The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: The news of the day; a look at today's unemployment and stock market numbers; a Paul Solman education series report on the job market facing this year's college graduates; a chat with two congressmen about their recent trip to North Korea; the weekly analysis of Mark Shields and David Brooks; and triple crown possible report on the horse named Funny Cide.

NEWS SUMMARY

JIM LEHRER: The U.S. Unemployment rate hit a nine-year high last month. The Labor Department reported today the jobless rate climbed to 6.1 percent with the loss of 17,000 jobs in May. That's 0.1 percent higher than it was in April, and the highest it's been since July 1994. But stocks were mixed on the numbers, which turned out better than analysts had expected. The Dow Jones Industrial Average gained 21 points to close above 9062. The NASDAQ fell more than 18 points to close at 1627. For the week, the Dow gained nearly 2.5 percent. The NASDAQ rose nearly 2 percent. We'll have more on what this means in a moment. A tax bill helping low-income families passed the Senate last night, but faced an uncertain future in the House today. It would pay 6.5 million poor families $400 per child as a tax credit. The new $350 billion tax cut law did not include a break for those not earning enough to owe income taxes. House minority leader Nancy Pelosi said today the expanded credit would help the economy.

REP. NANCY PELOSI: That $400 probably does more to create jobs than anything in the Republican tax package because it goes into the hands and the pockets of those who will spend it immediately. It will inject demand into the economy and therefore create jobs. People will spend this on food and other necessities.

JIM LEHRER: House Republicans said they may consider bringing the bill to the floor. Majority leader tom delay spoke on the house floor yesterday.

REP. TOM DeLAY: Then the bill passed by the president last week; we raised by 10 percent and added more people to the roles that don't pay income taxes. So this notion that we are not taking care of the poor working families of this country are completely false.

JIM LEHRER: This tax break must be signed into law by June 23, in order for low-income families to get their checks. In the Middle East today, the Islamic militant group Hamas broke off cease-fire talks with Palestinian Authority leaders. Hamas-led demonstrators in Gaza chanted anti-Israel slogans and renounced agreements reached at the peace summit Wednesday. Prime Minister Mahmoud Abbas told the United States and Israel he'd bring an end to Palestinian violence. Israeli Prime Minister Sharon said he'd dismantle illegal Jewish outposts in Palestinian territory. United Nations nuclear experts arrived in Baghdad today, the first permitted in Iraq since the U.S.-Led war ended. They're to assess damage and losses from looting at the country's largest nuclear facility, 12 miles southeast of the capital. Some 100 French soldiers arrived in the northeastern Congo town of Bunia today. It's the first deployment of an international rapid reaction force intended to quell ethnic violence there. More than 500 civilians have been killed in tribal fighting in the last month. A wider civil war in the Congo has killed an estimated three million people since 1998. Chicago Cubs slugger Sammy Sosa was suspended for eight games today. Major league baseball imposed the penalty because Sosa played with a prohibited cork-filled bat in a game Tuesday night. Sosa has apologized. He immediately appealed the suspension today, which allows him to play until the appeal is heard. That's it for the News Summary tonight. Now it's on to jobs and the markets, the job market for college graduates, a North Korea update, Shields and Brooks, and going for the triple crown.

FOCUS - TURNING AROUND?

JIM LEHRER: What today's numbers tell us about the economy, and to Ray Suarez.

RAY SUAREZ: This week brought mixed news for the U.S. economy. For the first time since August 2002, the Dow Jones Industrial Average closed above the 9,000 mark. But today's labor report showed unemployment continuing to rise to its highest level since 1994. Here to discuss what all this means are Abby Joseph Cohen, chair of the Investment Policy Committee at Goldman Sachs, an investment banking firm. And Allen Sinai, chief global economist and president of Decision economics, an economic and financial market advisory firm. Well, the Dow is up 15 percent since the beginning of 2003. Briefly today the S&P was trading over a thousand. Allen Sinai, what is driving these gains in the market?

ALLEN SINAI: Well, we have a stock market that's look ago head, and justifiably so, to a better economy; not now but late this year and 2004 the economy will be better, earnings will be better, interest rates are going to stay low. The administration is working hard for peace and prosperity. This is an early stage of a classic equity bull market that we are seeing develop.

RAY SUAREZ: Abby Joseph Cohen, do you agree? And if there are fundamentals that are pushing this, what is happening in the wider economy to make those investors feel that next year might be a better year?

ABBY JOSEPH COHEN: I agree to a very large degree. We are seeing the beginnings of an economic recovery. And while the economic data are quite mixed, there are signs that things are beginning to get better. In addition, we've had a very significant upward movement in share prices over the last few weeks, in large part because there was a sigh of relief. Prior to the military engagement in Iraq, there was a great deal of discussion about how bad things could be $70 per barrel oil, $3 at the gas pump and so on. Fortunately, none of those ugly scenarios, including the recession scenario, seemed very likely right now, and stock prices have responded accordingly.

RAY SUAREZ: Well, during the run-up to the war in Iraq, and during the war itself, investors were told that that was one of the things putting a damper on the rise in prices. Does the war being, at least the most active part of the war being out of the way, did that build into this rise in the indexes?

ABBY JOSEPH COHEN: Clearly it has been a factor in terms of the sigh of relief in stock prices. But perhaps the most important reaction is yet to come. Keep in mind that just the way investors were avoiding risk, so, too, were people who run businesses. And while they were avoiding risk, they were not buying inventory, not doing capital spending, and most importantly, they have not been hiring new workers. What we're hoping in the months to come is that those labor reports will start to get somewhat better. But let's keep in mind that usually the labor markets are among the last piece of the economy to recover.

RAY SUAREZ: Allen Sinai, I'm sorry, you were trying to get in?

ALLEN SINAI: I was just saying the end of the war andthe toning down of the crisis along with some promise on the Middle East to the clear intent of the administration to get geopolitical risk down, that is, I think, reducing the risk premium in the stock market leading to higher PE ratios and helping valuations. It's very important that when you have a difficult and disturbing international environment, that's a risk around the economy and equity market. It showed up in the drive down in equity prices in the second half of last year and early this year. And it is now somewhat reversing in helping the equity market move higher.

RAY SUAREZ: When we talk about the market indexes and what they're showing us, how far out are they predicting? You mentioned next year the economy being better. Is that the rule of thumb, about a year?

ALLEN SINAI: I think so. I think the here and now to these numbers, which, by the way show you us that we have a terrible labor market. It's really an ugly labor market; it's still deteriorating. The U.S. economy is not going to grow very much in the second quarter but that doesn't affect the equity market which is six, nine months ahead and looks toward the next upturn and wherever equity prices go, they tend to go through a correction when the reality of the upturn occurs. But right now we are in a very buoyant early, it's classic - we've seen this -- and I think Abby will agree with me, again and again in business cycles for decades, this kind of move.

RAY SUAREZ: Well Abby Joseph Cohen, if the markets look forward, the numbers look back. What were the numbers telling us about economic activity over the last month and the last quarter?

ABBY JOSEPH COHEN: The numbers were very mixed in that report today. What we found out, for example, is that the number of hours worked cumulatively in the economy didn't grow very much at all, which means that the second quarter has been fairly sluggish. However, let's keep in mind the following: We have been seeing a rise in the number of temporary workers. Those businesspeople who are not yet willing to commit to hiring new workers are willing to bring on temporary workers when they see the demand for their businesses picking up. So that is one glimmer of hope. But I think it's important to keep in mind the following. Businesspeople have been much more reluctant to move forward than have consumers. For the last several quarters, consumers have been going about their business consuming, and we have seen that businesses have not yet responded. We believe that business confidence, rather than consumer confidence, will really drive the economy however it goes in the next several months. We think business confidence will become increasingly restored. First, the accounting problems are now largely behind us. Number two, the worries over Iraq are now largely behind us and number three, businesspeople know that central banks, not just the Fed, but increasingly the European central bank are now firmly behind doing what they can to stimulate economic activity. We should be more concerned, by the way, about the pace of economic growth outside the United States than inside. Japan and Europe, the world's second and third largest economies are looking much more lackluster than ours.

RAY SUAREZ: But, Abby Cohen, you just mentioned the consumer was doing his and her part. If people are spending money and interest rates are low and demand for a lot of things has remained reasonably good, how is it that people are losing their jobs? Why is the job market so slack?

ABBY JOSEPH COHEN: Allen referred before to the normal pattern of an economic cycle. Typically we come out of recession when consumers buy new homes, buy new jobs. And then months later, we begin to see that businesspeople feel better, they rebuild inventories and that's when they begin to hire new workers. We have not yet reached that phase and that what is we are hoping will be developing over the next few months.

RAY SUAREZ: Allen Sinai, your diagnosis of the job market and what the latest numbers tell us?

ALLEN SINAI: Oh, it is really how corporations run their businesses these days. We've all become so productive, those of us who have jobs, that the economy can move ahead with fewer workers. We see that in manufacturing, in every report. And I think unfortunately, it is going to be the way of the world. The rest of the year we don't see much jobs growth and yet we'll see the economy on average do better and the stock market will do, I think, is doing quite well. We just won't see much in the way of jobs. We're so productive that it turns out to be counterproductive in terms of jobs growth, at least at this stage. And this is going to be continuing, I think jobless expansion.

RAY SUAREZ: The number of companies announcing planned layoffs have decreased and the number of layoffs they're announcing have decreased. What does that say about their expectations?

ALLEN SINAI: Well, they're -- go ahead, Abby.

ABBY JOSEPH COHEN: I think it says something very positive in the form of the absence of a negative. It means that businesspeople are no longer scurrying the way they were to reduce costs, and we see that many companies on a company by company basis are now looking at ways to increase their business rather than to reduce costs. That's good news, and it means we go from an economy that is just beginning to recover, ultimately, to an economy that is truly expanding. And that's what we can all look forward to.

RAY SUAREZ: Abby Joseph Cohen, Allen Sinai, thank you both.

SERIES - REPORT CARD

JIM LEHRER: Now how one particular group is faring in today's job market. In our series on education this week, we've looked at current issues from elementary school to college. Well, tonight: the tough transition from the classroom to a job. Our business correspondent Paul Solman of WGBH-Boston reports.

PAUL SOLMAN: The traditional ticket to job security in America: A degree from business school.

SPOKESMAN: Okay guys, you're going out and earning six figures.

PAUL SOLMAN: Instead of the traditional "cheese," the dean of Rutgers business school in Camden, new jersey, used the carrot of wealth to get his four-year grads and MBA's to smile for the camera in the teeth of a grim reality: A jobless economic recovery. No matter how good these kids look though, they consider their job prospects as dreary as the weather. On a scale of one to ten sort of with your voices-- so I guess it's "yay" to "uhh" or something like that-- what's the job market out there like at the moment?

GROUP: Uhhh! ( Laughter )

PAUL SOLMAN: Statistics explain the economy is recovering, but economic growth has been no higher than population growth. And with consumers loath to spend, making companies afraid to expand, jobs have been shrinking. MBA-to-be William Campbell:

WILLIAM CAMPBELL: The job market out there, it's pretty tough right now -- not like when my mom was in college or my brother was in college. Like, you really have to work for yours.

PAUL SOLMAN: How many resumes have you sent out?

WILLIAM CAMPBELL: Right now, I would say I've sent out 105. You know, you might have this degree, but they want more out of you. They want more than just that degree, they want, like, you know, experience. They want, you know, leadership experience, management, things like that.

PAUL SOLMAN: And often these days, even that's not enough.

JENNIFER ARATEN: Because there's a lot of places that have hiring freezes, budgetary freezes. So even if you're completely qualified, they're not hiring.

PAUL SOLMAN: What's your own experience been?

JENNIFER ARATEN: I have an undergrad in journalism from Brandeis University. I've worked in... actually on television for three years, and now I have an MBA in marketing and management. So I'm looking to sort of combine both and do marketing and television. So I need a job people. Help me out.

PAUL SOLMAN: Since Jennifer Araten arrived at Rutgers two years ago, the U.S. economy has lost 2.7 million jobs, though President Bush's 2002 economic report predicted a gain of three million jobs. The official jobless rate is up about a third to roughly 6.1 percent; for those ages 20-24, it's 10 percent. The Camden grads, though, may be better off than their counterparts from more famous schools. Most of them were already working to put themselves through school, says career counselor Jim Moreno.

JIM MARINO, Rutgers Camden Career Center: I think that gives them a clear advantage over the student who goes away to a school like a Notre Dame or even a Princeton or whatever, and they're coming back to their home state. And if they haven't made those connections during the course of their college, they're at a distinct disadvantage in terms of the local market.

PAUL SOLMAN: Meanwhile, across the river in Philadelphia sits Temple University where 5,000 seniors graduates the day before. The campus was quiet but at the career center, run by Chet Rispoli, it has been that way all year.

CHET RISPOLI, Temple University Career Center: This is our interview suite. These are all interview rooms.

PAUL SOLMAN: The little rooms.

CHET RISPOLI: In a busy time, this is a very busy area, students waiting for the next interview. In many cases, we have a number of employers in one day coming in.

PAUL SOLMAN: But there's not a soul here.

CHET RISPOLI: As you can see, there is not much going to right now which is pretty indicative of what is going on in terms of recruiting. Last year recruiting was down 37 percent nationally, and this year it is probably close to that. It has been two weeks since we've had a recruiter in here.

PAUL SOLMAN: Really?

CHET RISPOLI: And this typically would be the busiest season.

PAUL SOLMAN: There has been so little traffic here, the clock hadn't been sprung forward for daylight's savings time, a month before after the fact.

CHET RISPOLI: I've never seen it like this.

PAUL SOLMAN: Back at the pre-commencement pep rally, the Rutgers dean tried to reassure the crowd.

RUTGERS DEAN: You guys have achieved, you have done well. We applaud you for being our students and for going out and representing Rutgers University. So congratulations on your great achievements.

PAUL SOLMAN: But it's hard to rally much pep when even your commencement speaker, biotech CEO Marvin Sampson can't give you much encouragement.

MARIN SAMPSON, CEO, SICOR, Inc.: What profound advice can I share with you? I recently saw a quote that sums up how I feel about advice. If it's free, it's advice. If you pay for it, it's counseling. If you can use either one, it's a miracle.

PAUL SOLMAN: So what are new college grads doing, applying to graduate school. Law school applications are up more than 20 percent since 2001. Med school applications have reversed to a seven-year decline. Princeton economist Alan Krueger.

ALAN KRUEGER, Economist: It is not unusual when you have a recession for people to spend more time in school. That's actually one of the silver linings of a recession. We've seen an enormous surge of applicants to graduate schools even in programs like economics.

PAUL SOLMAN: What is the number at Princeton's?

ALAN KRUGER: I think we had over 800 applicants this year.

PAUL SOLMAN: For how many?

ALAN KRUEGER: We shoot for a class of around 25 students.

PAUL SOLMAN: Eight hundred applicants for twenty-five slots?

ALAN KRUEGER: That's right.

PAUL SOLMAN: Larry Katz says the ratio is comparable at Harvard. Does he also think it's a silver lining of the jobless recovery?

LARRY KATZ, Economist: Yes, but there are only a fixed number of slots in graduate school in the short run so more people who would have gone to work going to graduate school mean fewer people who already went to work are able to get into graduate school. And so we don't really change the situation that much.

PAUL SOLMAN: Moreover, research shows entering a jobless job market has long-term consequences for earnings. Via videophone, we interviewed Michigan economist John DiNardo.

JOHN DiNARDO, Economist: Take two people who have the same skills and the same aptitudes and we can watch the people ten years into their job, the person who got their job when the unemployment rate was high will typically have 10 percent lower wages than the same person who got their job when the unemployment rate was low.

PAUL SOLMAN: You mean all else equal?

JOHN DiNARDO: All else equal. I mean if I were looking for a job right now, I would be fairly gloomy myself.

PAUL SOLMAN: You would be gloomy?

JOHN DiNARDO: Yes. And that's why I'm very happy to be here in Ann Arbor with a job with tenure.

PAUL SOLMAN: Our interview itself was a sign of the times. The money we saved by not flying to Ann Arbor, hiring another crew there for the whole day, is the type of productivity gain getting the same output using less labor that's squeezing the job market in almost every profession. But no matter how hard it is for college graduates right now, Alan Krueger reminded us, it's even worse for those without a college degree.

ALAN KRUEGER: The unemployment rate for high school dropouts is 8 percent. For high school graduates 6 percent.

PAUL SOLMAN: College?

ALAN KRUEGER: Graduates about 3 percent.

PAUL SOLMAN: For those with advanced degrees, it's even lower. So college remains a relatively good investment.

CHET RISPOLI: I saw a report recently that said that over the course of a lifetime, the difference between a high school graduate and college graduate in terms of income was about three quarters of a million dollars. And that was an average.

PAUL SOLMAN: It's this economic reality that has half of all kids in the U.S. enter college these days. It's why single mom Jennifer Sabatini had to put herself through school. A degree is no guarantee in the anxious spring of 2003.

JENNIFER SABATINI: I can't even count how many resumes I've sent and how to many companies I've sent.

PAUL SOLMAN: Do you think you have a much better chance of getting a job now that you have your degree?

JENNIFER SABATINI: I hope. I mean that's the whole reason why I came to school.

PAUL SOLMAN: The whole reason many of this year's million or so graduating seniors went to college, to get a good job. Unfortunately, these kids who came in with the economic boom, are going out into the bust of the so-called joblessrecovery.

JIM LEHRER: Still to come on the NewsHour tonight, a congressional report from North Korea, Shields and Brooks, and the Funny Cide horse story.

FOCUS - BLUNT TALK

JIM LEHRER: Yesterday, the U.S. announced troops will be pulled back from near the demilitarized zone between north and South Korea. U.S. troops have been stationed close to the DMZ for 50 years, since the end of the Korean War. Wednesday, Margaret Warner talked to members of a congressional delegation just returned from North Korea.

MARGARET WARNER: The lawmakers were the first American political figures to meet North Korean leaders since April, when the Bush administration held three- way talks with the Chinese and North Koreans in Beijing. With me now are two congressman who made the trip. The delegation chairman, Pennsylvania Republican Curt Weldon. He's vice chairman of the House Armed Services Committee and New York Democrat Eliot Engel. He's on the House International Relations Committee. Welcome to you both. Congressman Weldon, why did you make this trip? What was the purpose?

REP. CURT WELDON: Well, Margaret, I've been trying to get into North Korea for the past 14 months, long before the nuclear crisis emerged. Because America, I think, lacks a full understand and appreciation of what North Korea's all about -- the kinds of issues that are important to them. And with the emergence of North Korea as a major enemy of the U.S. and the West, I thought it was important to get over there firsthand and have a chance to talk and dialogue and look for some common ground, so that we can build on that. And with the nuclear crisis emerging, it became all important... more important reason this year to really press the case to go in.

MARGARET WARNER: And Congressman Engel, I gather the North Koreans were quite blunt with you all in declaring that they're vigorously pursuing the building of nuclear weapons.

REP. ELIOT ENGEL: Yes, they were blunt with us and we were equally as blunt with them. They confirm that they have nuclear weapons, that they're continuing their policy of nuclear weapons. And they made it very clear that they want to talk to the United States. And if I come back with one thing in mind, it's that we have to have dialogue with them. They have nuclear weapons. We need to get rid of their nuclear weapons. And the best way to do it is by speaking with them. We want to have multilateral talks involving other countries, like Japan and South Korea and China and Russia. They want to have one on one talks with the United States. I think we can do both. The important thing is to talk, and I got the distinct impression that they would trade in their nuclear program if they could have a deal with the United States where either we would sign a non-aggression pact or give them guarantees that we wouldn't try to topple their regime by force.

MARGARET WARNER: Congressman Weldon, let's go back, though, first to what the North Koreans actually said about the state of their program. Flush it out a little more for us. They confirm they had nuclear weapons. What did they say about the reprocessing of these spent fuel rods that have been such concern to the United States?

REP. CURT WELDON: Well, they confirmed not only that they have nuclear weapons and capability, but they had just about completed the reprocessing of 8,000 rods, and were going to use that weapons grade material for the production of additional weapons, which means that the time frame for us to look aggressive and resolve this issue, I think, is in months rather than years. The concern is not just North Korea's nuclear capability, but the fact that they, in fact, might follow their past practices and offer to sell a nuclear weapon to a terrorist organization.

MARGARET WARNER: Did you all talk about that with them?

REP. CURT WELDON: Absolutely. We talked about the absolute need to follow basically the May 28 meeting in Moscow between Putin and Hu Jintao from China, where they both call for the denuclearization of the Korean Peninsula. And we said it's now not just the U.S., it's all the nations of the world coming together collectively and saying, you know, you need to go back to what you were doing when you were a signatory to the non- proliferation treaty and abandon your nuclear weapons program.

MARGARET WARNER: But what did they say when you raised the issue of them transferring any of this nuclear material? Did they assert they had the perfect right to do it? Did they say they intended to?

REP. CURT WELDON: We didn't focus on that, but they certainly eluded to it. They... they maintain they have the right to a deterrent, and their deterrent is their nuclear program. They repeated time and again they were not going to be a Saddam Hussein in Iraq, and were not going to be rolled over by the West, even though we have superior military power. But their trump card was really the nuclear capability that their country possesses.

MARGARET WARNER: Congressman Engel, how did you find their attitude? You know, sometimes U.S. Officials have described them as belligerent at times. How did you find their approach to the United States?

REP. ELIOT ENGEL: Well, I wouldn't classify it as belligerent. I mean, I think they were firm in what they said. But one thing we noticed that as the days wore on-- we were there for three days, two-and-a-half days-- that they became more and more animated. And we really thought that we had good discussions. Look, it's a frightening society. You go there; there are billboards all over the place. You have the great leader and the dear leader-- which is the current leader and his father who founded the state-- plastered all over in every classroom. Wherever you can look, they're there. It's almost a frightening experience. But the fact of the matter is they have nuclear weapons and we need to get rid of them. The South Koreans are petrified that something will happen. And the way to go about doing it is in talking with them.

MARGARET WARNER:: Did you also detect what Congressman Weldon did, that they're very concerned they may be the next Saddam Hussein -- that the United States has designs on the regime?

REP. ELIOT ENGEL: Yes, definitely. In every single discussion we had, they mentioned the axis of evil that President Bush has classified them as one of the three countries in the axis of evil -- Iraq and Iran being the other countries. That they saw what happened with Iraq, and they're very much afraid that they could be next. And they do look at their nuclear weapons as leverage or as their trump card; as the one thing that will prevent the United States or the west from attacking them and removing their regime. They said very clearly that they don't want to unilaterally give up their nuclear weapons because if they did that, they'd have no leverage. But as part of a package and part of a deal, we all got the very distinct impression that they'd be willing to do... to do that.

MARGARET WARNER: Congressman Weldon, you actually took a proposal, I gather, to them for what a deal might look like. What are the elements?

REP. CURT WELDON: I can't call it a proposal because we were not negotiating. We weren't representing the president nor the secretary of state, and they understood that. In fact, they confirmed that in meetings to the foreign minister said we know that you're not here to represent your country officially. It really is a series of ideas. I stayed up the first night after meeting with the vice foreign minister from 3:00 A.M. to 5:00 A.M. and wrote out what I thought could be a solution to the problem. And surprisingly, the next night I presented it both to my colleagues privately, and then I privately met with the vice foreign minister for about an hour. And the response was, "this is exactly what we're looking for. This is great, and this is the kind of basis for a conclusion of the differences that we have." Now I can't reveal that now, because that's not fair to the administration and Colin Powell. I respect, I support them, and I'm waiting to present that to Colin Powell and his people at some point in time. And once that's over, they're the appropriate people that can respond because only they can negotiate. Members of Congress don't have that authority and don't have that responsibility.

MARGARET WARNER: But did you get the impression that they're willing to not just freeze one or another nuclear program they have in place, as it happened in '94, but actually dismantle everything, have intrusive verification, the kind of thing the administration is now looking for?

REP. CURT WELDON: Absolutely. I raised the issue of not just stopping the program and freezing it, but actually of eradicating nuclear capability and something they had not agreed to in the past, to put on the table, eliminating the existing weapons that they have in their invent/ . And their response was positive in all areas. So it really comes down to whether or not the administration wants regime change or thinks they can work with this government, and gradually move toward the kind of reforms that China is engaging in regarding human rights and so forth. And the ideas that I presented to them, ironically, even include a movement toward observer status of the Helsinki final fact, which, in fact, focuses specifically on human rights. So, I am optimistic. Now, there's a long way to go, because negotiators and diplomats have to dot a lot of i's and cross a lot of t's, and that's got to be something only the administration can do. But I think the foundation is there, and I will look forward to the administration following up in the formal way with the North Korean government.

MARGARET WARNER: Congressman Engel, you said a couple of times that you got the impression that they see their nuclear weapons and material as a deterrent. Why really would they ever give that up? I mean, isn't it possible that they just want to have it both ways? They want to get some security guarantees and maybe some economic aid, but that they don't want to surrender their status as a nuclear weapons power?

REP. ELIOT ENGEL: Well, I think that the regime is economically near collapse. There's famine in the country; people are starving, although I must say that people looked pretty good in the capital. But we know outside of the capital, things are very, very bad. I think they are... they are worried about regime change by force. And I think that the thing that's most important to them is staying in power. And I believe that they would trade away their nuclear program if, indeed, they could remain in power. These are not good people. Their system is... is terrible. It's alien to us. There are no freedoms. But, you know, there are lots of other countries who started out the same way. You had China and others as well. We have trade with them. We have agreements with them. It certainly makes sense to have this agreement with North Korea. Again, I think it's a matter of what the administration wants to do. There have been a lot of bellicose statements coming out of the administration. I hope those bellicose statements are designed to back the North Koreans into a corner, so when we negotiate with them, they'll be at a disadvantage. I hope the bellicose statements are not in lieu of discussing and negotiating with them. I think what was done during the Clinton administration-- which is engaging them in talks-- is something that's very, very important. Now it's true and I said this to them. They did not keep their promises under their agreements. They tried to blame President Bush for having bad relations, when, in fact, it's not President Bush or President Clinton or any American president. It's the fact that the North Koreans have not lived up to their agreements. They make nuclear weapons when they agreed not to. They've withdrawn from the agreements not to have nuclear weapons. They've shot missiles over Japan. They've done other things; drug trafficking and so on. We raised all these things with them. We were just as tough as can be. But the bottom line, again, is that they have the weapons. We cannot allow these nuclear weapons on the Korean Peninsula, and there's only two ways to go about it: You either negotiate with them or you try to remove it by force. I don't think we're ready for force. I think the only thing to do is negotiate and I hope the Bush administration does that.

MARGARET WARNER: All right, Congressman Eliot Engel and Congressman Curt Weldon, thank you both.

REP. ELIOT ENGEL: Thank you.

REP. CURT WELDON: Thank you.

FOCUS - SHIELDS & BROOKS

JIM LEHRER: Now the analysis of Shields and Brooks: Syndicated columnist Mark Shields and David Brooks of the Weekly Standard.

David, the president's overseas trip; The European stop first: Did he mend any fences or was that even the point?

DAVID BROOKS: He said hi to them. They didn't slug each other. But he mended fences by going to the Middle East actually. That's the place where he could show some results.

JIM LEHRER: You agree nothing really significant happened on the European part.

MARK SHIELDS: The Poland thing was symbolic. They were with us. We stopped there and acknowledged that. I think that's sort of a Bush family signature, that loyalty means an awful lot. And it was less of a victory lap than it was I think a fence mending mission because there are a lot of fences to mend over there. The Pew Poll came out and showed the United States falling dramatically and dangerously among Europeans and especially Islamic people in the Middle East.

JIM LEHRER: Do you agree David that he was right not to make it a priority, to kiss and make up with the French and the Germans or anybody else?

DAVID BROOKS: You can't do it in two days. These summits, I used to cover them. There is nothing of significance that comes out of them. They stand there in their blue suits and white shirts, but nothing ever gets accomplished. He was right to get out of there.

JIM LEHRER: The Middle East. How do you think he got started, Mark, in terms of getting the road map started?

MARK SHIELDS: I think the president feels he did well. For the first time in his presidency, Jim, on the way back he invited reporters up to the front of the plane, Air Force One, to spend 45 minutes with him which he has never done before. He was obviously feeling up and buoyant. The Bush administration's policy toward the Middle East has been marked, I think, by bold and dramatic and almost historic pronouncements. Then followed by....

JIM LEHRER: You mean about Palestinian -

MARK SHIELDS: Palestinian state, no more settlements.

JIM LEHRER: Right.

MARK SHIELDS: And we're going to, you guys are going to get together and then retreat. This time the president did, as David has called, what's irresistible for presidents. He plunged into it. And the question is going into an election, whether, in fact, I mean his political council is going to be saying you've done enough already. Let others carry the burden because (a): The Republicans think they have an historic chance to make inroads among Jewish voters where it has been historically bulwark of Democrats because of previous support of the Sharon government over there; and, (b), if you do too much, you'll irritate and energize the activist elements of the Jewish community on behalf of the Democrats. So I think there is domestic political pressure not to go too hard.

JIM LEHRER: Do you agree with that?

DAVID BROOKS: Not entirely. I do not think among the Jewish community or evangelical community there is much love for the settlements. IN both of those communities they do not want to see Israel pushed around but is if Sharon is willing to say, as he did very historically this week, that it is bad for Israel to have the occupied territories, the Jewish community and evangelical community are not going to get to his right. That's one of the things Bush has going for him. I think they've learned the lessons of the failure of Oslo. One, to marginalize Arafat, two to get the Arabs involved, which we didn't do sufficiently because it's only Egypt, Saudi Arabia and some of the Arab nations that can really lean on Hamas and those people who need to be crushed and leaned on. And finally don't get too geeky about the process. Those people who are involved in negotiations, it's all they've done with their lives. They can negotiate for six months on the shape of the doilies at the conference table. And Bush, because of his personality, is just going to say I don't care about that stuff, let's keep moving. I'm actually as optimistic as I've been in five years about the Middle East because I really think there's real movement this week and chance for more.

JIM LEHRER: Do you share that optimism, politics of it aside?

MARK SHIELDS: I don't, Jim. I think there is a contrast in styles. Bill Clinton what everybody says about him, mastered the history, the data....

JIM LEHRER: And the details.

MARK SHIELDS: He knew if he drew the line one block in Jerusalem, what the difference was in east Jerusalem, politically, sociologically, culturally and historically. And one of George Bush's own appointees said, he does not have the knowledge or the patience to learn the issue enough to have an end destination in mind. I mean, he really is - I guess if you like it, it's big picture broad strokes but it's detachment and the question David -

JIM LEHRER: Do you think that's enough?

DAVID BROOKS: I thought Clinton did a good job but he was moving around the parking spaces between the two zones. But Clinton cannot get dragged down into this process. They're addicted to it.

JIM LEHRER: You mean Bush.

DAVID BROOKS: Bush can't. They're addicted-- they've been doing it for their lives there. There's like four different dimensions. They love the process. They don't think about the end game. To me one of the really interesting things that has happened is the important role that Condoleezza Rice is playing which is not the State Department but within the White House itself

JIM LEHRER: She has been given this account, has she not?

DAVID BROOKS: And Jim Hoagland of the "Washington Post" had a wonderful observation. If you look around the - at the governments around the world, very often it is not the State Department as the foreign ministry who are rising in power; it's the people right around the prime minister or the president; and in part that's because of communication technology. It is easy for leaders to talk but in part it's because of the politicians in a political sense you can't have professional technocrats running these negotiations because they get too detached from reality. You want to have politicians and people right around them doing it.

JIM LEHRER: On the domestic political thing, more generally, Mark, is it your feeling that the American people generally want their president to resolve things in the Middle East? Is that why every president of the United States recently, at least, every secretary of state eventually whether they want to or not gets involved?

MARK SHIELDS: I don't think there is a groundswell of support for it.

JIM LEHRER: They have to choose to do it.

MARK SHIELDS: I've never seen it come up on a list of the most important issues that the president ought to be doing more in the Middle East. I mean, I think they like to see the president of the United States as a peace maker and nobody, Jim, and one of the most interesting stories of all that came out of this was when Abdullah of Saudi Arabia went to visit the president at the Crawford Texas Ranch. He showed the president pictures that had been on television over there of Palestinian children who had been killed. And it was a ten-minute video. He went through this book with him and he said, Mr. President, I'm with you whatever you do. But if you're going to get involved, you have to stay involved. I'll support you whatever you do. And the president, apparently, from those who were there, it was almost an epiphany for the president of the suffering. He didn't make an anti-Israeli screed or anything of the sort and the president's interest was encouraged and nurtured.

DAVID BROOKS: It is interesting because in the Congo millions have died in the past few years.

JIM LEHRER: Three million people since 1998.

DAVID BROOKS: Which is as many Palestinians as there are in the West Bank or almost as many, and yet somehow that is off the radar screen -- yet we all focus on the Middle East. I will say one thing that is different about Bush this time, which is he sees it as part of the war on terror to which he has committed his presidency. So I do think that's the ability to stay there is there.

JIM LEHRER: Okay. Back here now in this country this week, the Justice Department inspector general report criticizing the way illegal aliens were handled after 9/11, the attorney general, John Ashcroft went before Congress to defend his conduct of his department. How do you read the final scene?

DAVID BROOKS: I think there is a lot to criticize in the way the Justice Department did it. There is not as much as the Democrats are making or the media are making it. One of the patterns of the town is that you can say anything about John Ashcroft, you don't have to be fair for him. For some reason -- he is one of those people, Martha Stewart, John Ashcroft, they're picked out --you can demonize them. If you actually read the report as the magazine did, there is criticism of 84 of the people out of the 700 they detained, this was post 9/11; they were in a tremendous crush. They took some people they thought were suspicious; they held them; they held them without trial. But in the crush when thousands of things are happening, the FBI is so understaffed, it is unfortunate in some ways that in one facility in Brooklyn they were brutal, which is wrong but I think it is more understandable and being blown wildly out of proportion in the press and by the Democrats.

JIM LEHRER: How do you read it?

MARK SHIELDS: I'm not sure as David is as being blown out of proportion. I think what struck me was not simply the report -- the inspector general's report -- but the attorney general's own resistance to any sort of a special counsel to investigate the findings of the report.

JIM LEHRER: How do you think he handled himself yesterday?

MARK SHIELDS: What John Ashcroft does is John Ashcroft pleases those who are with him and displeases those who are against him. And I think what is interesting is among those who have reservations about John Ashcroft on the Hill are a number of conservative Republicans. I mean Jim Sensenbrenner, the conservative Republican chairman of the House Judiciary Committee from Wisconsin, said my support for the Patriot Act is neither unconditional nor eternal or perpetual. And I think there is some sense of an enlarged energetic overbearing federal government trampling on civil liberties that historically has been articulated by the left and liberals but I think is being shared by conservatives.

JIM LEHRER: Why do you think Ashcroft is fair game?

DAVID BROOKS: He's Pentecostal.

JIM LEHRER: You think that? You believe that?

DAVID BROOKS: People see him as a shrewish figure; I think that Pentecostalism plays into the role. He is stiff, he is personally stiff. He is not a good glad hander but I do think there are prejudices against Pentecostal.

JIM LEHRER: David, you mentioned Martha Stewart, a three parter question. It has been a pad week for three people, Martha security, Sammy Sosa of the Chicago Cubs, four people, Howell Raines and Gerald Boyd of the New York Times. Does it prove once again that nobody is immune from a fall?

MARK SHIELDS: Nobody is immune from a fall, Jim. And the Germans have a word for it called shodenfreud, I think, - it means taking delight in the fall of others. Sammy Sosa -- there seems to be a perverse delight being enjoyed by people in the fall of Howell Raines at the New York Times and Martha Stewart in particular who was the person who could tell you how to put together the perfect canap and had been a stockbroker and enormously successful executive and then said I'm a poor little girl, don't pick on me. In Howell Raines's case, he set a record as editorial chief of the New York Times that any institution....

JIM LEHRER: This is when he was editor of the editorial page.

MARK SHIELDS: Prior to taking over -- but any institution that did wrong, whether it was the Catholic Church, whether it was Enron or Tyco or any of the earlier ones

JIM LEHRER: Or President Clinton.

MARK SHIELDS: President Clinton -- the person at the top had to take responsibility and had to be held accountable. And he made a lot of enemies along the way, especially within the New York Times. And I can tell you, that was repeated over and over again by non-Howell Raines fans saying, look, he has got to live by the rules he laid down. He can't deny accountability with the Jayson Blair thing.

JIM LEHRER: David, do we enjoy watching these folks fall too much?

DAVID BROOKS: Some people deserve it. Some people it goes over the line. Some people deserve it but it goes over the line. Martha Stewart -- I don't have grief for Martha Stewart, I don't know if a canap is a thing that goes over your bed or an hors d'oeuvre; I know it's one of those.

MARK SHIELDS: It can be either.

DAVID BROOKS: Thank you very much. But the hatred of her is so over the top, it has become sickening. In the 50s with the McCarthy period Hollywood would make these movies where the mob would get going, and they would be about to lynch somebody, and then Gregory Peck would come in and save the person. We need a few Gregory Pecks. Maybe Martha deserves it, but to tell the mob to ease up. It is getting too brutal.

JIM LEHRER: How do you read the New York Times thing?

DAVID BROOKS: Howell Raines made a mistake. He had a bunch of reporters who think they're God's gift to journalism. Some of them are God's gift to journalism; they're really good, and he treated them like starters who he could dominate and they felt their creativity was not allowed to flourish. So it undermined his credibility so when the crisis hit....

JIM LEHRER: He was gone. Thank you both very much.

FINALLY - AMERICA'S HORSE

JIM LEHRER: And finally tonight, a fast horse, a big race, and much interest. Betty Ann Bowser reports.

BETTY ANN BOWSER: Funny Cide may run into history tomorrow. If he finishes first in the Belmont Stakes, he'll become the 12th horse in history to win all three of the big races that make up the jewels in the triple crown.

ANNOUNCER: The pace is increasing as they come to the head of the stretch.

BETTY ANN BOWSER: It's been a long, dry spell for the sport of kings. Affirmed was the last horse to win the triple crown in 1978.

ANNOUNCER: Affirmed got a nose in front of it. Come on to the wire.

BETTY ANN BOWSER: So the prospect of it happening now has sports fans everywhere excited. Steve Haskin is senior writer for "Bloodhorse" Magazine.

STEVE HASKIN, Bloodhorse Magazine: We don't know how good this horse is. That's the main thing. He could be a budding superstar. So, that's what makes it so intriguing.

BETTY ANN BOWSER: How Funny Cide got here is intriguing and unlikely. His owners are not Saudi princes or oil barons. They're a bunch of high school buddies from a sleepy town in upstate New York, Sackets Harbor. Population: 1,300. Among them, Mark Phillips; he's a retired high school math teacher. J.P. Constance until recently was the mayor of Sackets Harbor. He owns an optical shop.

SPOKESMAN: This is a pretty big demo job.

BETTY ANN BOWSER: And Harold Cring, who never went to college, owns a commercial construction company. A few years ago, he brought his buddy Larry Rhinehart into the business.

SPOKESMAN: Jack, our managing partner.

BETTY ANN BOWSER: This is Jack? But the "Funny Cide" story all started one night when high school chum Jack Knowlton suggested they buy a horse.

J.P. CONSTANCE, Co-owner, Funny Cide: It was a Memorial Day party in '95, where our senior partner, our managing partner, Jack Knowlton, brought the idea up. One of the partners started running with the ball, quizzed everybody at the party. Because we had a few too many brewskies, we waited a couple of days and met on my front porch. And the deal was, if you're interested, bring a checkbook; if you're not interested, stay home.

BETTY ANN BOWSER: Nobody stayed home. They all coughed up $5,000 to get started. They bought a few second-tier horses and poured the earnings back into the partnership. Then two years ago, they had enough to buy a really good horse, Funny Cide, forjust $75,000. The idea was for Funny Cide to have a career racing in upstate New York.

ANNOUNCER: Funny Cide off the turn with a two-and-a-half-length lead.

BETTY ANN BOWSER: The thing was, he kept winning. So they decided to go for the big time.

ANNOUNCER: Funny Cide to the next...

BETTY ANN BOWSER: On May 10, with jockey Jose Santos on board, Funny Cide won the Kentucky Derby as a 13-1 long shot.

ANNOUNCER: And Funny Cide has won the 129th Kentucky Derby.

HAROLD CRING, Co-owner, Funny Cide: Only in America can a guy go from being a carpenter to winning the Kentucky Derby.

BETTY ANN BOWSER: How much money did you bet on this horse at the Kentucky Derby?

MARK PHILLIPS, Co-owner, Funny Cide: Well, we usually don't say how much we bet. But I only bet $80 on it. But that was a lot of money to me. It's the most money I've ever bet on a race horse in my life.

J.P. CONSTANCE: I put $50 on that horse to show. That's the truth.

HAROLD CRING: That's the truth.

MARK PHILLIPS: I thought it was $20.

J.P. CONSTANCE: No. It was $50. I told the wife it was $20, but I bet $50 to show. I got it back, by the way.

BETTY ANN BOWSER: Funny Cide's total winnings in the derby: $600,000. Then, two weeks later, he won the Preakness by nine and a half lengths. It was only the second time a horse had won by such a wide spread. The stunning win made headlines all over the country.

MARK PHILLIPS: I think it's America's horse, because of everything that's gone on in the world from 9/11 to our war. It's something that people can actually focus on that's positive.

J.P. CONSTANCE: You know, we're the average Joe. And this horse is just an underling that nobody thought much about. He's the average Joe, too.

BETTY ANN BOWSER: Funny Cide is getting a lot of attention because he's a New York-bred horse in a sport dominated by Kentucky thoroughbred and because he's a gelding. He was gelded because of an anatomical abnormality. But Haskin says that can make a better race horse.

STEVE HASKIN: Once a horse is castrated, he only has one thing on his mind, and that's the running. Horses who are not, have a tendency to be studdish. They come out here and they might see another horse and... not just a filly, but even a male horse. They'll come out here and they'll see another horse, and they'll start acting studdish, and once a horse is not focused on racing and starts thinking of other things, that compromises his chances on the racetrack. But he's a horse right now that is focused on only one thing. He's focused on being a race horse, period.

BETTY ANN BOWSER: And going into the final days before the race, Funny Cide is running extremely fast.

ROBIN SMULLEN, Asst. Trainer, Funny Cide: Mentally, he's very egotistical. And he has the biggest ego of anyone going into the race.

BETTY ANN BOWSER: Assistant trainer Robin Smullen says Funny Cide is so fired up from his recent wins that she could barely restrain him on his last workout.

ROBIN SMULLEN: If you say, "I don't want you to go that fast," then he challenges you now, where he used to give in a little bit-- very little.

BETTY ANN BOWSER: Funny Cide's trainer is 65-year-old Barclay Tagg. After 30 years in the business, this is his first great horse.

BARCLAY TAGG, Trainer, Funny Cide: He's just gotten bigger and stronger and better through this whole thing, and I mean you never know how they're going to run. I don't care what anybody says. You can't predict how they're going to run.

BETTY ANN BOWSER: But the Belmont is the longest and toughest race in the sport: A mile and a half.Since 1998 five horses have won both the Derby and the Preakness, only to fail at Belmont. Still -- win or lose, the Funny Cide story has given Americans something to crow about.

STEVE HASKIN: The country right now is looking for a true sport hero, and horses in my mind are the ultimate sport hero. You don't read about them trying to get an increase in their salary. You don't look at them as, you know, fighting this clause in this contract and that clause and about they want to be traded. These horses have only one thing in mind: To go out there and perform and do what they're bred to do.

BETTY ANN BOWSER: And the owners say, win or lose, Funny Cide has been the ride of their lives.

MARK PHILLIPS: People have said, "well, what happens if this horse loses?" Will we be disappointed? Maybe for a minute or two. But do you know we won the Kentucky Derby and we won the Preakness?

BETTY ANN BOWSER: Although Funny Cide can never make the big bucks as a stud horse, he can continue to earn. So even if he loses at Belmont tomorrow, his owners plan to let him keep racing. He's already won nearly $2 million, and over a five- or six-year career, he most certainly will earn more money than any gelding in history.

RECAP

JIM LEHRER: Again, the major developments of this day. The U.S. Unemployment rate hit a nine-year high of 6.1 percent last month. The Islamic militant group Hamas broke off cease-fire talks with Palestinian authority leaders. And United Nations nuclear experts arrived in Baghdad to assess the damage at Iraq's largest nuclear facility. A reminder: "Washington Week" can be seen on most PBS stations later this evening. We'll see you online, and again here Monday evening. Have a nice weekend. I'm Jim Lehrer. Thank you and good night.