The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight the attorney general's decision to pursue the investigation of President Clinton's fund-raising phone calls; the two Americans who won the Nobel Prize for Economics; Michael Beschloss and the tapes of Lyndon Johnson's first days as President; and a poll and some perspective on how Americans view the world, plus a poem on the same theme read by Poet Laureate Robert Pinsky. It all follows our summary of the news this Tuesday. NEWS SUMMARY

JIM LEHRER: Attorney General Reno today moved her fund-raising inquiry of President Clinton to the second phase. She ended a 30-day review by asking to open a preliminary investigation, which will conclude in December. It's to determine whether the President made illegal fund-raising calls from the White House. She extended a similar probe of Vice President Gore earlier this month. Both inquiries are to decide if an independent counsel should be appointed. In Brazil today Mr. Clinton was asked about the Reno decision. That happened during a joint news conference with President Cordozo in Brasilia.

PRESIDENT CLINTON: I did everything I could to comply with the law. I feel good about it. But I told you yesterday the thing I don't feel good about is the overt, explicit, overbearing attempt to politicize this whole process and to put pressure on more than one actor in it. That's wrong. There's a law; there's a fact-finding process; and I'm going to cooperate with it in every way I possibly can.

JIM LEHRER: Mr. Clinton was in Brazil on day three of his first trip to South America. We'll have more on the attorney general's decision right after this News Summary. The President also used the line-item veto again today. He deleted 13 items worth $140 million from the Defense Appropriations Bill. They included projects on intercepting asteroids, cancer radiation therapy, and alternative fuel cell technology. He judged them not immediately essential to military operations. Two Americans won the Nobel Prize for Economics today. Harvard University Professor Robert Merton and Myron Scholes of Stanford University were honored for developing models for pricing options and other derivatives used in the financial markets. We'll talk to both of the winners later in the program. Federal Reserve Chairman Alan Greenspan spoke again today about the economy. He told a Washington conference the low inflation now being experienced was the most important development in recent years. He said keeping retail and wholesale prices stable was essential to create maximum sustainable economic growth. A congressional hearing heard conflicting testimony today about last December's Teamsters Union elections. Current President Ron Carey defeated challenger James Hoffa, Jr., but the election was voided by a federally appointed overseer. She cited improper campaign contributions. A Teamster from Texas said the union remained corrupt, despite federal intervention to reform it.

WESLEY COLEMAN, Teamster: It may look spic and span from the outside, but inside it's very dirty. The only thing that's being done these days is everything has been hidden. Charges that are filed in the internal system is throwed on a back burner if it's against one of their supporters. If it's somebody that's speaking out against 'em, boom, you're run right through, you're suspended out of the union, and you're fine, so you cannot run for office.

JIM LEHRER: A longtime lawyer for the union said it's still much better than it was.

THOMAS GEOGHEGAN, Labor Lawyer: I knew the Teamsters in the 1980's, and I know it today. And I am here to tell you that there is more democracy and fairness than any dewy-eyed reformer or federal prosecutor could have dreamed of in 1988 or '89 when this suit was filed. Is it ideal? No. But we are much further along the way than anyone thought possible once.

JIM LEHRER: The hearing continues tomorrow. The U.S. Supreme Court today rejected cases appealing doctor-assisted suicide and term limits laws. It allowed an Oregon law permitting doctor-assisted suicide to go into effect until a public referendum aimed at repeal is decided next month. And it turned down an appeal by California officials to restore a term limits law and was struck down by a federal appeals court last week in a different case. Chuck Yeager broke the sound barrier again today 50 years after he became the first flier to do so. He marked the anniversary by flying an F-15 fighter jet faster than sound over the Mojave Desert in California. Now 74 years old he has been flying airplanes for 55 years. Here's how it sounded today. Tonight on most public television stations Nova will tell the story of the attempts to break the sound barrier beginning with Chuck Yeager's flight in 1947. An El Nino summit was held today in Santa Monica, California. Vice President Gore joined government officials, business leaders, and others from Arizona, California, and Oregon. They urged residents to prepare for torrential rains and other chaotic weather this winter. And that's it for the News Summary tonight. Now it's on to the Reno decision, the tapes of Lyndon Johnson, the American view of the world, and the Nobel Prize for Economics. FOCUS - LOOKING FURTHER

JIM LEHRER: Attorney General Reno's decision to expand the Clinton fund-raising investigation. Roberto Suro has been covering that story for the Washington Post. Welcome.

ROBERT SURO, Washington Post: Thank you.

JIM LEHRER: What exactly did the attorney general decide today?

ROBERT SURO: She asked a three-judge panel of appellate court judges to allow her to open a preliminary investigation to determine whether President Clinton violated a law prohibiting fund-raising on federal property.

JIM LEHRER: And this is--this is the end of that first 30-day period, right, which was called what? That was just--

ROBERT SURO: A 30-day review.

JIM LEHRER: A review.

ROBERT SURO: Which is--

JIM LEHRER: And does that mean that she found cause to think that the President may have violated the law, or is this more of a procedural thing?

ROBERT SURO: It's a procedural matter in that she said in her request that she was seeking the preliminary investigation because she had been unable to determine during the 30-day review whether there was information pointing to the commission of a crime or not. And on the one hand, you have a sitting President who's the subject of a preliminary investigation, which is a serious thing. On the other it was triggered basically in order to seek more time to determine whether there is, in fact, any information pointing to a crime.

JIM LEHRER: Now, the crime here is that--and he has said, has he not, that--he said, "I may have made some phone calls but I don't remember." Isn't that what is in the public record at least on this?

ROBERT SURO: Yes, that's right.

JIM LEHRER: And the investigation will determine if, in fact, he made some calls.

ROBERT SURO: Not just whether he made some calls but what was said. There'd be--it's only a violation if he solicited campaign money. The investigation also has to determine where the phone calls were made from.

JIM LEHRER: Whether from the Oval Office or the residence. And there's a difference. Explain the difference.

ROBERT SURO: Right. Traditionally because the White House is the President's home there's been a recognition that a President who's also a political candidate can conduct political events in the residential areas of the White House. So a phone call made from the Oval Office might break the law. A phone call made a few feet away upstairs in the residence would not. And the third question that has to be determined is what was done with the money. If the money went into so-called "soft money" accounts, the campaign money used by the parties for general purposes, Reno has said in the past, that would not violate the law. If, however, it went into so-called "hard money" accounts, specifically used to support an individual campaign, then, in fact, it would be a violation.

JIM LEHRER: Now, you said a moment ago--and this is important, is it not, as to what words the President may have used in the call--

ROBERT SURO: Right.

JIM LEHRER: If he says, hey, I need your help, that may not be a fund-raising call, but it might be based on what's come before and afterward. It's very complicated, isn't it?

ROBERT SURO: It is complicated. In fact, there's been some suggestion that he's really probably talked to some donors, and there is some evidence that he actually had phone calls with people who made contributions. It's possible that he might have just said, you know, look, we're in this campaign, it's really important, you've helped me before; you know, I know that you're on our side, and somebody will be getting to you, who then says, look, we need $50,000.

JIM LEHRER: But if the President doesn't say, hey, I want $50,000 or $100,000 or can you send money, then it may not be a violation of the law? We don't know.

ROBERT SURO: We don't know, and it's one of the things that Reno has to decide.

JIM LEHRER: Okay. When she--this new period--for this preliminary investigation now--it runs till December, correct?

ROBERT SURO: That's right. December 2nd.

JIM LEHRER: Now, what are the options that she has in terms of what decision she could make at the end of this time?

ROBERT SURO: She basically will have three choices. The independent counsel process is governed by this special division of the U.S. appellate court here in Washington. And she has to go to them and report the findings of this investigation. She can ask for and independent counsel, basically say that we have found grounds to investigate. She can ask for a one-time, 60-day extension and say we need more time to look at this, or to stop the process she has--

JIM LEHRER: That would be in addition to the 60 days she's just had then, I mean, and the one that she would have had under the request of today?

ROBERT SURO: Right. She can ask for a one-time--

JIM LEHRER: Right. Okay.

ROBERT SURO: I need a little more time to look at this.

JIM LEHRER: Gotcha.

ROBERT SURO: To stop the whole thing she has to say there are no reasonable grounds to investigate this further.

JIM LEHRER: Should today's decision be read in any kind of way as to where she's leaning in terms of the end result? Does today mean, hey, she's found something, that's why she's going to the next step?

ROBERT SURO: I don't think so. In fact, her notification to this panel of judges, which is a very sparse legal document two paragraphs long, she says clearly that during the course of the 30-day review they were unable to decide whether there was specific or credible evidence that the President might have committed a crime. So I think it would be a mistake to read into this a sense of culpability or a sense that she's leaning towards seeking an independent counsel.

JIM LEHRER: Now, the issue of President Clinton being interviewed by one of the attorney general's investigators, where does that stand at this moment?

ROBERT SURO: My understanding is that there are still discussions underway as to the scope and the exact nature of such an interview. And the President has indicated a willingness in principle to be questioned and the attorney general has stated interest in principle to talk to--and the details, I think, are being worked out, as they would be between investigators and any client who has good lawyers.

JIM LEHRER: But would this be something that's said under oath like a legal deposition, or would it be like an FBI agent interviewing a potential witness, or what?

ROBERT SURO: Some of what's being discussed--and in fact, the President is both--he is both the subject of this preliminary investigation now--but he's also a potential witness in the acts of others. And--

JIM LEHRER: So he would be liable to the normal things of self-incrimination and all the rest, would he not?

ROBERT SURO: That's right. He would be an ordinary citizen, I think, under--once the terms of such an interview are decided.

JIM LEHRER: Yes. But no decision has been made yet to do that?

ROBERT SURO: Not that I know of.

JIM LEHRER: Roberto, thank you very much.

ROBERT SURO: Thank you. FOCUS - THE JOHNSON TAPES

JIM LEHRER: Now, the Johnson tapes and to Phil Ponce.

PHIL PONCE: For years few people knew that President Lyndon Johnson secretly taped private conversations in the White House. And he wanted those tapes kept secret for 50 years after his death. But now NewsHour regular presidential historian Michael Beschloss gives the first comprehensive look at what those tapes contain in his new book "Taking Charge: The Johnson White House Tapes 1963 to 1964." Michael, welcome. First of all, just how extensive was the taping that was going on under Lyndon Johnson?

MICHAEL BESCHLOSS, Presidential Historian: Johnson taped about 10,000 conversations, it turns out, from the first minute he was on Air Force One at the air field in Dallas after John Kennedy's murder. The second the plane took off you can hear him calling Rose Kennedy, the late President's mother, and consoling her in Hyanisport. Johnson from the beginning of his time in the White House as President expanded the system to include not only the Oval Office but his bedroom, the LBJ ranch and other places. He worked the system, himself. He could decide whether to turn it on or off, but usually he forgot to tell the secretaries to turn the system off, and a lot of the richest stuff on these tapes comes from conversations that he recorded accidentally and probably did not want us to hear.

PHIL PONCE: Ten thousand conversations. Now, the President did not want any of them released until the year like 2023 or something like that. How is it that they were released before his wishes?

MICHAEL BESCHLOSS: Well, he went through an elaborate procedure to have these tapes locked up in a vault after he was president down in Austin, Texas, and left an intention which was finally written down, saying they should be closed for 50 years after his death, and many of these conversations should never be opened. By the 1990's the people in the Johnson Library felt this was history, they were going to open inevitably, so why not do it now, no reason to delay.

PHIL PONCE: The first conversation we're going to hear an excerpt from is a conversation between President Johnson and Martin Luther King. Sum it up for us briefly.

MICHAEL BESCHLOSS: It's a few days after Johnson became President. There were a lot of people in this country who were very worried about Johnson on civil rights. When he first ran for the Senate in '48, he did so as an anti-civil rights candidate, as many did in Texas in those days. And so many black leaders especially worried that when Johnson, the first southern president in all that time, became president, he might not have the kind of commitment to civil rights that John Kennedy had. Here is talking to Martin Luther King, assuring him of his commitment to civil rights.

PRESIDENT JOHNSON: A good many people told me that they heard about your statement. I guess on TV, wasn't it?

MARTIN LUTHER KING: Yes, that's right.

PRESIDENT JOHNSON: I've been locked up in this office and haven't seen it, but I want to tell you how grateful I am and how worthy I'm going to try to be of all your hopes.

MARTIN LUTHER KING: Well, thank you very much. I'm so happy to hear that, and I knew that you had just that great spirit. And you know you have our support and backing. We know what a different period this is.

PRESIDENT JOHNSON: It's just an impossible period. We've got a budget coming up that we've got nothing to do with. It's practically already made. And we've got a civil rights bill that hasn't even passed the House and it's November, and Hubert Humphrey told me yesterday that everybody wanted to go home, and I'm going to ask the Congress Wednesday to just stay there till they pass 'em all. They won't do it, but we'll just keep them there next year until they do, and we just won't give up an inch.

MARTIN LUTHER KING: Uh-huh. Well, this is mighty fine. I think it's so imperative. I think one of the great tributes that we can pay a memory of President Kennedy is to try to enact some of the great progressive policies that he sought to initiate

PRESIDENT JOHNSON: Well, I'm going to support 'em all, and you can count on that. And I'm going to do my best to get other men to do likewise. I'll have to have you-all's help. And I never needed it more than I do now.

PHIL PONCE: Michael, the title of your book is "Taking Charge." And here within three days after the assassination he is taking charge

MICHAEL BESCHLOSS: He sure is. And the other thing is that we historians always wonder if what a president says in public is the same as what he says in private, and this kind of thing shows how committed Johnson was to the civil rights bill, which passed the following summer, although then he got very angry at black leaders who wanted him to move faster because he thought that they weren't grateful enough.

PHIL PONCE: How much pressure did he feel to pass a the civil rights law?

MICHAEL BESCHLOSS: He felt that this was a sign of his ability to carry on where John Kennedy had left off at the time of his death. He also knew that so many people were looking at a southern president and wondering if he was real or not. The result was that because of his enormous political skills he was able to get that bill passed, especially as a tribute to John Kennedy, perhaps as JFK might not have been able to do.

PHIL PONCE: And as far as the assassination, itself, what do the tapes show that Lyndon Johnson thought about why Kennedy was shot, or who killed him?

MICHAEL BESCHLOSS: The tapes show that from the first minute after the assassination Johnson was very suspicious that this was a conspiracy. It was the height of the Cold War. He knew that if there was a Soviet surprise attack, it probably would be preceded by this kind of an assassination. Then you hear on these tapes Johnson getting back to Washington, being told by J. Edgar Hoover of the FBI that Oswald, the presumed gunman, had been seen two months earlier at the Cuban embassy in Mexico City. For the rest of his life Johnson was very suspicious that Oswald had international connections and that these had to do with the assassination.

PHIL PONCE: The next excerpt that we're going to listen to is an excerpt of a conversation between President Johnson and Robert Kennedy. Tell us what we're going to be hearing and the context.

MICHAEL BESCHLOSS: They are talking about Martin Luther King making a trip to Greenwood, Mississippi, and they--Robert Kennedy, the attorney general, late president's brother, and President Johnson are worried about getting King some protection. The "he" that you'll hear referred to is J. Edgar Hoover of the FBI who was not terribly pro-civil rights.

ROBERT KENNEDY: I understand that--you know--he sends all kinds of reports over to you about me and about the Department of Justice.

PRESIDENT JOHNSON: Not any that I've seen. What are you talking about?

ROBERT KENNEDY: Well, I just understand that--about me planning and plotting things.

PRESIDENT JOHNSON: No, he hasn't sent me a report that I remember. He hasn't sent me any report on you or on the department any time. And I get, I guess, a letter every three or four days that summarize a good deal of stuff. And Walter Jenkins gets eight or ten of 'em a day on Yugoslavia, various routine things where people are talking. But as far as I know they haven't involved you.

ROBERT KENNEDY: Well, I had understood that he had had some report about me.

PRESIDENT JOHNSON: No, no.

ROBERT KENNEDY: About the overthrow of the government by force and violence.

PRESIDENT JOHNSON: No, no.

ROBERT KENNEDY: leading a coup.

PRESIDENT JOHNSON: No. That's an error. He never said that or indicated or given any indication of it.

PHIL PONCE: What should people keep in mind as they listen to that?

MICHAEL BESCHLOSS: Robert Kennedy was Lyndon Johnson's enormous towering political enemy in 1963 and '64, and J. Edgar Hoover of the FBI was sending LBJ files on Robert Kennedy things that might be damaging. And Kennedy in that conversation, which began on civil rights, is confronting LBJ with the fact that he has heard that Hoover is sending him this kind of information. And LBJ is playing a little bit dumb.

PHIL PONCE: So LBJ had been receiving some from J. Edgar Hoover, and he's just--again, as you say-- why is he playing dumb?

MICHAEL BESCHLOSS: He's playing dumb because he doesn't want to admit that he has asked Hoover to send the kind of information that he is getting on Kennedy. The other thing to remember is that RFK in 1964 towered in Lyndon Johnson's mind in a way he really shouldn't have. LBJ owned the Democratic Convention. He was going to be elected by a landslide, but in his mind RFK and the memory of John Kennedy was so great that he was very worried that Robert Kennedy might actually go to the convention with his sister-in-law Jackie and get the delegates to nominate RFK instead of Johnson.

PHIL PONCE: Throughout those two years, according to the transcripts, there was an underlying concern on his part, a repeated concern about everything having to do with the Kennedys, it seems.

MICHAEL BESCHLOSS: Johnson, because he was a very suspicious and very emotional and very terrified person, at times tended to focus on Kennedy as behind everything. When there is a bad newspaper story about Johnson's wealth, he thinks it came from Kennedy. When black leaders are complaining that Johnson is not doing enough on civil rights, he thinks that Kennedy is behind it. When there's a scandal surrounding his formal Senate aide, Bobby Baker, Johnson feels that this was fomented by Robert Kennedy, so you see this psycho drama that goes throughout these tapes.

PHIL PONCE: The next clip that we're going to be listening to has to do with Vietnam. It's a conversation between President Johnson and one of his advisers. Set it up for us.

MICHAEL BESCHLOSS: This is an adviser, McGeorge Bundy, his national security adviser, and Johnson is talking to Bundy about pressure on him to expand American involvement in Vietnam and perhaps get into a major war.

PRESIDENT JOHNSON: I'll tell you, the more that I stayed awake last night thinking of this thing, the more I think of it, I don't know what in the hell--it looks like to me we're getting into another Korea. It just worries the hell out of me. I don't see what we can ever hope to get out of with once we're committed. I believe the Chinese Communists are coming in to it. I don't think that we can fight 'em ten thousand miles away from home and ever get anywhere in that area. I don't think it's worth fighting for, and I don't think we can get out, and it's just the biggest damn mess that I ever saw.

McGEORGE BUNDY: It's an awful mess.

PRESIDENT JOHNSON: And we've just got to think about it. I was looking at this sergeant of mine this morning--got six little old kids over there--and he's getting out my things and bringing me in my night reading, and all that kind of stuff, and I just thought if I'd ordered all those kids in there and what in hell am I ordering them out there for. What the hell is Vietnam worth to me? What is Laos worth to me? What is it worth to this country? We've got a treaty but, hell, everybody else has got a treaty out there, and they're not doing anything about it. Now, of course, if you start running from the Communists, they may just chase you right into your own kitchen.

McGEORGE BUNDY: That's the trouble. And that is what the rest of the-- about half of the world is going to think if anything comes apart on us. That's the dilemma.

PRESIDENT JOHNSON: But everybody I talk to that's got any sense and the other, just says, oh, God, please give this thought. Of course, I was reading Mansfield's stuff this morning, and it's just Milquetoast as it can be, it's not fine at all, but this is a terrible thing we're getting ready to do.

PHIL PONCE: What is the new insight one gets from listening to that tape?

MICHAEL BESCHLOSS: That privately Johnson knew very much that there was a very great potential in the War in Vietnam to destroy him and to do a lot to destroy the soul of the American people as, in fact, happened. And, you know, Phil, when I heard the tape for the first time, it just made the hair stand up on the back of my neck, and I just wished I could go back to 1964 and say, don't do it, you know, just stop time now.

PHIL PONCE: What motivated him to make these tapes?

MICHAEL BESCHLOSS: Two things. One was he felt that it would be a secret weapon for him to have this hidden record of what people told him and what he told others. For example, if Robert Kennedy came in and had a showdown with Lyndon Johnson, as happened a number of times, then went out and said that something else had transpired that actually was the case, Johnson felt that he could use his exact record to show people that Kennedy was saying something that was not true. The other thing was through history Johnson felt that it would be very important to have some kind of record that would show what kind of president he was.

PHIL PONCE: Did people have any inkling or suspicion that they were being taped?

MICHAEL BESCHLOSS: This was one of the biggest secrets within the Johnson White House not only among many of his closest aides, even among some of his relatives.

PHIL PONCE: Along those lines, what do you say to criticism that tapes like this maybe are not so reliable because the president knew that he was being taped and, therefore, could posture himself so it wasn't necessarily a true reflection of how he might have felt?

MICHAEL BESCHLOSS: I think very occasionally a president like Johnson does posture. You hear him, for instance, asking a senator whether the Senate might impeach someone who didn't act in Vietnam. That might be something that is said for later on, but when you hear--think of a president like Johnson going through this very turbulent period, ten crises a day, he always feels beleaguered, most of the time he's forgotten even that the tape recorder was running. You listen to these tapes. They show a lot of sides of Lyndon Johnson, many of them very embarrassing, many of them ugly that certainly he did not want recorded for history.

PHIL PONCE: As you were listening to the tapes, did you ever think, oh, this is so unfair that he knows it's being taped but that no one else seems to?

MICHAEL BESCHLOSS: I think that when you have situations where a president is trying to entrap someone, that is just the reason that most of us nowadays, looking back, are delighted to have this kind of a source but are very unhappy that a president would have chose to do this sort of thing.

PHIL PONCE: And as you look at the tapes in their totality, what new insights have you developed about President Johnson?

MICHAEL BESCHLOSS: That this was perhaps the president of the century where there was the greatest difference between the way he appeared in public, this commanding, stoical Texan, and the way he was in private, which was charming, bull-dozing, oftentimes terrified, very emotional, and very different from what I had been led to expect.

PHIL PONCE: And you asked President Clinton about any taping that's going on in the White House currently. What was his response?

MICHAEL BESCHLOSS: He chuckled and shook his head because he knows that if a president secretly tapes people the way that LBJ did nowadays there would probably be a subpoena on the White House door within about five seconds.

PHIL PONCE: Michael Beschloss, I thank you.

MICHAEL BESCHLOSS: Thank you, Phil.

JIM LEHRER: Still to come on the NewsHour tonight, the American view of the world now and the Nobel Prize for Economics. FOCUS - AS WE SEE IT

JIM LEHRER: Americans and the world and to Elizabeth Farnsworth in San Francisco.

ELIZABETH FARNSWORTH: A recent public opinion poll found some differences among Americans in their view of the world and the United States' role in it. The pollster was Andrew Kohut, director of the Pew Research Center for People and the Press. Andy, are Americans generally satisfied with the way things are going in the world?

ANDREW KOHUT, Pew Research Center: Well, it depends on who you ask. If you ask the public at large, they're generally dissatisfied pretty much the way they were four years ago, only 29 percent saying they're satisfied with the way things are going. But if you ask opinion leaders, they largely believe that conditions in the post-Cold War world are much better than they were four years ago. In fact, we now have a very big gap between the way opinion leaders see the world and the way that the pubic at large sees the world, with opinion leaders thinking things are better, things have improved. It's not nearly as scary as it was four years ago. There aren't nearly as many nagging trouble spots.

ELIZABETH FARNSWORTH: Before you explain some of the reasons for this or what you've learned in your poll about the reasons, what do you mean by opinion leaders? Who are these people?

ANDREW KOHUT: We interviewed 11 groups ranging from experts on foreign affairs, defense, to people that devote their lives to defense policy, journalists, governors, mayors, scientists, religious leaders, labor leaders, the range of kinds of people who--whose opinions influence the way foreign policy is made.

ELIZABETH FARNSWORTH: And how did you explain, or what did you find about this difference and the way the two groups view the world?

ANDREW KOHUT: Well, I think first from a point of view of opinion leaders they are more satisfied with America's influence in the world. They see the American--the U.S. playing a more influential role than 10 years ago, not a less influential role. That was not the case four years ago. They also have more confidence in President Clinton. The--every one of the groups that we surveyed have a better opinion of Bill Clinton than was the case four years ago and many of these groups are not particularly friendly to Bill Clinton generally, CEO's--a majority of CEO's from Fortune companies giving him good ratings, a majority of journalists. They approve of the Clinton initiatives, and they no longer are as critical of Bill Clinton on Bosnia and many of the problems that troubled them in 1993.

ELIZABETH FARNSWORTH: And what about the other group?

ANDREW KOHUT: The public, on the other hand, looks at the world, and they mostly see it as violence and conflict, and they wonder about the relevance of this world full of violence and conflict to their lives. In fact, we found only 36 percent of the public saying that what happens in Western Europe has any impact on--has a direct bearing on what happens in their lives, and only 42 percent felt that events in Mexico are relevant to people's lives here. So there's a real disconnect in this post Cold War world where we no longer have an enemy as to what is the meaning of international affairs and what is the importance to me and to the country at large.

ELIZABETH FARNSWORTH: And wasn't there a big difference between the two groups and what they saw as their main foreign policy priority? I found that very interesting in looking at the poll.

ANDREW KOHUT: Well, there's a fair amount of congruence as well. Both groups give high ratings to preventing nuclear proliferation, ensuring adequate energy supplies. But the American public, I suppose, to opinion leaders puts much more emphasis on protecting American jobs. And even in an economy that is a strong one and in a mood that's confident about the economy people still worry about jobs; they worry about the globalization of the economy; and they worry about, you know, that that great sucking sound of that famous phrase of Ross Perot's of jobs being lost in--manufacturing jobs being lost in the United States, and they have their doubts about--still have their doubts about their own futures and their opportunities for better jobs.

ELIZABETH FARNSWORTH: Okay, Andy, stay with us. For more now we turn to David Fischer, president of the World Affairs Council of Northern California, and to Jim Kollaer, president and chief executive officer of the Greater Houston Partnership, which includes the Chamber of Commerce and the Economic Development & World Trade Associations. David Fischer, you talk to both the public and you talk to opinion makers all the time about this. How do you explain the discrepancy between the two groups on the way the world looks to them?

DAVID FISCHER, World Affairs Council of Northern California: Well, I recognize that this discrepancy has grown in recent years, but it's always existed. And I think foreign affairs is not immune. If you look, for example, at baseball, Americans want instant results. They're interested in the game, even though the players and the coaches may be developing long range strategy. The same is true in business. Stockholders want, of course, an instant quarterly return, and the CEO and board members may be looking at a longer range strategy. And that's true, I think, Americans focus on what's hot in the headlines, and in many ways it's a self- fulfilling prophecy because newspaper and media believe that the American public is not understood in international affairs, and, therefore, they don't devote the amount of coverage they did during the Cold War.

ELIZABETH FARNSWORTH: That's interesting. Jim Kollaer, are you finding in Houston this same--that this discrepancy has actually grown recently?

JIM KOLLAER, Greater Houston Partnership: Well, I think it has grown to a certain extent but in Houston because we're so international and so global in our businesses I think it may not be quite as large a gap as we've seen in this particular study.

ELIZABETH FARNSWORTH: I'm sorry go ahead. I didn't mean to interrupt you.

JIM KOLLAER: I was going to say that most of our companies down here in the energy business and in the computer areas, in the high-tech areas are so globalized that--and we're so close to Mexico that we're in that environment every day. And so I think our folks in Houston--a third of the work force who work in international trade and business are really very aware of this issue and probably would not be quite as big a gap in Houston as there is maybe in some other parts of the country.

ELIZABETH FARNSWORTH: And to the extent there would be a gap in Houston, how large a role would the media play in creating that gap?

JIM KOLLAER: Well, I think David's right. I think the media, because they don't really focus on the international issues, as they do when we had a major war, Cold War underway, I think that because they don't focus on that, the normal individual on the street doesn't necessarily focus on it, and that creates the gap.

ELIZABETH FARNSWORTH: What do you think the consequences are of this gap? Is it dangerous?

DAVID FISCHER: I think it's dangerous, and I think we've already seen it. The newly elected members of Congress in 1994/96 are people who not only accept the fact that they know very little about international affairs but they're beginning to flaunt it. And I think that that's a real problem because it is--I believe that any foreign policy in order to be sustainable over the long term has to have the implicit support and understanding of the American people. And we're beginning perhaps to lose that.

ELIZABETH FARNSWORTH: Jim Kollaer, do you have anything to add to that? Is it different in Houston, do you think?

JIM KOLLAER: Well, I think it is important that we focus on this internationally, and I think this gap has to be closed across the country because the trade issues and the economic issues that we deal with every day are really very important to how we progress. And if we can't close this gap in the next four to five years by the time we do the next survey, then I think we may have a serious problem in that regard.

ELIZABETH FARNSWORTH: Andy Kohut, jump in here, please. Do you think that the gap could close in time, or do you think it's widening more?

ANDREW KOHUT: Well, I want to add one thing. There's not one gap. There are three gaps. There's a gap on Bosnia. 82 percent of the opinion leaders think if peace depends on it, American troops should stay in Bosnia. Only 48 percent of the public feels that way. There's also a gap on NAFTA, which has implications for other trade agreements. Only 47 percent of the public thinks that NAFTA's a good idea. 80 percent of the opinion leaders think that NAFTA is, in fact, a good idea. And then the most basic gap has to do with America's role in the world. Both groups--the public and opinion leaders--reject the idea that we should be "the" single leader of the world. Opinion leaders, though, think we should play among equals role. They support the idea of the notion of assertive multi-lateralism. The public says no. We worry about the--about the U.S. playing too great a role, taking on too much responsibility, implicitly paying a disproportionate share of the cost of global-- of maintaining global orders and other global issues.

ELIZABETH FARNSWORTH: But--Andy Kohut, what about David Fischer's point that the gap is growing, is that what the polls show?

ANDREW KOHUT: Well, there is a gap now because what's happened is that opinion leaders feel much better than they did four years ago when they were put off, were shocked by the end of the Cold War. It took experts by surprise, so it's a matter of--it's a matter of a new gap. I mean, in past generations there have been gaps between the public and opinion leaders, and sometimes they've been very healthy-- unhealthy. We heard about the gap between the public and opinion leaders in Vietnam in the LBJ tapes, and there's a good example, and particularly when we're talking about the use of force, you must have super majority support to put American troops in harm's way, and that doesn't exist in Bosnia. It didn't exist in Haiti, but fortunately, we haven't incurred any casualties, and we haven't had a problem where public opinion has really been tested. But the problem is that the public doesn't seem to--is not disposed to make the kinds of commitments that or back up the kinds of commitments that opinion leaders are supportive of.

ELIZABETH FARNSWORTH: But, David Fischer, Andy raises a very interesting point there. Maybe it's healthy to have this difference. It's been healthy on some issues.

DAVID FISCHER: I think to some extent that's true. When things are fine, people then begin to concentrate on those things, which immediately affect their lives, whether school boards or crime, or whatever the issue may be.

ELIZABETH FARNSWORTH: And the natural skepticism of the so-called elite's views might be very--

DAVID FISCHER: Indeed. But I do believe that part of the problem here without faulting this particular administration is that any administration has to take the leadership role. I'm struck by the fact that this president has rarely spoken to the American people on foreign policy issues, whether it's keeping U.S. forces in Bosnia, or whether it's an explanation of what happened in Haiti or Somalia. That has happen in order for the American people to rally behind a policy and recognize its importance.

ELIZABETH FARNSWORTH: Jim Kollaer, do you agree that that's important?

JIM KOLLAER: Well, I think so, but it sounds as though we're reinforcing ourselves here; that because he is not talked and it's not a popular issue among the public, that he doesn't talk here. He sees the polls more than we do. And probably what he's doing is reacting to polls that say domestic policy is the issues that he needs to deal with right now unless he's forced into some international situation. And so he doesn't focus on it, thereby reinforcing the fact that the public in general doesn't focus on international issues. So it seems as though he's right. I think David is right, that he really needs to--the administration really needs to focus more on these issues because they are fragmented, and there are issues going on around the world right now in a number of theaters that need to be addressed either from an economic or political standpoint.

ELIZABETH FARNSWORTH: All right. Well, that's all the time we have. Thank you all very much for being with us.

JIM LEHRER: Our last words on attitudes about the outside world come from Poet Laureate Robert Pinsky.

ROBERT PINSKY, Poet Laureate: I think I've read that the word "barbarians" originally means "people who speak a foreign language, who don't sound like us." And to us it sounds like bar, bar, bar, bar. The Greek poet Constantin Cavafy's poem "Waiting for the Barbarians." Waiting for the Barbarians What are we waiting for, assembled in the forum? The barbarians are due here today. Why isn't anything going on in the senate? Why are the senators sitting there without legislating? Because the barbarians are coming today. What's the point of senators making laws now? Once the barbarians are here, they'll do the legislating. Why did our emperor get up so early, and why is he sitting enthroned at the city's main gate, in state, wearing the crown? Because the barbarians are coming today and the emperor's waiting to receive their leader. He's even got a scroll to give him, loaded with titles, with imposing names. Why have our two consuls and praetors come out today wearing their embroidered, their scarlet togas? Why have they put on bracelets with so many amethysts, rings sparkling with magnificent emeralds? Why are they carrying their elegant canes beautifully worked in silver and gold? Because the barbarians are coming today and things like that dazzle the barbarians. Why don't our distinguished orators turn up as usual to make their speeches, say what they have to say? Because the barbarians are coming today and they're bored by rhetoric and public speaking. Why this sudden bewilderment, this confusion? [How serious people's faces have become.] Why are the streets and squares emptying so rapidly, everyone going home lost in thought? Because night has fallen and the barbarians haven't come. And some of our men just in from the border say there are no barbarians any longer. Now what's going to happen to us without barbarians? Those people were a kind of solution. FOCUS - PRIZE THEORY

JIM LEHRER: The Nobel Prize in economics and to our economics man, Paul Solman of WGBH-Boston.

PAUL SOLMAN: Options. To some they suggest a world of fancy financial finagling, puts, calls, derivatives and the like. But really options are everywhere, and to economists they basically mean something close to what they mean to you and me. You real estate developers know options. You buy an option on a plot of land for a tiny fraction of its total value. That gives you the right to buy it at a fixed price by a fixed date. If you get the financing, tenants, whatever you need, you can exercise the option and develop the property. Or, if the land goes up in value, you can simply sell the option at a profit to somebody else. Ultimately, if the deal never gets made, the option simply isn't exercised. Insurance is also essentially an option of a different sort, an option that provides protection on your house and your car, your life. You pay a modest premium, and if something bad happens, say your house burns down, you get paid a much bigger amount to replace it. In essence then options are ways of coping with uncertainty over time, of transferring risk, of making contracts based on if this happens, if that happens, and so on. No wonder they're so popular. But today's Nobel Prize was given for the use of options in the stock market. So two final examples from Wall Street: First, options can provide insurance on the stock market, just like in real life. Say you're two years away from retirement, with lots of stock in your pension account. You can't sell the stock. But you want to protect yourself against the market falling. Well, you can buy an option, cheaply, a so-called "put" option. What you buy is a contract, which is really just an insurance policy against your portfolio plummeting in value. It will pay you handsomely if the market falls within a certain time frame. On the other hand, suppose you're sure the market is going up in the next two years, but you can't afford or just don't want to buy a lot of stock. Instead, for far less money, you can buy an option, in this case a call option, which will pay you if the price rises by a certain date.

PAUL SOLMAN: But options aren't just for the long-term. They're now traded minute by minute every day all over the world. And much of the credit for the explosion of options trading is given to the winners of today's Nobel Prize. They figured out how to price options mathematically. They've also exercised the option today of talking with us. Here in Boston Robert Merton of the Harvard Business School, and at Stanford University Myron Scholes. Gentlemen, welcome to you both and congratulations. Professor Merton, I wanted to ask this question of a Nobel Laureate for years. Did you think about maybe I'm going to win today?

ROBERT MERTON, Nobel Laureate, Economics: Well, of course, I knew that Myron and I were being considered in past years on some sort of a notion of a list, and that was very exciting. But frankly, no, I really didn't anticipate today's announcement. It was an enormous surprise to me.

PAUL SOLMAN: A shock? Did your heart start beating when you got the call?

ROBERT MERTON: Well, I got the call. I was--I didn't know what to think. It was a shock but a wonderful one. It was a real thrill.

PAUL SOLMAN: Professor Scholes, how about you--this time of year do you begin to wonder if there's going to be a phone call early in the morning? Do you begin to think, hey, it's 5:30, and nobody's called yet?

MYRON SCHOLES, Nobel Laureate, Economics: Yes andno. Given the fact that over the last number of years and friends keep saying when are you going to win the Nobel Prize, and as a result of that, you think of it as, well, maybe they know something I don't know. But there's a huge difference between anticipating or saying there might be some chance winning it and when you actually do get the call in the morning saying you've won it. It seems as though the whole world has changed, and it is, as Bob said, a very exciting experience, and something that I don't know when I'll get over it. Right now we're sort of on cloud nine.

PAUL SOLMAN: Professor Merton, you were a math student. How did you get interested in finance?

ROBERT MERTON: Well, actually, when I was very young, I used to buy stocks, and then--

PAUL SOLMAN: How young?

ROBERT MERTON: Well, my first stocks I bought I think when I was ten.

PAUL SOLMAN: You have this famous sociologist father, Robert Merton, and you actually were buying stocks at age ten?

ROBERT MERTON: Well, with his advice and counsel. He's going to have to hold responsibility for it as well, but then later on, when I was a graduate student at Cal Tech, I used to get up very early in the morning and then the markets opened, which was 6:30 California time, and trade over-the-counter options, and convertibles and so forth, and enjoyed it immensely, and was very interested in it. It never occurred to me, though, that he could make a career of it and certainly do research in that, so then I would come back and do my mathematics the rest of the day.

PAUL SOLMAN: And when did the bridge occur that actually wound up leading to a Nobel Prize?

ROBERT MERTON: Well, the bridge occurred in two steps. The first was I decided that I wanted to go into economics, which I switched to MIT. But I still didn't think of this as something one could do for real research, and this was kind of a side thing.

PAUL SOLMAN: This meaning the trading and--

ROBERT MERTON: Well, not the trading but the whole idea of finance as an academic experiment, doing research in it, and then when I had the great good fortune to move into Paul Samuelson's offices--he opened up the world to me--indeed, I could combine both, my interest in the markets and my interest in mathematics, and I could do serious research, and that was a really big kick. And that's where it all started.

PAUL SOLMAN: Prof. Scholes, does this come as a flash of insight--I mean, the nub of what became your famous mathematical model, or is this something you sort of slog away at year after year until you finally get something?

MYRON SCHOLES: Well, it was sort of a combination of both because, as you know, Fisher Black, late colleague in Boston, MIT area, and I were working on some consulting projects together, and in our spare time we started to work on the pricing of options. And we both worked on it together and found that after a period of time that we'd come up with a result that was to us very interesting, but it took us a long time after that to actually get a solution to what we had found. So it took a long time to get it--took a short time.

PAUL SOLMAN: Do you think about something like a Nobel Prize when you say, gee, we've got an idea here that could really--that's really interesting, or not a Nobel Prize but can--you know, that it would affect the world as, in fact, this mathematical model actually has?

MYRON SCHOLES: Well, it's very interesting, but at the time we were working on options, they were very arcane. There were very few financial institutions that were using options or thinking about option pricing directly. There were no organized exchanges in options as we now see, so I always thought and Fisher thought as well, and I know Bob thought that what we were doing is providing an understanding for the academic community, and I was very surprised with how quickly it all spread to the world of finance at large.

PAUL SOLMAN: Professor Merton then, picking up on that, how does a mathematical formula actually have an impact on the real world and really, I guess, in this case the world economy?

ROBERT MERTON: Well, I think the first part you mentioned a mathematical formula and the formula, itself, was important, but really it was the concept that began with Myron Fisher and then I did something to add to it, but in any case, it was the concept underlying the development of the formula which was most important.

PAUL SOLMAN: Now, can you actually put that into lay terms so that we can understand what you're talking about?

ROBERT MERTON: Well, it was the recognition that could undertake dynamic trading in the trading every day or over short periods of time between in this case the stock and bonds in such a way that you could hedge out all the risk of an option.

PAUL SOLMAN: Hedge out meaning--

ROBERT MERTON: Hedge out means to eliminate the risk of that option by offsetting this if you had bought an option, you could trade these things to offset the risks of that option. And it was this insight that led eventually to the understanding of how you could go about doing this with almost any type of contract or contingent claims as they're called--insurance--all the things that we heard in the opening segment.

PAUL SOLMAN: Professor Scholes, do you have a simple way of putting this after working on it all day here trying to explain it to people in the media who don't understand some of these things, include myself in it--

MYRON SCHOLES: It was interesting because, as Bob said, we developed a way or a methodology of pricing any option like instrument or security, and then we--that methodology then we applied to a more simple structure, such as at that time a more simple structure such as put options and call options because we could choose the examples we wanted to put forward. But basically the methodology says, look, you know, if you can find two substitutes for something, a combination of stock and bonds that substitutes each period of time for the underlying option, then once you have two substitutes that are perfect, you can buy one and sell the other, and sort of get rid of the risk of the underlying say in the case of a call option or put option stock. And so what fell out of that was the pricing relationship.

PAUL SOLMAN: I think that's still awfully tough for most of us to understand. I mean, why does it matter, assuming for a moment that we're not going to master it in this 10-minute segment, why does it matter that you figured out this way of pricing options?

MYRON SCHOLES: I don't know. Bob--

PAUL SOLMAN: Yes. I was going to ask Professor Merton.

ROBERT MERTON: Well, Myron and I have been doing these back and forth for so many years that I almost feel even though he's in California--but I think the importance was that not only could you come up with a price but by doing this type of analysis you were able to break down the risks of the underlying option. And from the point of view of producer of that option, the seller of that option, that allowed you to understand the exposure. So if an institution issued an option--

PAUL SOLMAN: So, in other words, if I buy one--

ROBERT MERTON: Someone has to issue it to you.

PAUL SOLMAN: Somebody has to sell it.

ROBERT MERTON: And so that institution, to be able to manage that risk, this gave them simultaneously a way of not only pricing it but also managing the risks. And it also--this was what made it substantively different from earlier work.

PAUL SOLMAN: And that's why everybody adopted it, and the market's--

ROBERT MERTON: Right.

PAUL SOLMAN: --going to explode as a result. Last question, Professor Scholes, options are a form of financial derivative, right, and people keep talking about the worries the derivatives raise. At the end of the day more risk in a system because of your formula and the explosion of this market, or less risk, or is that the wrong question?

MYRON SCHOLES: No, it's the correct question. I do think it's a hard question to answer because we don't know the but for case. You know, if option pricing models hadn't been developed, what risks we would see today, and my view is because we have more complete markets and we have products now that satisfy investor demands more acutely than the general products we would have without options that I think the risk in a system is probably ameliorated, mitigated to a great degree.

PAUL SOLMAN: And you get one line on that.

ROBERT MERTON: Yes.

PAUL SOLMAN: Just a quickie.

ROBERT MERTON: Yes.

PAUL SOLMAN: Yes.

ROBERT MERTON: I think the risk has been reduced. Certainly the cost of financial service has been reduced by this structure.

PAUL SOLMAN: Okay, gentlemen. Thank you both very much. RECAP

JIM LEHRER: Again, the major stories of this Tuesday, Attorney General Reno moved her fund-raising probe of President Clinton into a second phase that will conclude in December; the President used the line-item veto to delete 13 more projects worth $140 million from the Defense Appropriations Bill; and novelist Harold Robbins died of respiratory heart failure at age 81. His bestsellers included "The Carpetbaggers." He sold more than 750 million books. We'll see you on-line and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.