The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight, a look at the major rise in the unemployment rate; a Newsmaker interview with President Fox of Mexico; political analysis by Paul Gigot and Tom Oliphant; and a profile of Michael Kaiser, the person to see at the Kennedy Center. It all follows our summary of the news this Friday.

NEWS SUMMARY

JIM LEHRER: Unemploymentin August was the highest in four years. The Labor Department today reported the jobless rate was 4.9%, up 0.4% from July. Overall, businesses cut 113,000 jobs, led by the biggest losses in manufacturing so far this year. On Wall Street, stocks fell on the unemployment news. The Dow Jones Industrial Average dropped 234 points to close at 9605; a loss of more than 2%. For the week, it lost 3.5%. The NASDAQ Index fell 17 points today to close at 1,687. Its loss was 6.5% for the week. Japan today edged closer to its fourth recession in ten years. The Japanese government said the world's second-largest economy shrank 0.8% in the second quarter. Unemployment there is now at 5%, the most since record keeping began in 1953. The president of Mexico warned today that law enforcement alone will not stop illegal immigration. President Fox spoke in an interview with the NewsHour, as he concluded his state visit to Washington. He said the only way to keep more Mexicans from illegally entering the U.S. Is for Mexico's economy to grow. He said fortifying the border is not the answer.

PRESIDENT VICENTE FOX: Building walls, that is the suggestion, and it wasn't work. It hasn't worked in Berlin. It hasn't worked anywhere. Even the wall or those fences that have been constructed in part of the border, I mean, when you have a tenfold, ten times more income just crossing a border, I mean how can you retain that human spirit for improving, for advancing?

JIM LEHRER: In the short term, Fox wants some three million Mexicans working in this country illegally to be granted legal status. We'll have that interview in its entirety later in the program. The UN Conference Against Racism went into overtime today in Durban, South Africa. It was scheduled to conclude, but negotiators continued working on an agreement involving slavery and colonialism. African states demanded a direct apology, but European nations resisted. They feared it would trigger lawsuits for reparations. Also today, Arab states rejected a compromise that stopped short of branding Israel as racist. Earlier this week, the U.S. and Israel left the conference over that issue. Zimbabwe today promised a quick halt to violent seizures of mostly white-owned farms. It was part of a larger accord to end a crisis in the southern African nation. Members of the British Commonwealth worked out the deal in Nigeria late Thursday. We have a report from Kevin Dunn of Independent Television News.

KEVIN DUNN: The breakthrough, both sudden and unexpected, came in talks brokered by Nigeria; Zimbabwe agreeing to stop further farm occupations, and to enforce the rule of law in land reform. Foreign Secretary Jack Straw had exerted quiet diplomatic pressure through commonwealth partners to resolve the crisis.

JACK STRAW: Everybody was agreed, above all, about one thing: That the situation in Zimbabwe was not satisfactory, and in the interests of the people of Zimbabwe as a whole-- regardless of their politics, or their color or their religion or their race-- it was imperative that steps were taken to improve the quality of life, the standard of living.

KEVIN DUNN: Since the seizures began 18 months ago, nine white farmers have died, and some 1,700 farms taken over. But the occupations have only aggravated Zimbabwe's economic crisis -- a crisis which also threatens its neighbors. That is why Nigeria was keen to broker a solution. Though the key question is whether the agreement will be implemented on the ground.

JIM LEHRER: As part of the deal, Britain agreed to help compensate white farmers whose land is given to blacks. If Zimbabwe does not abide by the agreement, it could be suspended from the commonwealth. President Bush's plan to offer drug discount cards through Medicare is on hold for now. A federal judge in Washington suspended it Thursday while he hears a lawsuit by pharmacy groups. They argue the plan is illegal because the government won't subsidize the lower prices. A Medicare official said today the administration might challenge the injunction. And that's it for the News Summary tonight. Now it's on to that jump in unemployment, President Fox of Mexico, Paul Gigot and Tom Oliphant, and the man in charge of the Kennedy Center.

FOCUS - JOBLESS

JIM LEHRER: Ray Suarez has the unemployment story.

RAY SUAREZ: When the unemployment rate jumped 0.4% last month, it was the highest single-month increase in 15 years. One reason for the upswing, the 141,000 jobs lost in the manufacturing sector, which has seen its employment plummet by one million since July of last year. For more on these numbers, we turn to Jared Bernstein, senior economist at the Economic Policy Institute, and Mickey Levy, chief economist at Bank of America. Well, Jared Bernstein, let's start with you. What is a four tenths of one percent one-month jump mean?

JARED BERNSTEIN: It means that the slowing economy has clearly caught up with the labor market. The American worker is now very much in the grips of a slowdown from his or her perspective, this looks like a recession at this point. Up until a few months ago it was possible to argue that the slowdown was isolated in a few sectors of the economy, particularly manufacturing, as you mentioned but also of course the high-tech sector with all the dot-com implosions we've heard about. At this point, weakness is quite pervasive throughout the labor market. We lost 26,000 jobs in retail sales last month, suggesting that the American consumer is clearly pulling back. The services, which has been the primary generating or of job growth over this recovery have been adding on average only 10,000 jobs per month since March. This is a sector that has, over the past few years, was adding over 100,000 jobs per month. The great American job machine has shifted into reverse, and the key difference between our view of the labor market now and, say, a few months ago is pervasive. Unemployment rates are up not simply for manufacturing workers, they're up 2.2% for manufacturing workers, they're also up .7% for professional workers, they're up 1.1% for service workers. It's very difficult at this point to find any sector in the economy in the labor market that's been unscathed by the slowdown.

RAY SUAREZ: Mickey Levy is that pretty much the way you see it?

MICKEY LEVY: I think that may overstate the case. A key thing to point out here is the last thing employers do is lay off people. So there's no question but that we're in an economic slump. Businesses, in response to a slower demand particularly in manufacturing, have been slashing production so as to reduce undesired inventories. And now they're cutting back aggregate hours worked in employment. The key point that I would make is that employment and the unemployment rate are characteristic of lagging indicators; that is, they reflect what's been happening in the economy, but they don't point toward further deterioration. And, in fact, if you look back at rebounds from recessions, like in 1990, '91, the previous recession in the early '80s, retail sales and consumption always reaccelerated and employment stayed rather weak for a full year. So, yes, the employment report does reflect the slump but it doesn't point toward further deterioration. In this regard, I would say the decline in the stock market had perhaps more to do with the market's concern about the future profits relative to expectations rather than continued deterioration in economic activity.

RAY SUAREZ: A lot of the reaction from the securities houses today said that this is a sign that things are going to go south in the consumer sector. Now not to minimize the terrible toll it can take on an individual when they lose their job, but how can a 1% shift in unemployment mean that much to the overall psychology of a consumer sector, Mickey Levy?

MICKEY LEVY: Well, one of the key determinates of consumer sentiment is job security or insecurity. So when you have increasing unemployment and people are worried about their job, then people become worried and they tend to save a little more and consume less. But here I think it's important to point out that while consumer spending has slowed in its rate of growth, it's certainly not declining and the most recent statistics show that it is not declining, will not decline, and a key point I would bring out is consumer spending tends to lead employment and the fact that the unemployment rate has gone up, which everybody should have expected because it's quite natural, does not portend a fall in consumer spending.

JARED BERNSTEIN: Well, I think Mickey Levy and others will make a mistake if they somehow try to downplay or dismiss the magnitude of the increase in the unemployment rate. The fact that the unemployment rate is a full percentage point above where it was last fall, that recently it's trended up quite quickly and that 1.4 million more people have been consigned to the ranks of the unemployed over this period. It's very correct that unemployment is a lagging indicator, but what that means and what it's meant in past recoveries is that the unemployment rate will now continue to rise even if the economy reverses pace and increases relatively soon. And there are actually no forecasts that see the unemployment rate coming down in the near term. In fact, virtually every forecast expects the unemployment rate to continue to rise. Now if you want to understand the importance of that point, I think you have to probably get away from Wall Street and think more about Main Street. Working American families saw the first gains in real wages and real incomes in decades when the unemployment rate hit 3.94%, when it... When we hit full employment in 1999-2000 and even at the early part of this year. Once the unemployment rate begins to climb and we leave that very important and beneficent condition of full employment, those real wage and income gains will be begin to tail off and the American working class is very likely to see a return to stagnant wages and incomes and increasing income and equality. The stock market is certainly an important component of this, but in my view more important are the wages and income of working families who depend on full employment. 4.9% unemployment, where we got today, is far from full employment. I'd say it's a percentage point above that level.

RAY SUAREZ: Mickey Levy?

MICKEY LEVY: Well, two points here, yes, the unemployment rate is rising. It should be and it should come as no surprise. But I think a key point to bring out is, number one, wages are rising faster than inflation so workers are enjoying increase in real wages and disposable income is rising, not just due to higher wages but lower taxes. And another silver lining in this, if you will, is businesses, despite the slump and the sharp reduction in production, they have been maintaining productivity gains, which is quite surprising at this stage of a slump. One final point: While it's very easy to look at all the negatives of the slump, I would say if you look at the Federal Reserve's easy monetary stance, that is, their stimulus so far this year by lowering interest rates, the tax cuts and the lower energy prices, I think we... I do see the light at the end of the tunnel and I do expect the economy to start picking up. But I agree with the other speaker that even if the economy starts picking up, employment should be flat and the unemployment rate should drift up.

RAY SUAREZ: Does this also mean, the way the numbers are going, that if you lost your job last month, if you were part of this large number of new claims, that it will be a longer time before you get a new job?

JARED BERNSTEIN: Absolutely. It absolutely means that. The labor market of the latter '90s was characterized by a high level of churning. That is, job losses were actually more common than we might have expected given how tight the labor market was. But folks found themselves getting rehired pretty quickly. That's a function of a tight labor market where employers need workers. In the current labor market, that's reversing. The average durations of unemployment are lengthening. We have more folks obviously coming into unemployment. And those folks are having a harder time finding work. By the way another indicator of that, which I think has been under appreciated in these numbers, is that the labor force has actually fallen over the last few months. Our labor force is 350,000 persons smaller now than it was in the first quarter of the year.

RAY SUAREZ: Which means what?

JARED BERNSTEIN: Which means that many workers are discouraged about their job prospects and are not even looking for work at this point. Therefore, they're not showing up in the unemployment rate. This decline in the labor force, this decline in the rate of employment actually masked the increase in the unemployment. Unemployment would be higher, were these persons in the labor market unsuccessfully seeking jobs. It's another indicator of just how pervasively weak labor demand is right now.

RAY SUAREZ: So quickly, Mickey Levy, if we are looking down the road, you mentioned that this is a lagging indicator, could we not see job increases net until the middle of next year or later?

MICKEY LEVY: I think that's a fair estimate. Once again I think the factors are in place for the economy to rebound. And keep in mind, the economy is in a slump following three years of absolute boom. You don't stay in a slump forever and the factors are in place for a pick-up in demand in the economy next year. But even if the economy rebounds, businesses are going to be very slow to rehire and so I think the unemployment rate will drift up and aggregate hours worked will stay at about their current level even as the economy picks up.

RAY SUAREZ: Mickey Levy, Jared Bernstein, thank you both.

JARED BERNSTEIN: Thank you.

NEWSMAKER

JIM LEHRER: Now our Newsmaker interview with President Vicente Fox of Mexico. Today he concluded his state visit that focused much on immigration reform. I talked to him about that and other issues at the Blair House this morning.

JIM LEHRER: Mr. President, welcome.

PRESIDENT VICENTE FOX: Thank you very much.

JIM LEHRER: How much progress have you made on this illegal workers issue since you've been here?

PRESIDENT VICENTE FOX: Okay. It is a process, a process that started formally back first of December and it specifically started with a visit of President Bush to Rancho San Cristobal in the state of Guadalajara, where you all have your home, and there we started first of all, identifying the problem, trying to develop a vision where we wanted to go and started to search for the logistics and the strategies we were following. This process has been led by a high-level government official group, which is on a day-to-day contact working, analyzing, discussing, and advancing. I think this is the first stage or the first station where we on this state visit we start to supervise and see how much have we advanced, where we are at right now, and to reach the first, more formal conclusions. We have planned now a third or second stage, which would be by year-end. We will stop again and see where we are. It's a difficult subject; it's complex.

JIM LEHRER: Year-end. What do you think you can have at the end of this year? What is it you want, let's put it that way, at the end of this year?

PRESIDENT VICENTE FOX: What we want. We want some agreement on migration, taking into considerations two universes: One has to do with those Mexican workers that are here in the United States but are contributing to the U.S. economy, that are paying taxes, that are behaving; those right now are illegal. We want to regularize their situation so that they can be here without having to hide away, without having to have their rights violated, and that they would have a status of regularization that will permit them to have all the rights, and keep on working hard, and at the same time go back and forth to Mexico.

JIM LEHRER: Why is that important? Why does that matter to Mexico?

PRESIDENT VICENTE FOX: Well, it matters to the partnership we have put together. It matters to the United States, and it matters to Mexico, first, because they are human beings; they should have and deserve to be respected in all their rights because they are hard working, because they are productive, and they deserve that. Number two, because of convenience. I cannot explain myself how the U.S. economy grows at 5 1/2 or 6 percent year-to-year in the last ten years but didn't happen in the past - and it's this energy, this working, productive force is part of that success story. I cannot explain myself how corporations, global corporations can be successful in competing with Asia or competing with Europe if it was not because we have joined resources -- Mexico, Canada, and the United States. We decided to be partners ten years ago, and we just have to live up to that because it is very convenient to all of us.

JIM LEHRER: As you know, the major opposition to what you want comes from members of Congress and others who say, wait a minute, these people violated the law; they are here illegally; why should we grant them amnesty, because that goes down the road - what about other people who have committed crimes, et cetera, et cetera, et cetera -- how do you answer that?

PRESIDENT VICENTE FOX: Well, first, I respect the U.S. Congress; they have the final word, and the final decision, no doubt. We don't want to interfere on U.S. politics or U.S. mechanisms, so that's number one. Now, what is the argument? I think that first of all we're not looking for amnesty. We're not pushing to amnesty. And there are many words that are being used on this subject that could be misleading. I'd rather talk about regularization, so...

JIM LEHRER: Aren't they really the same, Mr. President?

PRESIDENT VICENTE FOX: No. Because I understand that amnesty goes further beyond. I don't think our people is requesting to become U.S. nationals, to become U.S. citizens; what they want is the opportunity to work legally, contribute to the U.S. economy, and go back and forth to Mexico, as long as they have a job, as long as companies and corporations or employers need them - this is key - crucial is not only that they offer the work force; it's somebody that needs that work force, that has hired them, so it is illegal what happens now; let's recognize it. Let's recognize that it's illegal, and let's legalize it, or regularize that situation, but what we cannot hide is that they are needed here; that companies, that people, that families, that small businesses want and need to hire them.

JIM LEHRER: What about the economic issue for Mexico? It's been suggested too that Mexico needs that money that these workers bring back to Mexico; is that true?

PRESIDENT VICENTE FOX: Well, we more than welcome that money, of course, especially by their families, because we should take into account that the wives of most of these Mexicans that are hard working here in the United States are alone there in Mexico, trying to cope with the problems of poverty, the problems of income, and these women I really admire because they are doing their share back there, so it's important that they receive the support, a hundred dollars a month, two hundred, that they send to them.

JIM LEHRER: Now, let's say that you get to a point where some kind of arrangement or some kind of proposal is on the table in the U.S., through the Congress or the President, et cetera, is willing to make a deal with you on this. What does Mexico do in exchange for this? In other words, you want this done. What does Mexico do to stop illegal immigration? What do you do on the other side?

PRESIDENT VICENTE FOX: Well, we also have two challenges: One is we want them back. We want all of our pisanos, our beloved pisanos, respected pisanos, back to Mexico, because this is the people with courage, with - with talent that came here that are working and that they have gathered new knowledge and new levels of education -we want them back, and I invite every Mexican here, that they should go back not only for retirement - on the active lives, because each one of them that comes back to Mexico is a detonator of growth in his community. Number two, we have the challenge of those who are back there, those young kids that are in Mexico, and we must make sure - and I know this is our obligation from government and from us Mexicans to raise up opportunities for them; those kids we are working for them. Number one, we created a scholarship system where we guarantee to every single kid or young person in Mexico a scholarship to go as far as university. Each one of them that takes that scholarship is a kid that is not going to be migrating to the United States; they want to stay at home; they want to stay with their family. Number two we must build job opportunities, and we must make sure that credit is successful for them so that they can start their own business, so they can become entrepreneurs, and there we have very aggressive programs where we again need to work together with the United States, and we are doing this in our discussions, to make sure that we bring down the opportunities -- like it is the case of this Pueblo-Panama program that goes from Pueblo State in Mexico down all the way to Panama, where most migrants come from. We are launching an aggressive development program there to bring those opportunities down so that we avoid more migration coming into the states.

JIM LEHRER: But until that happens, there is still going to be migration. How do you avoid - let's say that you do work out some kind of legalization - a regularization program, to use your words, for the immigrants who are already here. How do you prevent more from coming and making the problem just grow at the same time you've got all these people who are already here?

PRESIDENT VICENTE FOX: How do you avoid U.S. citizens coming to work in Mexico and thousands of U.S. citizens working in Africa, in Asia, in Europe - I mean it's something that is part of human spirit now. How do we avoid that? The only way we can avoid it - and this is again working together based on trust, associating to make sure that these people, these citizens, get the opportunity in Mexico, and the way to avoid it is if we narrow this gap on development that we have between Mexico and United States, between income of a worker in Mexico and an income of a worker in United States -- why we don't have this problem between the United States and Canada, because you have narrowed down the differences in income and development - so you go back and forth in an open border in Canada. I aspire that we would move Mexico up to that level, that we increase and improve Mexico's income, Mexico's position, Mexico's economy to level off with the United States. Twenty, thirty years from now we should be able to do that, and then we will be equal partners, we will be great neighbors, and we will be great friends.

JIM LEHRER: Meanwhile, will Mexico do everything it can to prevent a continuation of illegal migration into the United States?

PRESIDENT VICENTE FOX: Well, building walls -- that is a suggestion that wouldn't work. It hasn't worked in Berlin; it hasn't worked anywhere, even the wall that - or those fences that have been constructed in part of the border. I mean when you have tenfold, ten times more income just crossing a border, I mean, how can you retain that human spirit for improving, for advancing? We must do it with intelligence, with talent, and, again, I think that the United States and Mexico can do it. And United States and Mexico will benefit. And this is something that is very key and crucial. We are partners. The United States cannot meet the trade challenge that China is putting in front of it. The only way the United States can compete on the world economy is if it will join resources, natural resources, energy resources, human resources, talent resources, economic resources, technical resources. That's is why I appreciate very much the position of President Bush. He knows that by putting together the hemisphere on this trade agreement we are going to be winners; we are going to be a team. We are going to be able to compete with Asia, but China and Japan are imposing, with Europe that is adding more and more countries to its European community. It's a must that we join together in America to be competitive and to be successful.

JIM LEHRER: You said in your speech to Congress yesterday and you've said it several times since you've been here on this state visit that you want Americans to trust Mexico; you want a new spirit of trust; simple trust. Define what you mean.

PRESIDENT VICENTE FOX: And I mean also that we Mexicans want to trust U.S. because in the past we have had many misunderstandings, so it's a mutual trust that we need. What I mean that any human relation, any personal relation, any country-to-country relation, any business relation, must be based on trust, and trust only comes from knowing each other, speaking the truth to each other, saying the things that they are-- but also with acting with facts, because we can talk a lot about trust, but if we don't show on real practice that trust will not work. And now we are showing that. In the case of organized crime, we have advanced more than decades and we have advanced more because now we trust, we decided to trust each other, both administrations. And we are doing simple things as exchanging intelligence information. We didn't do it in the past; the United States would not give information to Mexico because they thought in an untrusting manner that Mexico would use that information to let the criminals run away. Today it's been different. We have extradited more criminals than in the last six years in just six months of governing because trust has been the cornerstone of our relationship, and that's the foundation where we are going to build up answers to all the challenges that we have ahead.

JIM LEHRER: Speaking of challenges, when you were a candidate for president you were a guest on our program and you said just running for president, trying to unseat the P-R-I, the PRI that had been in power for 70 years, was comparable to landing a man on the Moon. Now -- you've been president for a few months now. What's the challenge of being president compared with what you thought it was going to be?

PRESIDENT VICENTE FOX: Well, being on the Moon is difficult. I have to put my boots on the ground because, yes, there is big, big challenges and by the way I recalled President Kennedy again yesterday at Congress - he's a person that I admire, no doubt -- but yes, we have challenges in all fronts. My Number one challenge in Mexico is to get cohesiveness, be able to converge with opposition because we are a government that doesn't have majority in Congress, so I need badly to come to political agreements where we can work together, the five parties that represent Mexican people in Congress. That challenge we're approaching to solve; I think that we're 70, 75 percent of the route already done, but it's still - I have an extra mile to walk in that scheme.

JIM LEHRER: The economy - you said in Canada that you hope to have Mexico growing at a 7 percent annual rate, and it's about a 1 percent now. What happened?

PRESIDENT VICENTE FOX: What happened? The motor stopped but not our motor - the motor here. Back in November even the United States thought you were going to grow at 3 1/2 percent for the year and now we're down to 1 percent or less than 1 -- exactly that's what happened to us and what happened to everybody else in the world. You know, it's funny that in each country, in each country opposition parties in media create the complaint that who is failing is that government - when you get out of the woods and you see what's happening on the whole panorama, you see immediately that unfortunately the whole world is going through this de-acceleration of growth; it is temporary; it has to be temporary - because we have so many structures. You know like I heard from Bill Gates that I spoke with him a month ago and we spent a couple of hours discussing about the future, the next ten years; he is optimistic and he says talent will come, leaders will show to put the motor back again to detonate a new era of growth worldwide

JIM LEHRER: Was it a surprise or a disappointment to you to discover how much -Mexico was dependent on the U.S. economy - that you couldn't do as much as you wanted to do as president?

PRESIDENT VICENTE FOX: Well, not a surprise, because we're looking for that convergence with U.S. economy. Now we are getting close to the same interest rates, the same inflation rates, the same discipline on the economy, so we want to do that conversion, and yet, that will make us dependent as we are dependent with NAFTA, so we, yes, we are ready to leave the destiny or the - the luck of United States growth - but also more and more Mexico's a factor that will help the U.S. economy to grow, so that it's not only that we want to link ourselves with a machine that is moving this, but we want to be also a machine, pushing modestly; we cannot do so much, but modestly. We think that we can strengthen, give more power to the U.S. economy - by our labor contribution, by our energy policy that we can develop together, by the talent that we can put in; we also have our own ideas -- and so that together in a teamwork we can come back to growth. And I am absolutely convinced that the 21st century is the century of Latin America. We lagged behind in the 20th century. We were not lucky. We did not accomplish what our citizens wanted, but this is our time; this is our century, and if we can do it together with the United States and Canada, nobody will defeat us. We will be the winners of the 21st century.

JIM LEHRER: Mr. President, thank you very much.

FOCUS - POLITICAL WRAP

JIM LEHRER: Still to come on the NewsHour tonight, Gigot and Oliphant, and Kaiser of the Kennedy Center. Terence Smith runs the political discussion.

TERENCE SMITH: Tonight that discussion is with Paul Gigot and Tom Oliphant. That's Wall street journal columnist Paul Gigot and the Boston Globe's Tom Oliphant. Mark Shields is off tonight.

Paul, this extraordinary visit this week and this interview that we've just listened to from President Fox and President Bush, it was a bit of a love fest and they've reached at least an agreement in principle on immigration. What's the political consequence of this?

PAUL GIGOT: The political consequence is I think that they made enormous progress on what could be an historic migration or immigration deal. No question about that. It looked like it was stalled for a while there because of opposition from the Republican Party, opposition in Congress, the White House. There had been a trial balloon floated a couple months ago. Since they backed down a bit, but this week President Bush came out at a joint press appearance and committed to giving some legal status to Mexicans here. And Fox's presentation to the Congress, I think, if you talk to people afterwards on the Hill, made a lot of progress because he's an enormously credible witness, as you can see, for Mexican cooperation. So I think this has reenergized the ability for a significant immigration bill.

TERENCE SMITH: But the opposition is still there, Tom?

TOM OLIPHANT: Is it ever! I agree completely with what Paul just said but I do think there is a need for a "however," and that involves the timing, scope and nature for any proposal that President Bush would be willing to make. I don't think there's any question that President Fox tapped into -- in ways President Bush hasn't -- the changed American political climate with regard to immigration. These numbers are so huge now; they were what, 800,000 thirty years ago in the case of Mexico? Ten times that today. Everybody knows somebody. We have American businesses that depend on this, this work force. President Bush is confronting Republican opposition in Congress, much as President Clinton confronted Democratic opposition to NAFTA itself. It's still not clear to me that he's willing to take it on.

PAUL GIGOT: Oh, I don't know.

TERENCESMITH: Do you think he can deliver the Republicans on a regularization, to use President Fox's words?

PAUL GIGOT: I do. I mean think about this. Six years ago the consensus in the Republican Party was Prop 187 in California, which was essentially we don't want a lot of immigration. Now I think President Bush almost on his own has changed the Republican Party. There have been other voices, no question about it. But his campaign, he went around the country and I remember seeing him, South Carolina, all over the country to get a question, a tough question in the primaries in immigration. He would say, look, family values don't stop at the Rio Grande. If the wages are different, if people want to help their families, they're going to come. And unless we build a wall, which would dishonor -- over that 2,000-mile border -- which would dishonor our traditions and wouldn't be workable probably anyway, they're going to come. Let's do something to make it work, to... And what's happened is, as Tom pointed out, business is supportive because they need the jobs. Labor has come around because they now see an opportunity to organize these people.

TERENCE SMITH: And politically, the Hispanic vote, how important for President Bush?

TOM OLIPHANT: Well, expectations have been raised. And I would just add that President Fox, I think, plugged into this community inside America in a way that American politicians haven't in recent months. I just still would cite that President Bush himself, for all he said particularly yesterday, did continue to dwell on the obstacles he sees in Congress.

TERENCE SMITH: Okay. The other big story, of course, the unemployment numbers. Those numbers are up. The market is down. The economy is in a slump, Paul. Is this starting to look like political trouble?

PAUL GIGOT: Yes, it is. I mean, this is the number-one worry on the minds of Republicans going into the elections of next year. And well it should be. Unemployment is typically been a lagging indicator -- or up to 4.9% now but it tends to trail GDP, so even if you get a recovery early next year, you could have unemployment rising into the upper 5s or worse, you know, come dangerously close to re-election time. That's why you see the Republican members of the Hill going to the President with just a touch or a hint of panic saying, look, we need to talk about this. We need to show our concern. So you had the President walk out with the two Republican leaders and say, basically....

TERENCE SMITH: This afternoon.

PAUL GIGOT: This afternoon and say growth, growth, growth, that's the concern. The problem for both parties has been they're locked into this accounting mentality with the Social Security Trust Fund. Nobody wants to touch that money even though the Democrats, by their historic policy lights would like to spend it to grow and Republicans would like to cut taxes to grow. But instead they're saying, oh, no, we can't touch Social Security. So we have this impasse. And Pete Domenici this week, Republican from New Mexico, finally said, broke the code on it - and said let's break out of this and deal with the economy but so far he's the only one who's talking about it.

TERENCE SMITH: Right. Tom, late today there was even talk, anonymously sourced, out of the White House about an across-the-board cut in spending.

TOM OLIPHANT: Yes. I'm sure it caused Paul to have something of a heart flutter - that the Republicans now would be talking about putting on the green eyeshade accounting Herbert Hoover or whatever that we were supposed to be wearing earlier this week. Paul is absolutely right on the economics of unemployment as a lagging indicator. But I think politically that it's a co-incident indicator because of what hits people in the guts. The Dow Jones Industrial Average doesn't matter much on a daily basis to working families. But you hear about lay-offs, you see unemployment go up, and the danger is that it not only affects your political mood; it affects your propensity to consume. And retail sales, of course, are so important to this economy. I also think it's what we didn't see today that's very important. Mitch Daniels, the Budget Director, has told Republicans on the Hill that this moment of dipping into that Social Security surplus is coming very soon, probably after the end of this month. That triggered a daylong series of meetings at the White House. Some of us were even warned this afternoon to be on the alert for an announcement.

TERENCE SMITH: But it didn't quite gel.

TOM OLIPHANT: But it didn't quite gel. So what the President is still saying is that the proposals and programs I have in place now are going to do the trick. That stands at variance with the views-- not just of Democrats-- but I think even some people in his own administration who think a real growth proposal is necessary and the question is whether it is Republican only, tax cuts, spending cuts, or whether there's an attempt in about a month to get together about the Democrats.

TERENCE SMITH: How do you do that in the face of a disappearing surplus?

PAUL GIGOT: Well, you do it by saying... First of all, there is a surplus. It's just the Social Security surplus. You do it the way Ronald Reagan did it. He didn't worry about surplus. For 30 years Congress didn't worry about it either, to spend it or to cut taxes. I mean this is a construct of President Clinton's in the surplus era understanding that Social Security could be a useful political club to prevent tax cuts and then Republicans turned around and used it to prevent spending. So they've got themselves in this self-made trap that prevents a real fiscal policy from emerging.

TERENCE SMITH: Another Republican Senator told us this week that he's not going to run again, Phil Gramm of Texas, the man whose name has been associated with taxes for a long time. What's the political significance of that, Tom?

TOM OLIPHANT: Well, not only with taxes, you know, Terry, but with spending cuts. This is one half of Gramm-Rudman's one and two and whatever. This is a figure who is truly himself book ends on the political and economic history of the country for the last 20 years. After Jesse Helms -- Strom Thurmond, of course, is a unique situation, there may be one or two others. It does strike me that I think we're in one of these cyclical situations where it's... There's a changing of the leadership generations on the Hill for Republicans in particular and conservatives in general. And it will be interesting to see who the new faces will be.

TERENCE SMITH: Paul.

PAUL GIGOT: It really is a passing of the generations. Phil Gramm is arguably the most important economic conservative over the last 30 years in political life other than Ronald Reagan and maybe Jack Kemp -- significant legislator, hard to find a more significant career. Passed the Reagan tax cuts, helped pass the Reagan tax cuts as a Democrat and then changed parties. The arc of his career in many ways has paralleled the arc of the ascendance of free market economics not just in the Republican Party but Bill Clinton came around.

TERENCE SMITH: Paul, Tom, thank you both very much.

FINALLY - BACKSTAGE PERFORMER

JIM LEHRER: Finally tonight, the backstage business of the arts. This weekend marks the 30th anniversary of a national cultural experiment. Senior producer Jeffrey Brown looks at that institution, and the man who runs it.

JEFFREY BROWN: At Washington's Kennedy Center for the performing arts this summer, the stagehands unloaded the latest production.

SPOKESMAN: Okay. Got the line out.

JEFFREY BROWN: Once inside, the floor was put down...

SPOKESMAN: Stage right.

JEFFREY BROWN:...Lighting set, scenery moved into place. A last minute mopping up... (Horn playing) ...Some final notes on the horn. Add an audience, and on with the show.

SINGERS: Another op'nin' another show in Philly, Boston or Baltimo'...

JEFFREY BROWN: The famous opening number from the 1948 Cole Porter classic, "Kiss Me Kate," a fine theme song for the Kennedy Center, the nation's busiest arts palace, where the show goes on more than 3,200 times every year. Splashy musicals...

ACTOR: What are you?

ACTRESS: I don't know.

ACTOR: Do you believe in God?

ACTRESS: I don't know.

JEFFREY BROWN:...And dark drama; jazz, pop, and the national symphony orchestra under Leonard Slatkin. (Orchestra playing) Eclectic spectacles of all kinds, including a free performance every day at 6:00 P.M. Modern dance, ballet and grand opera from Placido Domingo's Washington opera. (Singing opera)

MICHAEL KAISER: Hey.

WOMAN: Hey, Michael. How are you doing?

JEFFREY BROWN: Behind it all, a performer of a different kind, operating in slightly less dramatic scenes.

MICHAEL KAISER: Where are we?

WOMAN: Well, I'll give you a little update.

JEFFREY BROWN: Reporter: 47-year-old Michael Kaiser is the new president of the Kennedy Center. His mission: Make the center an artistic leader in the nation and beyond. As a youth, he dreamed of a career on stage. Later, putting that aside, he earned an MBA from MIT. In an era when cities all over the country are sprouting arts centers, Kaiser is part business school professor, part high culture P.T. Barnum, spinning a simple formula for success. We talked in the Kennedy Center's terrace theater.

JEFFREY BROWN: You have a mantra, which seems to come up all the time, which I get down to, "great art, well marketed."

MICHAEL KAISER: Absolutely, that's my mantra, and it's exactly right. You start with what are you trying to put on the stage? What is your mission? What is the programming we're going to do? How do we make that spectacular? And then how do we let people know about it, both people who will buy tickets, but also people who might contribute funds to allow us to forward that great art. If you do those two things well, any arts organization will be successful.

MICHAEL KAISER: (in meeting) Do you think this reverse dot type is going to show? I've always found that reverse dot small type you can't read.

JEFFREY BROWN: A day in Kaiser's life involves everything from checking the type size for the latest ad campaign to schmoozing with "Kiss Me Kate" star, Rex Smith.

MICHAEL KAISER: How are you? You're all set for this?

REX SMITH: Huh?

MICHAEL KAISER: You're all set for this?

REX SMITH: I'm very excited about it. You know, there's one thing. I think one of the light bulbs is a little dim on my makeup mirror. I didn't know if you were the guy to come to.

MICHAEL KAISER: I'm it. I'm it. I'll fix it.

REX SMITH: Okay, thank you.

MICHAEL KAISER: And always keeping track of ticket sales. All part of managing more than 1,100 employees, seven stages, and a unique institution. First created by Congress and President Eisenhower in 1958 as a national cultural center, it was given a big push by John Kennedy.

PRESIDENT JOHN KENNEDY: I am certain that after the dusk of centuries has passed over our cities, we too will be remembered not for victories or defeats in battle or in politics, but for our contribution to the human spirit.

JEFFREY BROWN: The center was later named for the slain president as a living memorial, and after many delays, opened in 1971. Kaiser is its sixth chief executive.

MICHAEL KAISER: I don't feel like my job is any less creative than those who grew up performing on the stage.

JEFFREY BROWN: Indeed, Kaiser has often needed to be creative.

MICHAEL KAISER: Are the costumes there, or are they here?

WOMAN: No, they're delivering them on Monday.

JEFFREY BROWN: He made his name as a kind of emergency room doctor, bringing fiscal health to debt- ridden institutions; among them, the Kansas City Ballet, the Alvin Ailey Dance Theater, the American Ballet Theater, and most recently, London's Royal Opera House, Britain's largest performing arts organization. His successes have won him the title, "Turnaround King."

MICHAEL KAISER: What happens in troubled arts organizations, not surprisingly, is they stop thinking about the art because they're so busy cutting back, and they stop thinking about the marketing because it's so easy to cut back on marketing expenditures if you don't have enough money. And they get in a very vicious spiral where less art and less marketing creates less money, creates less art and less marketing, creates less money, and you get into that very, very bad situation.

JEFFREY BROWN: I remember reading at the American Ballet Theater how you described unscrewing every second light bulb.

MICHAEL KAISER: We did, and we had no Xerox paper, and we had no point shoes by the end, as I arrived.

JEFFREY BROWN: No point shoes, and this is one of the premier dance theaters.

MICHAEL KAISER: Absolutely. Absolutely. So it is extraordinarily scary. You don't have the money to make your payroll. You know, the Xerox paper is inexpensive, your payroll isn't.

JEFFREY BROWN: The dancers actually feared their paychecks?

MICHAEL KAISER: Absolutely. Oh, there's no question. At the Alvin Ailey Company as well, there had been a few weeks where the dancers hadn't been paid before I arrived, and...

JEFFREY BROWN: So what do you say to them?

MICHAEL KAISER: You say, "Trust me," which is difficult if they don't know you. "Trust me, I'm going to work my butt off to get you the resources you need." And then you go out and you do it.

JEFFREY BROWN: The Kennedy Center, fiscally healthy compared to his other posts, presents a different challenge, and Kaiser has ambitious plans.

MICHAEL KAISER: Tell me where were the origins of their acceptances.

JEFFREY BROWN: He's raised funds to start an arts management-training center, a kind of on- the-job MBA for future managers. On the artistic side...

MICHAEL KAISER: Hello, maestro.

JEFFREY BROWN: ...Kaiser wants to reestablish the Kennedy Center as a producer, rather than just a presenter, of theater and other works. To that end, he's staging a six- musical Steven Sondheim Festival next spring. And then there's his goal to expand the physical plant.

MICHAEL KAISER: The thought would be to build, if you will, a campus for the performing arts, which will have rehearsal space, office space, the Kennedy Center performance space, and a museum that you could easily get to from downtown.

JEFFREY BROWN: Surrounded on one side by the Potomac River and on the otherby a web of highways, the Kennedy Center is literally an isolated island of culture. If federal funding comes through-- a big if-- the plan is to create a pedestrian-friendly zone, with the highways and parking underneath. Kaiser must do all this while keeping ticket prices affordable. It can cost a family of four as much as $300 to see a ballet or a play or attend the symphony at the Kennedy Center, much more for the opera. Kaiser says there's a central economic fact that separates the performing arts from other industries.

MICHAEL KAISER: It's the same number of people who perform "Kiss Me Kate" today as performed "Kiss Me Kate" when it was written 50 years ago. It's the same number of people who perform "Don Giovanni" as when Mozart wrote it over 200 years ago. We have the same number of seats in our theaters as we had when we built the Kennedy Center 30 years ago. You can't improve productivity, and yet costs go up. So how do you pay for that? And what we're constantly striving to do is balance the ability of the audience to pay and the need for us to pay our bills.

JEFFREY BROWN: Congress provides some money, but most of the difference between what the audience can pay and the center's expenses comes from private sources: wealthy individuals and corporations. Kaiser says he must raise $48 million next year.

JEFFREY BROWN: For all of the vision, the performances, the art, running through everything is money.

MICHAEL KAISER: Absolutely. You have to pay for it.

JEFFREY BROWN: Money, money, money, money. It's like the song from "cabaret": "Money makes the world go 'round."

MICHAEL KAISER: It certainly makes the arts world go 'round. All of the time in the back of your mind is, "how am I going to pay for all of this?" What you try and do is to maintain a balance so that when you meet people, you're not just thinking about how much money they can give you, but you're also appreciating them as people, and there's sometimes a challenge there.

JEFFREY BROWN: You see a wealthy individual and you go to meet them with one thing in mind.

MICHAEL KAISER: Usually. It's to try and see if they'll buy into the vision that I have for the Kennedy Center and if they're going to be supportive of that vision.

JEFFREY BROWN: You want them to buy into the vision...

MICHAEL KAISER: Yeah.

JEFFREY BROWN: ...But you want them to write you a check.

MICHAEL KAISER: You do, but it's a quid pro quo. The joy of fund-raising... And I love fund-raising, believe it or not. The joy of it...

JEFFREY BROWN: You love fund- raising?

MICHAEL KAISER: I do. I'm that weird animal that just loves to raise money. Because it's not money for me, it doesn't go into my pocket. It's money to support projects that I think are important. And the fun part of that is that the donor is getting an experience as well. It's not begging.

JEFFREY BROWN: We're in a city in which there's a lot of worry and conversation about the role of money in politics, and the potential corrupting role.

MICHAEL KAISER: Right.

JEFFREY BROWN: Is there the potential for corruption of the arts through such an emphasis on money, big money?

MICHAEL KAISER: There is, if you aren't very, very clear with all of your donors from the start, that those who give money to the arts of any size do not control the artistic product. The corruption comes in when you start to let people affect the artistic product because they're giving you money to pay for it. That must not happen.

SINGERS: It's another opening of another show the overture is about to start another show!

JEFFREY BROWN:And it is, in the end, the artistic product on Kaiser will be judged. His goal: Expand the center's reach and impact.

MICHAEL KAISER: This is America's national performing arts center, and it is for everybody.

JEFFREY BROWN: And how will you judge success?

MICHAEL KAISER: I'll judge success when I look at the work on the stage, and if I think it's excellent.

JEFFREY BROWN: This weekend, Kaiser oversees the Kennedy Center's 30th anniversary celebration.

RECAP

JIM LEHRER: Again the major stories of this Friday, the Labor Department reported unemployment was 4.9% in August, the highest in four years. Stocks fell on that news. And on the NewsHour tonight, the president of Mexico warned that law enforcement alone will not stop illegal immigration. We'll see you online and again here Monday evening. Have a nice weekend. I'm Jim Lehrer. Thank you and good night.