduce spending supported that piece of pork, and at the same time he and his friends and Congressman McCurdy want to throw thousands of young men and women out of the military and for sake of keeping that $6 billion worth of pork. I want less number of troops in Europe than the administration calls for. Yes, I think that's perfectly appropriate. If you look at my exact numbers, they're around $50 billion and they're not that much different from the Bush proposal.

MR. LEHRER: All right.

SEN. McCAIN: That's a fact.

REP. McCURDY: That's not the record.

SEN. McCAIN: It is the record.

REP. McCURDY: And we may just have to retract that now --

SEN. McCAIN: It is the record. And I'm surprised you would continue to say it. It's not the case and I'm sorry that you would call for that. And I'm sorry you keep maligning my position on it.

MR. LEHRER: Gentlemen, thank you very much. Don't go away. We want to bring into this mixed house of analysis of this and others political matters of the week from Gergen & Sherman. Gergen is David Gergen, editor at large of U.S. News & World Report. Sherman is Wendy Sherman, a Democratic strategist, frequent gueston this program. She's sitting in this week for Mark Shields, who is on vacation. FOCUS - CAMPAIGN WEEK

MR. LEHRER: David, how important is this argument and the argument that we just heard between the Senator and the Congressman, the one that Clinton and Bush are involved in, and the one we're going to hear between now and election day?

MR. GERGEN: It's not as important as the economy. It's not as important as the performance of the economy in the next 90 days. It is important I think from the Clinton point of view if he can go in and counter punch the way Dave McCurdy was just counter punching and hold even through this, through the campaign, you could help to neutralize President Bush's big advantage, which is national security affairs. There's no question that the President has more experience. On the other hand, if the Republicans can push the points that Sen. McCain was just pushing about the equivocation of Bill Clinton on the Gulf War and the more recent equivocation that Republicans are claiming that Clinton is doing on the Mexican -- the North American Free Trade Agreement -- if they can push those points successfully -- it will help in delineating Bill Clinton as one who doesn't have a back bone and that will be a strong Republican argument, so each side is trying to make some arguments that if they succeed in pushing those arguments through could help them campaign.

MR. LEHRER: Wendy, do you agree?

MS. SHERMAN: I do agree. I think though what we're going to see from Bill Clinton is his pushing back very hard on the economy and there's certainly a lot of data out to do that. And I think we'll hear him say that George Bush said, well, will Bill Clinton be able to pick up the red phone in the middle of the night and be able to handle a crisis, and I think we'll hear Bill Clinton say, well, what about the economic crisis, does George Bush even know where the telephone is, and I think that's going to be the real nexus of this discussion.

MR. GERGEN: One difference here, Jim, from the Democratic campaigns of the past I think Wendy and I would agree on is the Democrats are better at counter punching in this campaign than I've seen them in recent years. They've been coming back more swiftly. They've had their arguments marshalled. As Wendy was saying, we saw that clip of George Bush saying -- a very good point the President was making -- who's there to answer the phone at night when there's a crisis in the world, and then yesterday when the economic numbers came out showing a slowdown in the second quarter of the year, Bill Clinton came right back counter punching, saying, what about the phone that's ringing, Mr. President, right here in America?

MR. LEHRER: Congressman McCurdy just made the same point, and of course, we're talking about just in the last 24 hours, we reported them tonight; there were some economic numbers; there were some economic numbers last night. Is -- how is that -- nothing's changed on that, has it, Wendy? That's still the single most important issue.

MS. SHERMAN: I think it's the single most important issue, and I think it's -- a little bit of me, just a little bit of me, feels for the President, because first Dan Quayle goes to Arkansas to take on Bill Clinton and the unemployment statistics come out and they're dismal. And then George Bush goes to Texas to sort of hit Bill Clinton on his economic plans about not having judgment about defense cuts, and General Dynamics announces that it's going to lay off 5800 workers over two years. It is very tough. And so going out to meet the people is to meet the problem head on. And I have yet to see what the strategy is on the Republican side.

MR. GERGEN: I agree with that.

MR. LEHRER: David, what about the point that -- well, actually Leon Panetta and the House Budget Committee Chairman and Clinton, himself, have all jumped on Darman, Dick Darman, the President's budget director, for some testimony on the -- you know where he said the President had not any responsibility at all for the performance of the economy, it was the Congress's fault, Saddam Hussein, went through a long list, but he never -- that the President has no responsibility at all, is that going to work?

MR. GERGEN: It -- well, the Darman argument -- and we're hearing this from others in the administration -- is there are a lot of reasons why the economy's in trouble and most of the reasons have nothing to do with George Bush, as it turns out in the Republican list, obviously. Now, I don't think that's going to fly very long. I frankly think that the President has got to change the subject. He's got change it from a defense of the past economic performance to go on the offense about what he wants to do for the country in the next four years. That is the critical element that is missing now from the Republican argument in this campaign. As long as the issue, Jim, is on George Bush, George Bush's past performance, the President will lose this election. He has to change the argument. He has to change the argument the way John McCain was just trying to do it onto the equivocation on the Clinton side and much more importantly launch an economic offensive. He has to show where he wants to take the country in a second term.

MR. LEHRER: But, Wendy, isn't there still some really good meat there for the President to go after Congress, just like Harry Truman did in 1948? And Darman began that in a very articulate, strong way, went right up there and said, hey guys, it's your fault, what happened to the economy.

MS. SHERMAN: I think they'll try to do that, but I think some of the President's own words may come back to him. If you remember when he made his speech at the convention when he was nominated, he talked about missions defined, missions completed. He talked about taking personal responsibility. So I think if he goes down that route, and all of the debate and discussion about family values and going forward with what you believe in, he's going to have some of this fly back in his own face, and I think you're going to see the Congress also is coming at him as well and one of the things that's going on that I think is very difficult for the President is his own coalition is falling apart. Members of Congress who of course care about their own re-election are worried about where the coattail is going to be, and so they're coming after the President and turning on him as well. So I think this argument will be tougher for him.

MR. LEHRER: And what about -- David -- the columnists -- George Will earlier Monday, I think it was, in the Washington Post, in his syndicated column, Abe Rosenthal today in the New York Times, both conservative columnists, calling on President Bush to step aside?

MR. GERGEN: Well, Jim, I think the people who are calling on President Bush to step aside are basically the same people who never wanted George Bush to be President. I think they represent a very tiny minority. I think Wendy's point -- I disagree about this -- I think the President in order to rally his troops is probably going to have to go against the Congress. I think he's going to have to go into a much more confrontational stance in order to get the Republicans voting. There is -- the Republicans on the Hill, many of them have moved from the state of nervousness to a state of panic in the past few weeks as we've seen a reversal of fortunes for the President. I think the President can still rally the troops, strikingly -- going back to the Truman point -- strikingly, the President had Dave McCullough, the offer of the superb new biography of Truman, into the White House this week.

MR. LEHRER: It's a terrific book.

MS. SHERMAN: It is a terrific book.

MR. GERGEN: That's right. We all have to plug that book.

MS. SHERMAN: Right.

MR. GERGEN: And George Bush has started reading this book and I think you're going to see a lot of echoes of the Truman 1948 campaign in the next few weeks in the Bush campaign.

MS. SHERMAN: We just saw a little of his, you know, sort of "give 'em hell, Harry," you know --

MR. GERGEN: Yes.

MS. SHERMAN: You know, I can't wait for the convention, and I just can't wait to take the gloves off. And as I said to David earlier, I wish he'd put on some gloves and take on the fight. I don't think he's done either one and I think it's -- his own equivocation -- a problem.

MR. LEHRER: Sen. McCain, how would you describe your state, as being nervous or panicked at this point as a Republican in the Congress?

SEN. McCAIN: I think nervous. Clearly, we're behind in the polls. We can see those things. I would like to make one additional comment about this foreign policy, which I think we started out as the United States -- one of our messages is going to be the United States is the No. 1 super power. We were not in 1981 when Ronald Reagan came to office. Practically every one of our successes was over the opposition of people like Congressman McCurdy, such as aid to the Freedom Fighters, such as aid to the governments of El Salvador, such as the deployment of the Pershing Missile, support for strong defense, and we have emerged as the No. 1 super power in the world and the world has changed. And the children of all of us will not have to go to sleep at night worrying about the chances of a nuclear confrontation or exchange. And I think that that's a dramatic achievement and one that we have to highlight and highlight very strongly.

MR. LEHRER: Congressman McCurdy, would you not agree with Sen. McCain, that's a tough message? You guys -- for the Democrats to fight --

REP. McCURDY: Well, actually.

MR. LEHRER: -- if it's well delivered --

REP. McCURDY: You know, John is really frustrated, as well as most of the Bush administration because those blows don't land. I supported all those programs he just talked about.

SEN. McCAIN: You did not. You didn't support aid to the contras. You opposed it.

REP. McCURDY: No, actually I --

SEN. McCAIN: You opposed it and voted against it. You voted against it every time.

REP. McCURDY: No. John, I came back with a bipartisan plan --

SEN. McCAIN: You voted against it every time, my friend.

REP. McCURDY: -- that passed, you'll remember.

SEN. McCAIN: You voted against it every time.

REP. McCURDY: They keep going back to the Reagan years because that's where the nostalgia really rests. They're frustrated that they don't have an isolationist and protectionist candidate to run against because Bill Clinton does support a free trade agreement. Now, he wants to make sure that as it's negotiated, which any President should, instead of giving a blank check, that it has adequate protection for the environment and it has adequate labor standards for the people involved. And it's also ironic that George Bush is now saying, well, I'm going to California to talk to this company and say, we're going to help you in this transition now with the defense cuts. It was Democrats -- myself actually -- I chaired a panel on the Armed Services Committee -- that came up with a proposal to allow the transition to occur and help provide technology for defense conversion.

MR. LEHRER: But Congressman McCurdy, specifics aside, which we could argue for a long time, I --

REP. McCURDY: That's what's hurting.

MR. LEHRER: I agree. I agree. But would you not have to agree that the President isn't doing very well in the polls, but neither are the Democrats in Congress? I mean, you all are a big target and there is some meat there for the President, is there not?

REP. McCURDY: Well, I think the President will try to blame Congress, but again, he's always trying to blame someone else. He's trying to blame someone else overseas that the economy's not working. He's trying to blame the Democrats. He does sit at the White House. I hope he does read the Truman biography, because of the plaque that was on the President's desk that said "The buck stops here." George Bush -- and he wants to talk about character - - let's remind George Bush about his speech where he lied to the American public, when he said, "Read my lips." He'd better get those stories straight if he's going to win back the support of the American people.

MR. LEHRER: Sen. McCain.

SEN. McCAIN: Well, as I said, we are the world's No. 1 super power. We're respected all over the world. You see that in Tiananmen Square. The students erected a Statue of Liberty. You saw in Albania an incredible scene that they look to us for guidance. They look to us for leadership. It was our strength.

MR. LEHRER: All right.

SEN. McCAIN: It was every major decision was opposed by Democrats that brought about the success, including the defense build-up, including the deployment of the Pershing Missile, including all of the things that happened.

MR. LEHRER: I hear you. Good preview, David. Good preview.

REP. McCURDY: Where was George Bush for that Statute of Liberty and the students?

MR. LEHRER: All right. Thank you all very much.

MS. HUNTER-GAULT: Still ahead, the culprit behind the recession, and "Can We All Get Along?". FOCUS - WHAT RECOVERY?

MS. HUNTER-GAULT: This week's gloomy economic news prompts our next focus. Business Correspondent Paul Solman reports on the culprit behind it.

MR. SOLMAN: The promise of economic recovery. It's been in the media for a very long time. But there's skepticism out on the street.

MAN ON STREET: I haven't seen anything happening as far as jobs increasing or coming around. I haven't seen retail sales going up. I haven't noticed any of those things happening.

WOMAN ON STREET: I don't see it. No jobs for anybody, a lot of people laid off, and more and more -- laying off -- I don't see it.

MR. SOLMAN: Do you think that we are in the midst of a recovery, economic recovery?

WOMAN: No, still broke.

MR. SOLMAN: Now, if the economy isn't recovering as quickly as people expect it, and it sure doesn't seem to be, one question is why not? Well, there's the budget deficit, which is thought to discourage investment and prevent the government from spending enough money to drive a recovery. In the political arena, the Republican White House blames the Democratic Congress. The Democrats blame the Republicans. But beyond the finger pointing, at least two other culprits are commonly blamed for the economy's continued weakness. First: The fumbling Fed, that is, the Federal Reserve Bank, criticized for being too slow in stimulating the economy; second, the S&L thieves, bankers like Charles Keating, for example, of Lincoln Savings & Loan, who, it's argued, simply robbed the economy, thus setting it back for years. Are these the culprits? Let's look at them quickly. Once the very picture of piety, Keating is now doing time. He and his ilk bilked billions of deposits to buy tropical hideaways for themselves, to sink into preposterous ventures like the planned desert community of Estraya. Instead, that money could have gone into productive investments that might now be taking off, and lifting the economy in the process. How much blame do S&L thieves deserve for robbing the recovery of its strength? We put the question to economist Carl Case of Wellesley College.

CARL CASE, Wellesley College: There's absolutely no question that there was a lot of fraud, there was a lot of money stolen. On the other hand, you cannot explain the savings & loan crisis or the banking problems in this country with fraud and abuse. In fact, there have been some serious studies, some serious academic studies that have been done, that suggest that accounts for about 10 to 15 percent of the money that was lost during the crisis.

MR. SOLMAN: But even if fraud accounts for 15 percent, that's still a small part of the total. So the S&L scams of the past may have robbed the economy to pay Keating, thus retarding recovery, but in hard numbers, stolen money seems a modest contributor to the problem. Okay, what about a more recent culprit, the fumbling Fed? Sen. Donald Riegle made the case against the Fed's Alan Greenspan in mid July, when the chairman appeared before Riegle's Banking Committee.

SEN. RIEGLE: I think the record now clearly shows that the Fed monetary policy moves have been too little and too late, and that despite reassurances that you have repeatedly given this committee, the economy remains wounded and struggling today.

MR. SOLMAN: Now, in fairness, the Fed has been pushing down short-term interest rates to their lowest level in 29 years, but a great many observers think the Fed simply didn't start soon enough. So to what extent have the Fed's slow reflexes slowed the recovery?

CARL CASE: Certainly if they'd moved sooner, we may have had more economic activity. On the other hand, whether Fed policy is effective or not depends on how the economy responds to it. And we've had dramatically lower interest rates over the last year and the economy hasn't responded very much to it.

MR. SOLMAN: But most observers still blame the Fed for doing too little too late. Throw in the S&L scams and the federal debt clock, which keeps on ticking, and some might say you've got pretty much the whole story, not Prof. Case, however.

CARL CASE: Well, I think there's a big piece of the puzzle that's left out of that story.

MR. SOLMAN: When Case looks around here in Boston, or virtually anywhere else in the country, he thinks he sees the real culprit, a real estate boom that basically blew up the American economy by overbuilding like crazy. To Case the problem is the bigger you build, the harder you fall.

CARL CASE: Normally, when you come out of an economic cycle and monetary policy is the tool you're using to come out, that is lower interest rates, the sector that those lower interest rates stimulate the most is the construction sector. We get new housing. We get new commercial space. We get new office space.

MR. SOLMAN: And that's how we've gotten out of the recessions of the past.

CARL CASE: Certainly in 1975 and 1981/'82, part of the recovery was that the construction sector responded and responded dramatically to lower interest rates. Housing starts went from a million to two million in the '75 cycle and in the '81/'82 cycle, we built a lot of new office space, and commercial space. That's not going to happen this time. And the reason it's not going to happen this time is we built tens of millions of square feet of office space and commercial space that's now sitting vacant. Some of it is right across the street in that building, which is completely vacant, and in the building that we're sitting in, which is a magnificent building, won all kinds of design awards, beautiful space, very expensive, and it's 50 percent vacant.

MR. SOLMAN: In fact, the total vacancy rate in Boston is up around 20 percent, an astronomical number, because there are simply too many buildings. There were 150,000 construction jobs in Boston at the boom's peak. Today there are 60,000, nearly 100,000 jobs gone, and little hope of getting them back to help fuel a recovery. Moreover, besides our labor, we invested our capital, i.e., our real wealth in these buildings.

CARL CASE: This building alone is a rehab. This is not a new construction job, which would have cost some $300 per square foot. This cost a lot less than that. You can look at the quality and how much money was sunk into this building.

MR. SOLMAN: This is rosewood or something, right?

CARL CASE: It's rosewood. Now, think if those dollars had been invested in plant and equipment, instead of excess office spaces now not occupied. I mean, it would have had a much more, much greater impact on jobs in the long run if we would have diverted those dollars into plant and equipment. And we didn't do it. It came into real estate.

MR. SOLMAN: All over Boston, all across the country, the dollars were sunk, instead, into the finest marble, the most exquisite workmanship. Goodness knows how long it would take before buildings like this filled up with tenants who can pay enough to cover the cost of constructing them.

CARL CASE: And that's part of the story about why this recovery is slow, but we are working off inventory that's hard to work off. I mean, when you have inventory of cars and so forth, you stop building them for a while and people buy them. This space, you need new jobs to fill this space. And we're not getting new jobs and the space isn't being filled when it's acting as a drag on the economy.

MR. SOLMAN: With the glut of office space, rents have been plummeting pretty much nationwide. Now, if your building is getting lower rents and you still aren't filling it, then you probably aren't taking in enough revenue to meet your expenses, especially the huge interest payments on the money you borrowed for construction. And many owners have defaulted on their payments, forcing the banks to take over their properties. The banks, stuck with unprofitable real estate, are afraid to make new loans, further stymieing economic recovery, but the commercial real state saga is only half of Prof. Case's story. The other half is residential real estate, for which the professor's case in point brought the matter uncomfortably close to home. In a Boston suburb of Marshfield, our producer, Lori Cohen, and her husband bought their first home as the real estate boom was in full swing.

LORI COHEN: We bought the house in 1984 for seventy-two five. And at that time, we thought, you know, it was the most we could afford and we thought we got a pretty good deal.

MR. SOLMAN: What did other people think?

LORI COHEN: Well, our neighbors that we met after we moved in, they laughed at us, because they bought their houses for about 30,000 just about five years before we bought ours. And they thought we were totally insane to pay 72,000 for this house.

MR. SOLMAN: And what happened to the value of it after that?

LORI COHEN: Well, we moved out four years after we bought it, and we sold it for $140,000. So we doubled our money in four years, made 70,000. From an investment of literally about $7500, where else in this country could you essentially make almost 10 times that in four years? We thought we made a killing.

MR. SOLMAN: So is this a good example of what you're talking about?

CARL CASE: It's a perfect example. In fact, it's a conservative example. All up and down the East Coast, across California, at the peak, prices were rising 3 percent a month, 40 percent a year. It was an enormous economic event, created enormous amount of assets and billions, hundreds of billions of dollars worth of assets, and it changed behavior.

MR. SOLMAN: For our producer, it meant a new $250,000 home. Cohen and her psychotherapist husband were worth more and the family could thus afford to spend more. They put every penny of their savings into the new home, thinking they could always borrow against the property when they needed the money. In fact --

LORI COHEN: We thought we had $100,000 in equity. So immediately, we went out and got a home equity loan for $30,000. We moved into the house, I got pregnant, we had a kid, we needed a family car, we took out $15,000 from our home equity loan, and we bought the car.

MR. SOLMAN: So that's what you're talking about, this run-up in asset values makes people spend more?

CARL CASE: Absolutely correct. I mean, people spent more money. Some people went out and took home equity loans. Many people didn't, but they saved less and spent more.

LORI COHEN: We thought the bubble could never burst. We'd paid two fifty for it, next year it would be worth three hundred, the year after that three fifty. The market, there was only up side, no down side.

MR. SOLMAN: But you're a producer of economics and business pieces for the MacNeil-Lehrer NewsHour. Didn't it -- didn't you remember the things about cycles and all of that?

LORI COHEN: Yes, but you know, it's like it can't happen to us. You just -- you're caught in the speculative bubble and you figure it can never burst, at least not on you.

MR. SOLMAN: But at the risk of working a metaphor to death, the very nature of bubbles is their mortality. Our producer's house, for example, is now down around 200,000, wiping out half the savings they put up to buy it. As a result, the economy can't count on Lori Cohen's family or all the millions like it to rev a recovery.

MR. SOLMAN: Did it affect your spending?

LORI COHEN: Absolutely. We should get a new roof. We're not going to get a new roof. And sure, we had to sort of think about now how we're going to spend money, because we don't have a cash cushion.

MR. SOLMAN: Okay, one last stop. International Place, the poshest development in town just now being finished, almost a million feet of new office space that's about to flood the market -- some find it hard to see how revenues here can cover the cost of financing it. It's buildings like this, financed by banks, insurance companies, even our pension funds, that lead Prof. Case to believe real estate will be a continuing drag on the economy. So if they can't make the interest payments, then the people who loaned the money wind up owning it?

CARL CASE: And that's your pension fund and my pension fund.

MR. SOLMAN: And that's why we're here. This is literally a building financed by our pension fund, TIAA, right?

CARL CASE: That's correct.

MR. SOLMAN: But it's only one piece of a huge portfolio of other real estate bonds and stuff like that. I mean, this is -- this isn't going to break us, is it?

CARL CASE: Very small potatoes, very small potatoes. They have $20 billion in mortgages, other mortgages. So this is a very small piece of that.

MR. SOLMAN: In fact, among pension funds, TIAA is still about as highly rated as they come, AAA from Standard & Poor's, top rated by Moody's and Best. Even the toughest rater, Weiss Research, gives them a respectable B-, from A to F, and says they have good financial security. Still, losses in real estate could lower the fund's annual interest rate pay out at least a little, at least for a while. On the other hand, I won't be drawing my pension, I hope, for quite some time. But I'm not going to retire for another 17 years, I think legally, and you, a few years longer than that, so as long as we don't take out our money and the real estate market comes back, we'll be okay.

CARL CASE: That's the argument.

MR. SOLMAN: That's the argument, but apparently not everyone buys it. TIAA is my pension fund, where my family puts most of its savings. If for some reason, TIAA were to lose, oh, I don't know, 10 percent of its value just on paper, that might put a damper on our spending. By itself, my family isn't likely to spark a strong recovery anyway, but then no single factor is. In the end, what's striking about Prof. Case's focusing on real estate as a factor is that he seems to have identified a drag on the recovery a lot more important than some of us may have realized. CONVERSATION - CAN WE ALL GET ALONG?

MS. HUNTER-GAULT: Next, another in our series of conversations on race. It's called "Can We All Get Along?", the words spoken by Rodney King as he pleaded for peace during the riots in Los Angeles. Those disturbances were sparked by the acquittal of four white policemen accused of beating King, but much of the rage unleased in LA was directed at Korean businesses. Tonight, our conversation moves beyond black and white to discuss some of the new tensions developing over America's fastest growing new population group. Evelyn Hu-Dehart is equipped with a special antenna for problems like the ones that surfaced between Koreans and blacks during the Los Angeles uprising. She is an Asian American born in China and she is also a college professor specializing in the experiences of Asians in the Western hemisphere, particularly the United States, where the issue has taken on new urgency as the Asian population has skyrocketed in the past three decades from one million to more than seven million. Hu-Dehart's base is the Center for Studies of Ethnicity and Race in America at the University of Colorado at Boulder, where she is also a scholar in Latin American and Caribbean social history. Mrs. Hu-Dehart, how wide do you think the racial divide in America is today?

MS. HU-DEHART: I think race relations and racism are getting in some ways worse and yet, more difficult to detect, something some of us call a new racism. It's difficult to detect because of the new language, because of the more subtle nature, because of the hidden codes that we have yet to recognize.

MS. HUNTER-GAULT: New language like that?

MS. HU-DEHART: Well, for example, the word "immigrant" has become, at least the way some of us hear it, a code word for a veiled kind of racism, and that is because immigrants to America in the last three decades have been for the first time in American history predominantly non-Europeans. Now, the idea of immigrants imbedded in American history and American consciousness is that of the European immigrant coming to Ellis Island, helping to build America, build this great republic and free society we have, and to establish that American culture which we say is Western derived, and yet, the last three decades have seen a huge influx of a new kind of immigrant, this time 80 percent of whom are from Asia, Central America, Latin America, and the Caribbean, and they're not European-derived immigrants. And I don't think America is quite prepared to deal with that. We see I call new nativist movements arising in America, nativism meaning the resistance to new immigrants that has always been a recurrent pattern in American history.

MS. HUNTER-GAULT: Resistance --

MS. HU-DEHART: To new immigrants. Now, a good example of nativism, a recent one, is the English only movement, because ostensibly English only says we must establish English as the official language, which has always been the case. Some of us feel that the English only movement is really directed at primarily Spanish speaking Americans, some of whom have been in this country for five centuries.

MS. HUNTER-GAULT: What is the problem with language? Because you've talked about the divide between Asians and non-Asians and you've talked about the use of the term oriental.

MS. HU-DEHART: Well, if people ask me what is the proper way to address a person of Asian origins, I would say generally probably Asian American is a good way, or if you know specifically the person's Asian ethnicity, say Chinese American, Japanese American, that's really even better. But oriental is probably the most objectionable because oriental conjures up that historical image that we have had to live with. Oriental means that we are exotic, that we are different, that we are mysterious, and that we are inscrutable, so that what I want to say about the Korean image too in LA is that they are regarded as foreigners. No matter how long Asians have been in this country -- and some of us have been here four or five generations -- we are still considered foreigners, somehow not American, or even un-American in some ways. It doesn't take long for us to reflect back on the images of Asians in this country, which today is prevented in a somewhat positive way.

MS. HUNTER-GAULT: The model --

MS. HU-DEHART: The model minority.

MS. HUNTER-GAULT: Well, is that as bad as even the image of orientals?

MS. HU-DEHART: Yes. It is just another version of orientalizing Asian Americans because once again it sets us apart from others.

MS. HUNTER-GAULT: But you've seen all the stories about Asians who come to this country, don't speak the language and within a very short time they become the valedictorians of their class and all of that. I mean, is that just feeding the wrong idea?

MS. HU-DEHART: I think in and of itself one of the things the American public and the media must do is to present positive images of all peoples of color, so in that respect it's not bad but when one group is singled out for such inordinate attention, then we must question what is the motive behind that inordinate attention paid to any one group among the communities of color. And what we're suspecting is that there is an intention to set up a divide and conquer.

MS. HUNTER-GAULT: Who would set that up?

MS. HU-DEHART: This society's big enough that I don't think we need a group of people sitting around a conference table plotting and planning, you know, a scheme. It has been generated over a number of years. I think America became quite desperate in the sixties and in the seventies and the hues of the civil rights movement and its aftermath; when we saw that dismantling, the laws that discriminated, did not result in immediate improvement, in fact, the record would show that things have gotten worse for many people of color, not better, certainly the progress that many of us expected has not come about. So in that desperation, America cast its net to find a minority group that somehow contradicts that dismal picture and they thought they found it in the Asian American. They have simply a model for other minorities to take note of to emulate and at the same time it is used to save other minorities. You can do it and if you don't do it, it's only your own fault. You see the American system does work for one group of people, therefore it must work for all. So it's used to discipline other minorities who somehow are not perceived as having been, as having -- moving ahead, as moving ahead, as they rightly should.

MS. HUNTER-GAULT: Since you came here 12 years old from China, how have things changed in your life for Asians?

MS. HU-DEHART: I remember in high school in Palo Alto, California, the few other Asian Americans in my high school who were second, third generation mostly Japanese Americans, talked about what they would do when they started earning money, and that what they would do was to have plastic surgery, cosmetic surgery to change their eyes and their nose and to pad their chest and their derriere, because they felt that they were unattractive since they did not conform to the standards of beauty that again was so widespread, and I even as a young child, because of my more recent immigrant arrival did not have those kind of conflicts that they experienced.

MS. HUNTER-GAULT: Well, to the Rodney King question, "Can we all get along?", what do we do now with all of these different ethnic groups with their different cultures, with their different perceptions and misperceptions, can we all get along?

MS. HU-DEHART: Well, you know, I don't think what really divides America is this pluralism that seems to some people to be at the root of our problem. What is different about America is that even as this country's always been ethnically, racially, culturally diverse, we have not conceded power to these people. We have constructed this country as a white country. I'm a professor at a major public institution. Out of a thousand or so full-time faculty members in that major public institution, there are less than 10 percent faculty of color, fewer than 10 percent are faculty of color, and of that, I am the only one I believe who is a full professor, woman and person of color, one out of a thousand. Now is that progress? I don't think anyone would say that's progress.

MS. HUNTER-GAULT: What impact do you think that's having on this divide?

MS. HU-DEHART: Racism has always been a part of American history and continues to be, but it is also a very dynamic phenomenon, takes shapes and forms that change according to the context and history and time. Now, if I may recall the recent uprising in Los Angeles, all America knows now that the immediate confrontation in that incident was not between white America and black America, at least the immediate confrontation seems to have been between Asian Americans and black Americans, in particular, a group of Asian Americans called Korean Americans or Koreans, who were the shopkeepers and small business owners in that same neighborhood in which the uprising took place. Now, I think that's the immediate level of the racial conflict. And that, in itself, is important to take note of because that reminds us that America is far more diverse than black and white, but at the same time I think it also clouds the issue too, because who are these Koreans, and why were they on the front line of this conflict, and why did they become apparently the blunt of the rage of the black community?

MS. HUNTER-GAULT: Why?

MS. HU-DEHART: This society has I think constructed itself as a white society in a white image meaning a European image, but not just in a cultural or ideological sense is white, but in the ways of power structure, the power is distributed, it is still very much what historians call a white supremacist social structure. Now, this white supremacist social structure has become more complex with time so that those who are out front confronting the poor communities may not be white themselves. In the case of Los Angeles, they are the Koreans, but the Koreans are not responsible for having created the larger situation in the first place that relegated in such an intense way poor folks and primarily people of color in one small neighborhood and denied them educational and economic opportunities that resulted in this rage, therefore, the Korean Americans also cannot be expected to find the solutions to this problem. So I say we cannot focus simply on the immediate conflict.

MS. HUNTER-GAULT: The solution lies --

MS. HU-DEHART: The solution lies in the larger social structure that has yet to yield significant ground.

MS. HUNTER-GAULT: Well, Evelyn Hu-Dehart, thank you. RECAP

MR. LEHRER: Again, the major stories of this Friday, new government reports gave different economic signals. Factory orders jumped 2.3 percent in June, personal income remained unchanged, and personal spending was up only slightly. The Thai Airways jetliner crashed in Nepal, 113 people were on board, including 11 Americans, there was no word on survivors. And in China, at least 100 people were killed when an airliner crashed while taking off from the Nanjing Airport, 26 people reportedly survived. Good night, Charlayne.

MS. HUNTER-GAULT: Good night, Jim. That's our NewsHour for tonight. We'll be back on Monday. Have a good weekend. I'm Charlayne Hunter-Gault. Good night.